The origins of Value Based Care directly correlate with challenges the traditional Fee for Service medical payment model poses to cost conscious consumers, employers, and government sponsors. For many years, the relationship between patients and their health plans and health care providers have been reduced to transactional (at times, unnecessarily wasteful) interactions.

Value Based Care has been championed by various independent Healthcare Providers, and many agree that it is just a matter of time before Fee for Service is a model of the past.

While the Fee for Service model rewards healthcare providers for the amount of services they provide, unnecessary services (including excessive scheduled visits, procedures, medical tests, etc.) create waste for both patients and health plan providers. The sources of waste and excess costs due to the Fee for Service model further illustrates the need to transition.

Healthcare Waste

According to the Institute of Medicine’s book Best Care at Lower Cost: The Path to Continuously Learning Health Care in America (2013), there are six major contributors to healthcare waste: unnecessary services, inefficient care, excessive prices, excessive administrative costs, fraud and missed prevention opportunities (see figure 1). Each of these six contributors cost the US billions of dollars annually, indicating a need for change to mitigate the economic consequences of this model.

Category Sources of Waste Costs
Unnecessary Services
  • Overuse of services beyond evidence established levels
  • Discretionary use beyond benchmarks
  • Unnecessary choice of higher-cost services
 $210 Billion
Inefficient Care
  • Mistakes and preventable complications
  • Care fragmentation
  • Unnecessary use of higher-cost providers
  • Operational inefficiencies at care delivery sites
 $130 Billion
Missed Prevention Opportunities
  • Primary prevention
  • Secondary prevention
  • Tertiary prevention
 $55 Billion
Excessive Prices
  • Service prices beyond competitive benchmarks
  • Product prices beyond competitive benchmarks
 $105 Billion
Excessive Administration Costs
  • Insurance paperwork costs beyond benchmarks
  • Insurers’ administrative inefficiencies
  • Inefficiencies due to care documentation requirements
 $190 Billion
Fraud
  • All sources: payers, clinicians, patients
 $75 Billion

Figure 1. The sources of waste and annual costs in the US according to the Institute of Medicine (2013).

Value Based Healthcare Legislation

It is clear to see why the state of US healthcare has ignited ongoing political debate. Healthcare reform has become a necessity. Several pieces of healthcare legislation have passed that clearly support the transition into Value Based Care, ensuring that providers deliver proactive preventive care at a lower cost. Here are some of the most significant:

  • In 2009, the technology base for Value Based Care was set firmly in place by the HITECH Act. This act incentivized the use of electronic health records, improving the safety, efficiency, and quality of healthcare.
  • The Affordable Care Act (ACA) of 2010 was also set in place to increase the quality and affordability of healthcare, leading to a dramatic change to the healthcare landscape. This act supported Value Based Healthcare with regard to payment models.
  • Perhaps one of the most significant Acts to accelerate the shift from Fee for Service to Value Based Healthcare was the integration of MACRA, or The Medicare Access and CHIP Reauthorization Act of 2015, which provided additional clarification and direction to physicians and Healthcare Providers regarding rules initially laid out in the ACA. This Act also advanced delivery system reform efforts, combining existing quality reporting programs into one all-encompassing system.
  • By 2019, the Merit-Based Incentive Payment System (MIPS) was created to accelerate the transition to alternative payment models. This system was adapted by private insurance companies, who incentivized quality of care and required physicians to adhere to quality measures.

However, 2020 brought many challenges and some new developments. COVID-19 caused use rates to decline and changes were announced to the rules around Accountable Care Organizations, most notably the end of the NextGen ACO and the creation of the still evolving ACO REACH Program.  And there was an election.

So, what should we expect from Value Based Care over the next few years?

The Future of Value Based Care

First off, health care utilization is expected to rebound and normalize through 2024. This will make it increasingly important to continue to innovate and explore ways to bring value from the system, matching improvements in quality with reducing waste.

Interestingly, quality scores for many health plans suffered in 2022.

On the other hand, during the Covid-19 outbreak, CMS broadened the practice of Telehealth practices, and this change greatly reduced waste in several ways. Can they carry this practice forward? What waste lessons gleaned from the recent past can US healthcare providers implement to reduce waste and provide additional value?

Over the next few months, we will review these topics from multiple perspectives.