A Financial Crossroads

A 2021 article on the Third Way provides eye-opening insight into medical billing: a college student was sent to an emergency room in Colorado for pain and received intravenous treatment. (1) IV interventions are relatively frequent yet this student was charged almost $19,000, or $700 per drug injection. (1) 

This payment model is typical of the healthcare status quo: a fee-for-service system where providers are reimbursed per procedure provided. (2) This model, as you might expect, encourages either the overutilization of healthcare services (providing as many IV injections as possible) or the treatment of as many patients as possible (charging exorbitant amounts over a large patient population). (2) What is not included in this model is any incentive for improving healthcare quality or patients’ long-term outcomes. In a previous article titled “The Economics of Illness,” I discuss how one of the main issues with the U.S. healthcare system is a misalignment of incentives. (3) What might these incentives be? Under a fee-for-service system, providers are incentivized to see as many patients as possible to earn revenue per-patient and ensure overall profitability; in 2018, while a majority of physicians saw between 11 and 20 patients per day, a significant percent of providers saw upwards of 30 patients per day with some even seeing more than 60. (4, 5) 

Seeing 15 patients for 30 minutes each might result in each patient receiving high-quality, comprehensive care; however, in the same time, a provider seeing 60 patients would spend on average 7.5 minutes per patient. We can be fairly confident that a 7.5 minute patient consultation would not be conducive to high-quality care. So, looking into the future, how might we realign incentives to prioritize healthcare quality?

Value-based care is often pitched as a universal solution to the ails of the U.S. health system, yet at its core, value-based care involves any healthcare payment model that ties provider reimbursements to a measure of healthcare quality, cost-efficiency, or equity. Currently, these payment systems are implemented in small-scale short-term studies to assess relative efficacy and improvement in metrics such as cost-efficiency, quality, and equity; these studies have been implemented by organizations such as the Center for Medicare and Medicaid Innovation (CMMI) and the Health Care Payment Learning and Action Network (HCPlan). (6)

So what does value-based care consist of? Well, there is no set value-based care model, moreso a general definition in which there might be many financial systems and implementation strategies. (7) There are several common financial strategies used in value-based care models, including accountable care organizations, capitation payments, and episodic payments. (8) Let’s dive in a little more (at a very high level): 

• Accountable Care Organizations (ACOs): involve collaborations between healthcare providers and payers (generally insurance firms) where the provider becomes accountable for the comprehensive health of their patient population and receives benefits for improvements in health metrics for that population (8)

• Capitation Payments: involve a regular, fixed (usually per patient) payment provided to hospitals in advance of care provision, decreasing the need for care overutilization (8)

• Episodic Payments: involve a fixed amount paid prospectively to providers to support a patient for a fixed amount of time; this episodic payment may result in savings or losses depending on the quality and cost-efficiency of care provided to that patient (8, 9)

These strategies are never used in a vacuum and often used in tandem, taking into account the specific setting where the value-based plan is being implemented, the baseline health of the patient population, and any existing payer or provider incentives to maintain feasibility. However, I did want to provide a brief introduction to the topic before exploring further in the future. Value-based care or alternative payment models have been applied to specific contexts such as primary care and surgical care, and even kidney disease and childhood holistic well-being. (10, 11)

However, while value-based care seems like a simple and straightforward fix to our U.S. health system with its conflicting incentives, the truth is that value-based care is still in its early stages and results have been mixed. (8) Many value-based care models have been shown to significantly improve health metrics among patients, yet implementing these models requires significant time and capital from providers and payers who must redesign hospital administration, medical records, and financial models. (12) Furthermore, cost-savings from value-based models are variable with some models even resulting in greater healthcare expenditures on net. (8)

Value-based care certainly addresses the incentive misalignment created in the predominantly fee-for-service status quo, yet payment itself is not a universal solution nor does it come without downsides. Thus, future research into value-based care must focus not only on the healthcare quality benefits of this payment model but also administrative and healthcare costs that come with implementation. Aligning payer and provider incentives has shown to significantly improve the provision of healthcare, yet changing the health system as a whole to support public health involves further exploration of how we define and evaluate high quality care and the engagement of a wider variety of stakeholders to ensure that this high quality care translates into improved outcomes and equity for patients.