Value-Based Care: A Brief Introduction

U.S. healthcare is undergoing major payment reform in an effort to combat dramatic rises in healthcare costs, as well as substantial variations in patient care quality. The Centers for Medicare & Medicaid Services (CMS), employers, and commercial health plans all are shifting away from traditional fee-for-service (FFS) reimbursement models that reward the quantity of healthcare services. Instead, they are endorsing value-based care (VBC) models that encourage providers to deliver the best care at the most reasonable cost, thus improving overall care value.

However, this realignment requires substantial changes to healthcare payment structures to incentivize quality health outcomes and value, rather than service volume. The evolutionary stage was set by the 2009 American Recovery and Reinvestment Act, which required providers to adopt certified electronic health record technology (CEHRT). Then, in 2010, these changes further crystallized with passage of the Affordable Care Act (ACA). Among its provisions, the ACA tied hospital Medicare reimbursement to quality outcomes.

A few years later, the Medicare Access and Children’s Health Insurance Program Reauthorization Act of 2015 (MACRA) dramatically accelerated the effort. MACRA repealed the longstanding sustainable growth rate (SGR) formula previously used to determine Medicare physician reimbursement. The SGR was replaced by a “value-based” system that incorporated quality measurement into provider payments.

By law, MACRA requires CMS to establish value-based models that link an ever-increasing portion of physician payments to service-value rather than service-volume. These models, referred to as the Quality Payment Program (QPP), provide two participation tracks for eligible clinicians: the Merit-based Incentive Payment System (MIPS) and Alternative Payment Models (APMs)—both of which involve financial rewards and risks.

In November 2016, CMS published a final rule on MIPS and APMs. It established the criteria for what is now called Advanced APMs, which offer participants opportunities for bonus payments.

In addition to these groundbreaking rules, other acts of Congress and ongoing regulatory activity further support VBC through provisions for site neutrality, price transparency, telehealth, and drug pricing.

Not Your ‘90s Capitation

Skeptics might wonder how the latest iteration of VBC is any different from the capitation efforts of the 1990s. The answer lies in several factors:
  • CEHRT was seldom used by providers in the 1990s. The 2009 law mandating EHR adoption was critical because it gave providers a way to gather the data that is so essential to participation in value-based care models.
  • The ACA opened doors to data sharing and gainsharing, which now makes it possible for providers to access significant amounts of data and share in financial gains.
  • Quality measurement was barely part of the conversation in the 1990s. Now, there are hundreds of quality measures used in VBC programs, including patient-reported outcomes.
  • Lastly, widespread adoption of both CEHRT and highly specific ICD-10 codes has made risk adjustment and pricing far more sophisticated.
The Evolution of VBC Models

As the first VBC reimbursement model introduced, Accountable Care Organizations (ACOs) served as the catalyst for VBC. While Medicare ACOs predominate, many commercial ACOs coordinate care for privately insured members as well.

Other VBC models also tie payment to quality performance instead of total billable services. Currently, more than 40 different APMs include:
  • Bundled Payments for Care Improvement (BPCI).
  • Comprehensive Primary Care Plus (CPC+).
  • Oncology Care Model (OCM).
These are bundled payment models, which CMS has experimented with for years. In a bundled payment model, providers are paid to manage all aspects of care during an episode of care that typically is 90 days in length and tied to specific clinical conditions.

CMS initially launched BPCI in 2013. Then, in 2018, CMS rolled out BPCI Advanced (BPCI-A). This voluntary model covers 35 clinical episodes and continues through the end of 2023. About 1,500 providers currently participate in BPCI-A, which is popular with providers because it includes incentives for improved care quality, opportunities to earn significantly more revenue than under fee-for-service models, and more autonomy over patient care and business decisions.

BPCI-A bundle-based target pricing includes all costs incurred by a patient during an episode of care. For example, a target price of $25,000 might cover all Medicare costs for 90 days. If the total cost of the entire episode is lower than the target price of the episode, the provider retains the difference. Providers find out how they performed over the episode during reconciliation. Those not meeting the target price must pay CMS back. Those who deliver cost-effective care that yields good outcomes can receive bonus payments.

On the specialty front, CMS launched the Comprehensive Care for Joint Replacement (CJR) program and the Oncology Care Model (OCM) in 2016. The CJR bundles payments for hip and knee replacements. Initially slated to run through the end of 2020, CMS recently proposed updating it and extending it through the end of 2023.

Other specialty bundled payment programs include orthopedics—spine, bone, and joint—cardiology, medical oncology, pulmonology, neurology, and gastroenterology. A proposed mandatory Radiation Oncology (RO) model is slated to bring radiation oncology into the fold as well. Programs that span specialty and/or primary care include the Medicare Shared Savings Program (MSSP), Next Generation ACO, CPC+, and Comprehensive ESRD Care (CEC).
These specialties will continue to be central to Medicare’s value-based care efforts as the CMS Innovation Center rolls out second-generation programs including:
  • Primary Care First (PCF) – successor to CPC+.
  • Direct Contracting (DC) – successor to Next Gen ACO.
  • Kidney Care Choices – successor to CEC.
  • Oncology Care First (OCF) – successor to OCM.
The Looming Insolvency Cliff
However inconvenient the push to VBC may be for some providers, one reality is unavoidable: FFS as a payment model is actuarially unsustainable.
As a business model, FFS has always been unusual because it doesn’t connect cost and price. Since 1960, U.S. national health expenditure (NHE) growth has typically outpaced economic growth. In 2018 alone, Hospital Insurance (HI) expenditures exceeded income by $1.6 billion.1
According to the 2019 Medicare Trustees Report, the HI Trust Fund will be able to pay full benefits only until 2026. In 2018, CMS projected2 health spending would grow 0.8 of a percentage point faster than the gross domestic product (GDP) per year between 2018 and 2027, pushing the percentage of GDP tied to healthcare from 17.9% in 2017 to 19.4% by 2027.

Shifting U.S. demographics explain much of this expenditure surge, as America becomes home to an aging population. In 2018, Medicare covered 51.2 million people aged 65 or older. This year, an estimated 17% of the U.S. population3 will be 65 or older. By 2030, the last of the baby boomers4—76.4 million people or 20% of Americans—will have moved into the ranks of the older population, with the eldest of this group—8.7 million people—aged 85 and older.
The VBC payment models are trying to address all of that.
VBC arrangements currently account for 10% –15% of Medicare beneficiaries, but the voluntary adoption of VBC models with significant downside risk is steadily increasing among providers. In 2012, when the first population-based risk program was introduced, there were fewer than one million Medicare beneficiaries. The number hit four million in 2017 (which was the first performance period under MACRA), and six million in 2018. The growth continued in 2019 and is projected to reach more than nine million by the end of 2020.
Although Medicare is easily the largest payer in the country and is leading a lot of the innovation, commercial payers are taking note and implementing similar programs where it makes sense. Of the 2,454 providers making up the current risk market in Medicare programs, 714, or 29%, are commercial ACOs.
This blog series, Value-Based Care: Moving Forward, is continued in Part Two. View the entire Coverys Special Edition Red Signal Report: Value-Based Care Series No. 1.
12019 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.
2National Health Expenditure Projections, 2018-2027, Forecast Summary, Centers for Medicare & Medicaid Services.
3Population Reference Bureau, Fact Sheet: Aging in the United States, July 15, 2019.
4The Next Four Decades: The Older Population in the United States, Current Population Reports, P25-1138, May 2010.