Value-based care benefits for providers

Transitioning to value-based care is not a new concept for most health care systems. Over the past 18 months, the pandemic, rising health care costs, disparities in health outcomes, and payer pressures have caused most organizations to reevaluate the pace and scale of their VBC journey. US health care spending has continued to increase at an unsustainable rate, leading to concerns around long-term affordability. Over 25% of health care spending in the US is considered unnecessary or wasteful. More recently, providers in FFS arrangements have been hurt financially due to deferred care from the COVID-19 pandemic. This model is no longer sustainable, and many providers are looking to value-based care for future financial security.

Providers in value-based care arrangements are financially incented to act differently than those in fee-for-service arrangements. In FFS, providers are reimbursed based on the volume of services performed, whereas in VBC, providers typically earn more reimbursement by improving quality, shifting sites of services, and managing utilization and overall total cost of care (TCOC). These conflicting business models create uncertainty for providers on where they should focus and prioritize their efforts. Knowing when the financial tipping point is reached is critical. Providers need to mitigate the time period they have a “foot in both canoes” where actions to improve one business model have greater negative consequences than the positive value of the other business model.

There are two ways to measure the tipping point: attributed lives or patient services revenue in value-based care. For the purposes of this exercise, consider the tipping point in terms of patient services revenue, as it tends to be a more precise indicator. While many attempt to use attributed lives as the measurement, attributed lives have multiple variables, making it an inconsistent comparison (e.g., variation in claim costs across lines of business and the associated impact on provider revenues). For example, a commercial member will have lower utilization and claim costs than a Medicare member, on average. Provider revenue, as a result, is more precise since it accounts for differences in utilization, claims costs, and care patterns across lines of business.

Often when an organization has both FFS and VBC arrangements, it will ideally try to maximize performance in both at the same time.

There is an assumption that an organization’s population health activities will impact its entire book of business, and that it is very difficult to tailor care delivery programs and initiatives that only impact attributed lives. Particularly, from an individual provider standpoint, all patients will be treated the same, regardless of if they are a VBC attributed life or not. Therefore, since population health initiatives may impact the TCOC on all lives, having a “foot in both canoes” (i.e., FFS and VBC) becomes problematic.

When an organization has a larger proportion of business in FFS, it is unable to maximize VBC financial performance because any progress on population health initiatives is also impacting the large percentage of business that is still in FFS. Eventually, an organization will have to choose whether it will operate as an FFS- or VBC-minded company, or the market may dictate that decision for them. At 40% of the organization’s patient services revenue under value-based care contracts, it will still receive FFS payments for some care; however, the organization is more financially incentivized to behave as a population health/value-based care organization than an FFS organization.

Organizations can increase their percentage of revenue in VBC by pulling two levers: (1) increasing attributed lives, and/or (2) increasing in-network utilization. Increasing attributed lives can be accomplished by either entering new VBC contracts with payers and/or growing your attributed life base in existing VBC contracts. There are several operational and contracting strategies to both increase attributed lives and in-system spend in existing contracts. These could include:

• Establishing initiatives around outreach and stratification designed for non-attributed patients to bring those patients to in-network PCPs

• Ensuring primary care footprint can adequately serve the attributed population and appropriate geographic areas for capturing new attributed lives

• Adding new contracts with attributed lives with beneficial attribution methodology

• Working with payer partners to design products that increase attribution