In a recent editorial for The Wall Street Journal, Seema Verma argued that the time has come to change Medicare and Medicaid’s reimbursement model. Further, Verma emphasized that a healthcare model which prioritizes price transparency regulations for payers and hospitals leads to a future when patients can shop around for high-value providers.  Further, she argued that competition within the healthcare market will not work without price transparency. We agree!

For twenty years Financial Recovery Group has helped health plans and physician groups create transparency in risk contracting, improve financial performance of service funds and recover millions of dollars in overpayments through online analytical reporting and expert claims audit services.

We believe that Value Based Healthcare models align stakeholder participation toward common goals, leading to better cost management and better healthcare outcomes for patients and health plans alike.

In this article, we will further explore some of the concepts that Seema Verma mentioned in her commentary, including Value Based Healthcare and why there’s a need for price transparency in American healthcare.

What does “Value” Mean in Healthcare?

The meaning of Value in Healthcare depends on whom you’re asking. “Value” from the patient’s perspective seems to include their experience and how much they are charged for healthcare visits. Meanwhile, for payors and plan sponsors, notions of “value” include limiting wasteful expenditure while meeting quality of care delivery metrics that help their members achieve and maintain appropriate levels of wellness.

Both perspectives taken together require that the costs of care be balanced with the patient experience, the quality of care provided and the outcomes of the delivery system.  Achieving this balance has historically been problematic due to mismatched incentives.  As explained in our previous article, the relationship between patients and their providers has been defined for many years by transactional, and potentially wasteful, interactions caused by the traditional and widespread Fee for Service (FFS) healthcare reimbursement model.

Instead, the Value Based Healthcare model changes how providers are reimbursed.  While the FFS reimbursement model rewards the volume of services provided, the Value Based reimbursement model instead rewards providers with how the quality of care they deliver squares with its total cost.

The accrual of value, however, is complicated, so value-based healthcare requires a systemic view.  At the highest level, the funds flow is as follows: members pay premiums to carriers who negotiate prices with providers who in turn serve them (the members) as patients when they need care or to provide preventive care.  In government sponsored arrangements, taxpayers are the superset of individuals only some of whom are eligible to become members at any given time. In commercial health insurance, business owners subsize the cost of care for their employees.  It is these groups who pay for care (taxpayers, government sponsors, business owners and patients) and demand that it be efficient who have negotiated value-based arrangements with providers to align cost with quality and in many ways essentially limit the total cost of care, a concept which providers seen as limiting their total compensation.  And there’s the rub.

What’s Preventing Wider Adoption of Value Based Care?

In the book Understanding Value-Based Care, Cynthia Smith and Steven Weinberger explain that “both systemic and bedside clinical barriers contribute to the difficulty clinicians experience in practicing high-value care. These barriers include misaligned financial incentives, time pressures, lack of knowledge, culture, malpractice litigation fears, and patient expectations.”

Part of the challenge of transitioning from FFS reimbursement models is that hospital executives, as well as clinicians, are compensated based on productivity metrics. To make things more complicated, other stakeholders, like pharmaceutical companies and technology vendors, financially benefit from a reimbursement model that prioritizes quantity of services and turns a blind eye to healthcare waste.

In Verma’s commentary article, she suggests that President Biden and Congress should work together to fix systemic issues, lowering Medicare and Medicaid costs and increasing quality market competition by using “common-sense market-based reforms.” She suggests that these reforms occur by enforcing regulations on Medicare and Medicaid that would prevent them from maintaining fee-for-service models that trade value for volume of services.

Many argue that shifting incentives will be crucial for the realization of Value Based Healthcare in America. Alternative payment models like Pay-for-Performance, bundling options and capitation can further motivate clinicians and healthcare organizations to prioritize high-value care.

Ultimately, all of these models seek to manage the total cost of care through incentivized savings or other efficiencies which translate to lowered medical cost exposure for the member-payor-sponsor, or the provider billing opportunity, depending on where you sit at the table.  So, unless you are a provider positioned to benefit from creating a savings to be rewarded for achieving some quality metrics, it is likely that you will resist value-based care shifts.

What is Price Transparency in Value-Based Care?

Despite recent progress toward wider practice of price transparency in Healthcare, Verma ended her article warning that competition and market forces will not work without transparent prices, suggesting we need to strictly enforce price transparency regulation among Medicare and Medicaid providers to ensure its success.

Price transparency refers to the practice of making the expected cost of visits, procedures, surgeries, and other medical services to available to patients before they commit and while they are considering elective services rather than surprise billing after receiving care.  It’s more complicated when patients are incapacitated and the ambulance takes them to the nearest facility, but the disclosure itself is more important than having the choice per se.

The bottom line is that those responsible for the total cost of care should be able to make informed decisions about the cost of medical decisions so that market forces can drive efficiency and increase competition.  To do this, they need to have a sense of the price upfront.

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FRG believes that value based care depends on price transparency and risk contracts which incentivize managing utilization, unit cost and the total cost of care.  We provide data distribution services for health plans that write risk contracts with primary care providers, and we provided data aggregation services to provider groups who accept risk across multiple carriers.  All of our customers receive our best advice on how to build fair reconciliations and settle compliant incentive arrangements transparently.

If you would like any additional information about this topic or our services, contact FRG by emailing info@frgsystems.com.