I don’t believe that value-based care is working.
Not as envisioned. Not in a way that meaningfully impacts how most healthcare services are actually delivered and reimbursed. Not to an extent or at a scale that gives healthcare leaders the conviction they need to fully commit their organizations to a transformation strategy.
That feels almost taboo to say out loud — and yet, I have a strong hunch that it’s a widespread belief. You’re supposed to cheer for value-based care. (I do.) You’re supposed to see it as the answer to many if not most of fee-for-service medicine’s problems around costs, quality, experience, and efficiency. (I couldn’t agree more.) But lately, when I hear leaders of health plans and health systems talk about their enthusiastic support for the future of value-based care, it’s starting to sound like virtue signaling — something we say in public automatically because it would be jarring not to. Meanwhile, their organizations continue to operate in a business-as-usual fashion.
Some will argue with me. Value-based care is on the march. CMS continues to strengthen requirements and launch new-and-improved programs. Many of the most successful healthcare companies today are winning precisely because they’re committed to value and making it work.
To counter those arguments, I want to offer some hard truths — not to be contrarian but to advocate for a more realistic and practical path forward. I still believe strongly that value is the correct direction for healthcare. And I also believe that innovative companies are helping to deliver solutions and fill gaps that will make value-based care possible for more participants. I advise one of those companies, Pearl Health, that is moving the needle on value-based care by enabling physicians to participate in specific markets with timely data and intuitive technology.
The healthcare industry’s shift to value won’t happen because of wishful thinking or hopeful platitudes. To continue driving this kind of massive change in strategy, economics, and workflow processes, we still need to overcome some fundamental challenges and barriers.
But first, we have to recognize and face them.
Hard Truth #1: Value isn’t widespread because a lot of healthcare is too complex
Ask the chief marketing officer at a large regional health plan about the extent of their organization’s involvement in value-based care. You’re likely to get an encouraging number. Let’s say that this regional plan has three million members and is responsible for $20 billion in annual medical spend. The CMO proudly claims to have one million lives enrolled in risk-based programs.
Now, ask the CFO of that same health plan how many of those lives and dollars are part of contracts with full upside and downside risk. If they’re honest, they’ll answer “Nearly zero.”
There are many different flavors of value-based agreements. The purest form is full upside and downside risk. This means a provider takes the full financial hit if they don’t meet the terms of the contract and gains the full financial benefit if they do. To offer a simplistic example, if a doctor is allotted $10,000 a year to care for a patient, and they are able to do so for $8,000 (while still meeting specific measures of quality), they pocket that extra $2,000. If it costs them $12,000 to care for that patient, they incur a $2,000 loss. Add that up across a panel of patients, and you’re talking big numbers.
In reality, very few health plan contracts will have such terms. For the regional health plan I invented, its $20 billion book of business includes commercial, Medicare Advantage, Medicaid, and Medicare lives. Only the Medicare portion has any risk-component to its payment model; the others are pure fee-for-service. Let’s be generous and say that the Medicare segment includes 500 thousand lives. But when you dig into the details of the contract, you quickly determine that it’s basically fee-for-service with some bonus payments for performance layered on top. The provider organizations don’t share much financial benefit if they keep costs below the threshold but they also don’t lose any money if they fail to hit those marks. And the doctors delivering that care might barely notice any bump in earnings, so they have little motivation to do things differently. In this case, value-based care is a tantalizing perk, but hardly a driver of transformational change.
There are narrow areas of healthcare where full upside-downside risk is in play. For example, hip and knee replacements. In the Bundled Payments for Care Improvement Initiative (BPCI) and the Comprehensive Care for Joint Replacement (CJR) programs, orthopedists are at full risk. The results have been encouraging though not transformational — costs have gone down a few percentage points and patient outcomes and experience have improved. Even if that’s not world changing, it still shows progress, so why isn’t it happening more widely?
