Value-Based Care: Is It Possible for All Providers to Succeed?

Keynote speaker Craig D. Pederson, principal at Insight Health Care Partners, LLC, took the stage at the National Association of Managed Care Physicians (NAMCP) Spring Managed Care Forum 2023 to discuss the evolving landscape of value-based care and challenges to implementation from the provider perspective.

First, he took time to provide context around the current state of value-based care, as well as the terms origins and varying definitions. At its roots, the intention of value-based care is to restructure health care in a way that increases value for patients—value being defined in various ways.

“You hear boards talk about this at board meetings at health systems. It's in every article. It's a triple aim, or quadruple aim, quintuple aim… pretty soon we’ll have the novenaim,” Pederson joked. “But what exactly is it, and is 9 better than 3? What’s the benefit and the cost of value-based care versus the fee-for-service structures we were in, versus global capitation… and finally, the key question, can we succeed?”

The Triple Aim, a term first coined in the mid-2000s, refers to the goals of better care quality, improved patient experiences, and lower costs. The term “value-based care” was introduced in a 2006 book by Michael Porter and Elizabeth Olmsted Teisberg titled Redefining Health Care: Creating Value-Based Competition on Results published by the Harvard Business School Press, Pederson noted.

In the years since, there have been many iterations of value-based programs sponsored by both government insurers and private companies. Still, the definition of the term varies. Pederson provided a few published definitions, showing that each was different.

One way to look at value-based care is the idea of restructuring health care systems with a main goal of value for patients—with value defined as health outcomes per unit of cost. Another definition asserted that in value-based care agreements, providers are “paid based on patient health outcomes.”

Among other challenges, a main issue that arises in value-based care surrounds attribution, meaning a patient is attributed to a provider and that provider is reimbursed based on the contract. But what is attribution? If a patient sees 2 primary care providers within a year, which provider is paid for their care?

“Here's the problem: Attribution is determined after the fact. So if I’m a physician in the health system treating a patient, is that or isn’t that my patient? Don't know. So, I have to boil the ocean. I have to build my infrastructure,” Pederson said.

Additionally, there’s the matter that fee-for-service (FFS) schedules are here to stay, Pederson said.

“Even within a global capitation environment, there's fee schedules underneath that,” he said. “So you're always going to have to be having providers be productive. And some of your providers will continue to stay pure fee-for-service—maybe the orthopedic surgeons and cardiologists, oncology. It's an underlying reimbursement system and within global capitation models.

Pederson reiterated the issues with attribution, noting that it may look good to payers but poses challenges for providers. He noted that assignment—having a person select a primary care provider based on availability—is more clear-cut for contractual purposes than calculating attribution after the fact. The timing of assignment is also immediate, vs the lag that come with attribution after care is delivered.

About 20 years ago, assigning did not work out well for many primary care providers due to issues related to risk adjustment, Pederson said.

“The problem with assignment 20 years ago, is we did not have appropriate risk assessment. So the family practice physicians would look much better than the internist,” he explained. “And you would actually have a health plan leadership, if you weren't performing well as the primary group, telling you, ‘Well, get more family practitioners. You're just getting a younger patient population—this model isn't fair to the internist.”

Nowadays, appropriate risk adjustment can be done, and that is how systems such as accountable care organizations (ACOs) can work, he said.

Another challenge is the potential for improvements in quality but without improvements in total cost of care. In the long term, a model that does not perform from a financial perspective will leave the bills unpaid.

He cited a case study of a regional health system including 2 hospitals with 800 beds and more than 450 providers that invested in an ACO that participates in downside risk of the Medicare Shared Savings Program (MSSP). Before, during, and after COVID-19, operating losses in the system were vast.

The system hired Insight Health Care Partners as an interim chief financial officer, and the strategic plan maximizing revenue by shifting services and physician specialties to provider-based and shifting more than 50 cardiovascular providers to provider-based. While there was a loss of about $1 Million in value-based care bonuses, there was $3 million of incremental revenue.

“The strategies that increase revenue and improve bottom line will eat validates will eat value-based care’s lunch 100% of the time,” Pederson said. “I've never seen it go the other way.”

He provided 2 additional case studies, concluding that the return on investment (ROI) equation for value-based care is missing some components. These include provider time investment, including lost productivity and FFS revenue; non-provider time investment such as nursing, leadership, or care coordination; investments made in structural changes such as consulting, administrative time, contracts and/or provider compensation plans; and more.

“Hospital centric health systems are not effective leaders of value-based care plans. They’re cost centers—the walk doesn’t match the talk,” Pederson said. “It does if they have a 10% margin or better, but the second it gets skinny, or they're in the red—which again, you read the headlines a lot are in the red—they will do whatever possible to turn that around, including increase everything against the Triple Aim.”

For those considering value-based contracts, he urges avoidance of large downside risk adoption or investments. Another possible solution is being more vocal about the issues associated with a failing model to increase pressure on key decision makers, Pederson said.

“Stop pretending. Maybe they should be increasing total cost of care. Just do it, and be honest about it and why you have do it. Put the pressure on the policy makers or the payers,” he urged. “We need to talk about this model and we need to get it right.”

Despite the challenges, there are some providers who are more likely to win in value-based care, Pederson said. He lists private equity firms, for-profits, and physician groups—calling large physician groups “the tip of the spear” in this regard.

For traditional non-profit health systems, though, succeeding will be difficult unless they also include health plans, he said. And competing against new and evolving for-profit, venture-capital–backed systems in the managed care environment will almost certainly be a losing battle, he added.

Overall, Pederson’s takeaway is that providers should approach value-based care with caution. While the theoretical aim of such systems is to deliver patient-centered care and improve outcomes, the significant challenges associated with succeeding under value-based care from a financial perspective are important to consider before diving in.