Understanding Value-Based Care: Why It’s So Important

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What if we lived in a world where healthcare providers were incentivized to prioritize the quality of care over the quantity of care?

All of society would benefit: Providers would feel less pressure to take on large caseloads, reducing their risk of burnout and enabling them to form more meaningful relationships with their patients. Patients would reliably receive comprehensive treatment and preventive care, leading to better health outcomes and healthier communities. Healthier communities would lower the rate at which patients seek out services, drastically reducing the overall cost of care to payers.

These are the driving principles behind value-based case, a healthcare delivery model that has rapidly gained traction over the past decade. In this article, we’ll talk at length about what value is, how it works, and why payers and providers should consider a shift to value-based care.

What Is Value-Based Care?

Value-based care is a healthcare delivery model that rewards healthcare providers with incentives based on the quality of services rendered. The quality of services rendered is determined by patient outcomes, which are based on metrics such as rate of readmission, timeliness of care, and patient satisfaction.

Although delivering high-quality, comprehensive, and compassionate care has always been healthcare providers’ primary motivation, financial incentives under the traditional fee-for-service delivery model are not aligned with this guiding principle. The value-based healthcare model aims to rectify that by prioritizing individual patient care and population health management, which can, in turn, reduce healthcare costs.

Though value-based care has had a slow start, a growing number of public and private payors are beginning to adopt this delivery model. In the U.S., the Centers for Medicare & Medicaid Services (CMS) now offers multiple value-based programs, including the Hospital Value-Based Purchasing Program, the Hospital Readmission Reduction Program, and the Home Health Value-Based Purchasing Program.

Patients and providers are already seeing the benefits of such programs: According to a study from the Medical Group Management Association and Humana, 67% of providers agree that value-based care is better in the level of quality care provided to patients. In the same study, respondents reported that when it came to investing in value-based care, 74% had added staff, while 71% added technology to assist in the shift; that technology primarily consisted of data analytics/reporting (82%) and population health management (57%).

Value-Based Healthcare vs. Fee-for-Service

In the traditional fee-for-service reimbursement model, healthcare providers are compensated for the quantity, rather than quality, of services rendered. As a result, providers are more likely to order more tests and procedures and take on a larger patient load to increase their potential earnings.

This approach not only overextends providers, causing stress — healthcare professionals experience stress levels higher than 25.8% of the population, which contributes to high rates of turnover — and reducing the quality of care. It’s also exorbitantly expensive for patients and their payers.

When physicians are incentivized to simply order a battery of tests and procedures — some of which may not even be strictly necessary — patients are stuck footing the bill, with no guarantee of positive health outcomes. A report from the Institute of Medicine found that waste, which is described as any activity that doesn’t add value to patient care, accounts for 30% of all healthcare expenditures. A research study from the Journal of the American Medical Association (JAMA) found that overtreatment or low-value care yields an annual cost of $75.7 billion to $101.2 billion.

Value-based care represents a radical change in this dynamic, emphasizing quality of care over quantity. Under the value-based care model, physicians are incentivized to prioritize patients’ physical and mental well-being, consider social determinants of health when developing treatment plans, work closely with patients and patients’ chosen communities to encourage treatment plan adherence, and drive positive health outcomes. In short, value-based healthcare opens the door to true patient-centered care

Value-Based Care Models

There are a few different approaches to value-based healthcare; the most common models include:

  • Accountable Care Organizations (ACOs): An ACO is a network of healthcare providers — including hospitals and physicians — who voluntarily come together to deliver high-quality, coordinated care to Medicare beneficiaries. The CMS’s Medicare Shared Savings Program and Advance Payment ACO Model are both examples of ACOs.

    To join an ACO, providers must sign an agreement with Medicare that requires them to assume some level of financial risk. If providers within the ACO consistently deliver high-quality care to their patients, they share in the savings; conversely, if they fail to deliver high-quality care, they share in the losses. Ultimately, ACOs hold providers financially accountable for the quality, cost, and experience of care their patients receive.
  • Bundled Payments: With bundled payments — also known as episode-based payments —all services included in a patient’s episode of care are covered by a single payment. For reference, the New England Journal of Medicine defines an episode of care as:

    “… the entire care continuum for a single condition or medical event, such as joint replacement or labor and delivery, during a fixed period. It includes all acute and post-acute care delivered by hospitals, physicians, skilled nursing facilities, and other providers participating in a care pathway.”