Unlike most care interventions, joint replacements are relatively standardized and straightforward. They have a beginning, middle, and end over a defined period of time, and doctors have a great deal of influence over outcomes and costs. In contrast, cancer or congestive heart failure are a lot more complex. Even when disease states are relatively similar, the range of variables at play — such as lifestyle behaviors, social determinants of health, and comorbidities — can be enormous. Imagine how hard it is to assign each patient an accurate risk score. Now, imagine a physician enthusiastically agreeing to be financially accountable for those outcomes and costs across an entire panel of patients with diverse needs.
When I was Chief Strategy Officer at one of the nation’s largest Blue Cross Blue Shield plans, we burst out of the starting gates very quickly to try and implement value-based care across New Jersey. But over a five-plus year journey with major delivery system partners, we were able to move the true economics of reimbursement across a diverse member base of 3.5 million members precious little.
The path to success is easier to see with smaller and better-defined populations. For value-based care to work at scale, physicians need a lot more support. That includes robust and timely data at their fingertips when they engage with patients, and predictive models that flag patients who need interventions before their conditions become acute. Most providers still don’t have the data- and technology-driven capabilities to deliver value-based care effectively at scale.
Hard Truth #2: If we do reduce the overall cost of care, some providers will win (financially) but others will (and must) lose
Financially speaking, fee-for-service medicine is simple and straightforward – providing more care generates more revenue. Value-based care is based on a much more complicated premise – physicians should be paid more for achieving quality outcomes while reducing the very costs that have generated their revenues historically.
This means that payers (including government) will need to pay less for care even as they work with providers who believe they will earn more. So, how exactly do we thread that needle?
I’m not a healthcare economist, but I basically see three ways.
- Reduce capacity: That means fewer hospital beds, emergency departments, surgery centers, doctors, and so on. I’m not advocating this solution. Hospitals mean a lot to their communities. And while closing facilities that are under-utilized may make sense from an overall operating expense standpoint, I’m not sure we solve our quality problem that way. Utilization optimization and specialization, however, will be a new priority.
- Move interventions upstream: Preventive care and wellness makes people healthier and reduces ED visits, hospitalizations, and/or expensive treatments later — all in line with the idea of value. To make that happen, we’ll need to incentivize preventive/wellness care while devoting more resources to primary care physicians, nurse practitioners, care management teams, social workers, and so on. This will cost money. And we’ll need to give them the technology and systems to operate efficiently and effectively. This will also cost money.
- Reduce the resources devoted to specialist clinicians and services: In other words, the inverse of more prevention is less acute care and other expensive interventions. That likely means fewer heart surgeries, dialysis centers, insulin injections, etc. That will not make some specialists happy, but over time, it will drive more people into primary care and other areas of preventive care and fewer people into specialty care.
The new competition will be for capability not capacity. The winners will be high-performing clinicians who equip themselves to take on risk effectively and deliver appropriate quality care at efficient cost. Some physician groups and hospitals will not have the technological, administrative, or operating capabilities to do that. And they will also lose revenue and market share as a result.
Hard Truth #3: For value to work, payers need to rely on providers, but many providers aren’t equipped with the right data, technology, and systems
This analogy might sound like a reach, but hear me out. In 1960, the U.S. developed plans to send a manned spaceship to the moon. But it wasn’t until 1969 that we had the technical capabilities to do so. With the right systems in place, the barriers of space travel became possible to overcome.
Like going to the moon, value-based care can only be accomplished with the right technology and systems. While it might seem like we’ve been working on that technology for at least a decade, we’re just now putting the right systems into place. Specifically, I’m talking about data, analytics and intuitive, easy-to-use interfaces for end users, be they doctors, patients, administrators or employers.
Ten years ago, we didn’t have the data. With EMRs and digitization, we now have plenty. But it still needs to be aggregated from all relevant streams, cleaned up, normalized, and made actionable. Too much of that data is not particularly intelligent or helpful in making decisions — and it’s limited to the purview of that healthcare organization’s insight into the broader healthcare system. Doctors don’t need results for every diagnostic test or image a patient has ever had or notes from every specialist, just the relevant ones, including those from specialists or hospitals outside the doctor’s own network, which still may not be accessible today.
