Value-Based Care Is the Future of Healthcare. Here Is Its Origin Story.

Value-based care (VBC) switches the focus from transactional, fee-for-service (FFS) payment structure to alternative payment models and quality outcomes. As a result, VBC has affected the healthcare industry in myriad ways. This series of articles is concentrated on the various means through which VBC has changed the industry, starting with a brief overview and history of its origin.

Prior to value-based care, healthcare was primarily a unit-based economy in which a doctor or other provider was paid a fee for each particular service rendered. This FFS payment method essentially rewards medical providers for the volume and quantity of care provided, regardless of the patient’s health outcome. The more services rendered, regardless of whether clinically relevant or warranted, the greater the financial reward to the healthcare provider. Hospitals and other facilities were paid in similar fashion, with inpatient per diem rates that incentivized longer length of stay. Consequently, payers incurred significant increases in healthcare costs which drove the need for different reimbursement methodologies.

Introduction of Capitation

In the 1980s, managed care organizations, like HMOs, developed the concept of capitation, which tried to address the challenges facing primary care providers. Providers were paid a set dollar amount per month to treat patients regardless of how many services or the number of times the physician or clinic saw the patient. All payers, especially Centers for Medicare & Medicaid Services (CMS), were trying to curb increasing cost trends fostered by the quantity-over-quality incentive. One of many CMS prospective payment programs, diagnostic related groupings (DRGs) were implemented for inpatient hospital reimbursement under Section 1886(d) of the Social Security Act in 1983. Other prospective payment programs enacted in following years include those for outpatient hospitals, skilled nursing facilities (SNFs), and home health care agencies.

A pioneering value-based model, Patient-Centered Medical Home (PCMH) was first introduced by the American Academy of Pediatrics in 1967. In 2007, it was “relaunched” with the additional support of several primary care accredited organizations. PCMH’s principal focus was to improve quality outcomes, which would in turn lower healthcare costs. This shift also centered on a team approach to care that resonated with the industry. And those crafting the Affordable Care Act (ACA) noticed.

Impact of Affordable Care Act

In the ACA a new division within CMS was created, the Center for Medicare and Medicaid Innovation (CMMI). CMMI was constructed to develop and test new payment methodologies (Alternative Payment Models or APMs) that focused on the goal of the Triple Aim: improve the patient experience of care (including quality and satisfaction), improving the health of populations, and reducing per-capita cost of health care. The formation of CMMI was critical to value-based care. Though some private payers were looking at the PCMH model along with shared savings programs with hospital systems, it was a slow start. Because of the willingness to fail, CMMI led the way with emerging methodologies and innovative payment approaches in search for those that would achieve the goals it had set forth. Accountable Care Organizations (ACOs) were one of the first mechanisms proposed and quickly became adopted by Commercial Payers. As ACOs started to succeed, value-based care programs increased in popularity across the industry. CMMI continued to develop and test alternative programs throughout the United States. Many of these programs are now international, as other countries saw the merits and implemented them as well. Value-based care was not only successful in cost control, it also illustrated an undeniable impact on quality. Even still, many healthcare providers were slow to embrace VBC concepts due to technical difficulties and the decades-long approach of fee-for-service mentality.

As stated in Aver’s COVID-19 Impact on CMS and Value-Based Care post, 2020 proved to be an unusual and intense year for healthcare. Value-based care became a rallying cry as it showed how providers embracing alternative payment models managed the financial volatility better than those utilizing traditional FFS payment. COVID-19 dramatically impacted patient care as shut-downs and fear terrorized the U.S. Elective procedures, preventive care, care for chronic conditions all decreased substantially over several months in 2020. One aspect many pointed to as a shining component of VBC was that members attributed to value-base arrangements were being reached out to by care coordinators during this time period. Additionally, telehealth became a staple to ensure that members received needed healthcare services. The same could not be said for non-VBC members, and it will take time before studies can be completed to measure the overall impact of COVID-19 on the U.S. population.

2020 drove home how value-based care could change incentives, improve quality, ensure appropriate care and still lower costs. In the next article in the series, Aver will discuss the impact of VBC on healthcare reimbursement.