    In the traditional fee-for-service model, patients make payments to each provider they see in the course of treatment. These individual payments contribute to a lack of coordination across care providers, as well as misaligned incentives. With bundled payments, patients make a single payment and providers are collectively reimbursed; the cost of that single payment is based on historical prices.

    Much like the ACO value-based care model, bundled payments require providers to assume a certain level of risk, in this case by collectively covering costs that go above the target price for an episode of care. On the other hand, if providers are able to keep costs below the target price without compromising the quality of care, they get to share in the savings.
  • Patient-centered Medical Homes (PCMHs): This value-based care model coordinates all patient care through their primary care physician (PCP), creating a sort of “home base” for patients — hence the name patient-centered medical home. In this model, a patient’s PCP is responsible for advocating for them and arranging appropriate care with other qualified providers and community resources on their behalf.

    According to the Joint Principles of the Patient-Centered Medical Home, the hallmarks of a qualified medical home are as follows:
    • Evidence-based medicine and clinical decision-support tools guide decision making
    • Physicians in the practice accept accountability for continuous quality improvement through voluntary engagement in performance measurement and improvement
    • Practices advocate for their patients to support the attainment of optimal, patient-centered outcomes that are defined by a care planning process driven by a compassionate, robust partnership between physicians, patients, and the patient’s family
    • Patients actively participate in decision-making, and feedback is sought to ensure patients’ expectations are being met
    • Information technology is utilized appropriately to support optimal patient care, performance measurement, patient education, and enhanced communication
    • Practices go through a voluntary recognition process by an appropriate non-governmental entity to demonstrate that they have the capabilities to provide patient-centered services consistent with the medical home model
    • Patients and families participate in quality improvement activities at the practice level
  • Capitation: With capitation, a network of providers assumes responsibility for the health and well-being of a patient population. According to the American College of Physicians:

    “Capitation is a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of health care services. The actual amount of money paid is determined by the ranges of services that are provided, the number of patients involved, and the period of time during which the services are provided. Capitation rates are developed using local costs and average utilization of services and therefore can vary from one region of the country to another.

    In many plans, a risk pool is established as a percentage of the capitation payment. Money in this risk pool is withheld from the physician until the end of the fiscal year. If the health plan does well financially, the money is paid to the physician; if the health plan does poorly, the money is kept to pay the deficit expenses.”

For real-world examples of value-based care from actual physicians, we recommend reading the Association of American Medical College’s Value Based Care: Examples in Practice series.

Benefits of Value-Based Healthcare

When providers’ top priority is to deliver high-quality, patient-centered care, everybody wins. Some of the leading benefits of value-based care include:

  • Better health outcomes for patients at a lower cost. Patients receive holistic treatment that accounts for social determinants of health and receive support from their care team and their community, leading to more accurate diagnoses, effective treatment plans, and positive health outcomes.

    According to research published in JAMA Network Open, Medicare Advantage (MA) members treated by doctors in advanced value-based care models saw 5.6% fewer hospitalizations and 13.4% fewer emergency department visits compared to those treated in fee-for-service arrangements. And with more time to dedicate to holistic care, the risk of medical errors is substantially reduced.

    Additionally, since the value-based care model emphasizes and incentivizes quality over quantity, providers are less likely to order unnecessary tests and procedures that would otherwise eat at patients’ and payers’ wallets.
  • Integrated care teams. From ACO to PCMH and beyond, all value-based care models are designed to incentivize providers to work as an integrated team, sharing knowledge and expertise and identifying gaps in coverage. This level of interprofessional collaboration not only benefits patients, who receive better quality care, but also providers because it distributes work more evenly, reduces stress levels, and increases job satisfaction.
  • Preventive care. According to research from Humana, MA members affiliated with value-based physicians are more likely to receive preventive screenings and adhere to treatment plans than those in fee-for-service settings. On the whole, preventive screenings are generally between 6% and 19% higher for members within the value-based cohort than those in the non-value-based. By delivering more consistent preventive care, providers can significantly reduce patients’ risk of disease, disability, or death.
  • Better treatment plan adherence amongst patients. Patients who feel seen, heard, and supported by their care team and who fully understand their treatment plan are more likely to comply with that plan and be actively engaged with their care.