While we’re on the topic of data, another point needs to be made: doctors don’t want to be highly paid data entry workers, either. Data has to make them smarter and more efficient, not feel overwhelmed and burnt out.
It takes analytics to make data useful. Value-based care requires a complete change in the way doctors approach their panel. They need to spend lots of time with people who are truly sick or in danger of getting worse, and as little time as possible with people who are healthy. Across a large panel, doctors need help knowing which patients are maintaining their health, which are currently at-risk, and which will be at-risk three months or a year from now. Armed with such analytical insights, doctors can direct their energy and attention where it is needed most, confident that they’re not missing something that will cause a patient to need unnecessary acute care later, at significantly higher cost.
Such analytics are only really helpful if the doctor can access the insights easily and quickly, when and where they’re needed. That takes an intuitive user interface.
An intuitive user interface helps care providers process automated notifications that let them know when their attention is required with a particular patient because of a worrisome lab result, a trip to the ER, a missed check-up, and so on. It also allows them to easily check or confirm a patient’s health status, see where they’re at in a referral process, and communicate with others along the care continuum. I can’t stress enough the importance of a good user interface, but think of it this way. Thirty years ago, we had the Internet, but few people outside of academia, advanced tech companies, and some dark basements accessed that data and information because a good interface didn’t exist. Then came Netscape which unlocked the internet for millions of people and launched the browser wars. Just recently, we’ve seen artificial intelligence go mainstream all of a sudden. Why? Because of intuitive user interfaces like ChatGPT.
How intuitive and easy-to-use are most of the apps, programs, and data systems that physicians rely on today? By most accounts, not very. A user-friendly interface must distill the complexity of data and analytics down to the most important insights, and feed that to doctors in a way that speeds up rather than slows down their assessments, decision-making, work processes, and next steps.
Providers have the clinical knowledge and patient relationships that are essential for value-based care, but they also need the right technological capabilities to achieve high levels of clinical performance consistently across a member population. Without that, payors are not going to work with providers as collaborative partners.
Why Isn't Value-Based Care Working?
Conclusion: Meet the Risk Services Organization (RSO)
I could dig into other hard truths, but I think I’ve made my point. Value-based care is not practiced widely today, despite the rhetoric, for very good reasons. The important question, however, is how can we help providers and payers become effective at value-based care and accelerate its adoption? The government can’t mandate our way to success. Even though value is an increasingly important component of government payment programs, many organizations see good reason to slow-walk value in the near term because they can’t build the needed capabilities and processes on their own.
That’s where innovative startups come in.
In the 1990s, a new breed of company emerged to help physician practices manage their businesses more efficiently and maximize revenues. Today, we call them management services organizations (MSOs). They provide administrative and technological platforms to help physician groups achieve efficiencies and “punch above their weight.”
In the post-health plan phase of my career, I’ve become fascinated by another breed of company that enables physician groups to take on risk. Let’s call them risk services organizations (RSOs).
What do so-called RSOs do? First, they equip physician practices with the data and analytics they need to understand patient risk through an interface that enables them to take smart action promptly. Second, they get physician practices paid for the work they do through a shared savings model. This enables physician groups to participate profitably in ACO REACH or other value-based care arrangements without administrative and technological burdens.
And finally, and perhaps most importantly, they give health plans the confidence that physician groups can be good partners. In the end, healthcare still takes place one doctor and one patient at a time. Thousands of such interventions take place every hour across the nation. While physician consolidation has been rampant over the past few years, most practices remain relatively small. There’s no way those practices can develop the kind of sophisticated patient care capabilities needed to handle risk on their own.
That’s where innovative startups like Pearl Health come in with platforms that make value-based care capabilities available at scale. I’m betting on such companies because I believe value-based care is right for U.S. healthcare and I don’t believe our system will evolve fast enough without sophisticated, purpose-built solutions.
- CMS, “CMS Announces Increase in 2023 in Organizations and Beneficiaries Benefiting from Coordinated Care in Accountable Care Relationship,” January 17, 2023.
- CMS, January 17, 2023.