Understanding Value-Based Care Models

Value-Based Care Models Explained

Value-based care models include simple “capitated” payment models, whereby providers receive a predictable amount of money up front to cover the expected cost of a set of healthcare services for an individual patient, and pay-for-performance models, whereby the payer calculates patient health scores based on diagnoses, treatments, and services rendered and provides financial incentives to providers for patients who score above the benchmark. Some care models are also punitive, levying fines or reimbursement reductions when healthcare providers fail to meet benchmarks.

Healthcare providers will need to demonstrate that fewer procedures and tests don’t impair patient outcomes. To do this, they’ll need to shift their focus to preventive care—for example, by offering prevention programs to patients susceptible to heart disease, diabetes, and other chronic diseases. They’ll need to invest in technology that collects, aggregates, and analyzes data so they can provide payers—either government programs or private insurers—with data on the impact of care changes on the patient experience and health outcomes. Hospitals, for instance, can measure care quality by tracking readmissions and preventive screenings and by surveying patients to determine how satisfied they are with their care.

CMS is the laboratory in which different value-based models are coming to life in the United States. Through a mix of voluntary and mandatory programs, CMS is also gathering data to determine the optimal way to reach its goal of enrolling all Medicare beneficiaries and most Medicaid beneficiaries in value-based programs by 2030. CMS has experimented with different value-based models, with a mix of mandatory and voluntary programs aimed at hospitals, clinics, health plans, and other parts of the health system.

CMS has also released the Hierarchical Condition Categories risk-adjustment model, which categorizes patients with either expensive chronic conditions or certain acute conditions, such as pulmonary disease, depression, bipolar disorders, and congestive heart failure. The model calculates the estimated cost of a patient’s care based on the severity of the condition and demographics, then determines payment rates for Medicare Advantage plans.

The Medicare Shared Savings Program is a voluntary program wherein providers form groups called accountable care organizations (ACOs). These Shared Savings Program ACOs take responsibility for a defined group of beneficiaries to improve the care they receive, largely through better service coordination. One example is the ACO Realizing Equity, Access, and Community Health (REACH) model, under which providers are tasked with developing plans to reach underserved communities and are rewarded for providing well-coordinated, high-quality care.

According to the American Hospital Association, about 60% of healthcare payments in the US are tied to value and quality. Although that number is continuing to grow, the complexity of some of the value-based care models and providers’ comfort with the conventional fee-for-service model have slowed adoption rates.

Value-Based Care Models vs. Fee-for-Service Models

Source: Centers for Medicare & Medicaid Services and other sources

Fee-for-service care models create financial incentives for the quantity of care provided, since reimbursements are tied to the types and number of treatments and tests a patient receives, which potentially drive up the cost for payers, facilities, and patients. For example, healthcare providers are incentivized to recommend one more test or a short hospital stay for observation. Value-based care models aim to make care delivery more efficient and less expensive, so providers are compensated for the quality of the care they provide.

For example, a large rural healthcare provider in the US uses AI to identify the most frequent users of health services and connects those people with members of its health guides team to coordinate care.

Goals for Medicare Value-Based Payment Programs

Source: Centers for Medicare & Medicaid Services

The main goal for Medicare value-based payment programs is to help resolve one of the biggest problems with US healthcare—the fact that even though spending is higher than in many other countries, the US isn’t getting the best results. There are four broad types of value-based care payment programs: hospital inpatient care; ambulatory care; health plan programs; and post-acute care.