    Additionally, the shift to value-based care has prompted many providers to increase their telehealth investment in the interest of improving accessibility, which makes it even easier for patients to attend follow-up appointments and consultations. Again, this all leads to better patient outcomes, which has the long-term benefit of reducing admissions and readmissions.
  • More satisfied patients. By placing the patient — rather than profits — at the center of everything, value-based healthcare has the potential to dramatically increase patient satisfaction. According to one survey from Home Health Care News, 56% of home-based care providers said that the biggest benefit of value-based care was increased patient satisfaction. This satisfaction leads to higher rates of retention: 93% of Humana MA members remained with their value-based primary care physicians in 2020, compared to 91% with non-value-based providers.  
  • Less physician burnout. Value-based care’s emphasis on quality over quantity enables physicians to take on smaller patient loads, which significantly reduces their administrative burden. It also enables physicians to focus on their area of expertise and have more meaningful and fulfilling patient interactions. The end result is lower stress levels, increased job satisfaction, and less risk of physician burnout and turnover.
  • Lower costs for payers. Better patient outcomes, lower rates of admission and readmission, and reduced administrative burden on physicians all translate to cost savings for providers. The value-based care model allows for stronger cost controls, and the healthier the overall patient population, the fewer services patients require, thereby reducing the total costs payers need to cover.
  • A healthier patient population. Society on the whole benefits from value-based care, which eliminates barriers to high-quality, holistic care and empowers patients to lead longer healthier lives.

Obstacles to Value-Based Healthcare

There are clear incentives for payers and providers to embrace value-based care, but to do so successfully, there are a few hurdles they’ll need to clear, including:

  • Disparate systems. Patients may see multiple physicians, specialists, and other healthcare providers throughout their course of treatment. Oftentimes, each of these providers relies on a different system for storing and processing clinical data, electronic health records, provider network data, and so on. A lack of interoperability between these platforms can impede the shift to value-based care, preventing payers and providers from sharing data in a timely fashion, conducting important analyses, and having productive conversations.
  • Outdated workflows. Although most providers now offer web-based patient portals, mobile applications, and other digital solutions, many continue to rely on paper-based systems for care coordination. Setting up data integrations, automating essential processes, and prioritizing use cases can help bring these updated workflows up to speed, making it easier for payers and providers to share information and allowing for more streamlined patient experiences.
  • Lack of internal resources. Value-based healthcare requires a cultural shift amongst payers and providers. On the provider side, that’s sometimes easier said than done, given that physicians and other healthcare professionals are often stretched thin and don’t have the time to devote to value-based care — at least not at the outset. The good news is that automation can drastically reduce providers’ administrative burden, enabling them to dedicate their focus not on producing documentation or filling out paperwork, but on delivering quality care to their patients.
  • Lack of support. One of the biggest obstacles to value-based care is a lack of stakeholder buy-in. The shift to value-based care, while worthwhile, requires the support of many different healthcare leaders and careful coordination across multiple organizations, each with its own varying levels of complexity and unique business processes.
  • Financial risk. Though value-based care models have the potential to be more profitable than fee-for-service models, they also shift the burden of financial risk onto providers, which has made some providers reticent to make the switch. One survey from Numerof & Associates showed that although most providers support alternate payment models, one in five executives cited the threat of financial loss as a barrier to value-based care.   

How to Implement Value-Based Care

An important step to implementing value-based care is to ensure you have the systems and technology in place to support it.

For payors, Microsoft Dataverse and Dynamics 365, and Hitachi Solutions’ Hierarchy Visualizer and Rules Engine make it easy to organize provider network data and move it into a consumable, highly automated platform.

For providers, Dynamics 365, Microsoft Cloud for Healthcare, and Hitachi Solutions’ healthcare industry IP make it possible to develop automated care coordination workflows based on custom triggers and requirements.

To learn more about these solutions, and to take the first step in implementing the systems required to support and enable value-based care, contact the Hitachi Solutions healthcare industry team today.