The Mirage of Value-Based Payments: A Provider’s Perspective
I have always appreciated the Commonwealth Fund who puts out some solid research on primary care. One of their recently published papers caught my attention: “Why Primary Care Practitioners Aren’t Joining Value-Based Payment Models”. They thoughtfully consider several points:
- The current dominance of fee-for-service (FFS) stifles Value-Based Payment (VBP) models’ potential to transform Primary Care delivery.
- Lack of meaningful participation by commercial payers in VBP models results in inadequate Primary Care funding to make the recommended changes to care delivery.
- For system-affiliated practices, it’s a challenge to transform Primary Care without also changing financial incentives across the health system.
- Some health systems using VBP models don’t provide frontline PCPs or practice sites with the resources necessary to carry out the model requirements.
- To help manage the financial risk of participating in VBP models, practices would benefit from upfront payments, assistance with financial forecasting, and removing downside insurance risk.
I’ve highlighted the specific points that struck home for me. But, I also thought I could help provide a simpler answer: “Dudes, the reason providers don’t like it is because current VBP models suck.”
The Illusion Begins
Value-Based Care (VBC) has been hailed as a transformative approach to healthcare, promising better outcomes at lower costs by aligning provider incentives with patient health. However, from the provider’s perspective, VBP often appears less like a beacon of progress and more like a mirage. The goals seem attainable in theory, but in practice, it’s a challenging financial model fraught with potentially catastrophic complexities while the benefits never quite materialize. And, for those of you who have actually walked through this desert, it’s equal parts exhausting and discouraging to see the “oasis” but have it continually pushed out of reach.One of the core premises of VBP is the idea that care can be reduced to a single “normalized” price—a cost estimate that covers all care for all patients in a population over a set period (typically a year). This price is then divided into monthly payments, in theory making it easier for providers to manage cash flow and for payers to predict expenditures. However, this masks the reality that health, care, and utilization is anything but uniform.
Health risks vary widely across populations and individuals over time, making it nearly impossible to accurately predict costs of care. Factors such as socioeconomic status, geographic location, and the prevalence of chronic conditions can significantly impact the amount and intensity of care required. Getting to a single price that covers a range of potential use patterns on average is extremely challenging and a major source of contention in the negotiation process with any payer. Adding to the contention is the 25+ year history of underfunding Primary Care where the payers gladly use the old benchmarks to try to set new rates for all the new VBP features (I believe that Einstein had something to say about this type of approach).
In our own experience, we have found that even after you have exhaustively argued your points, outlasted and outwitted your partner, and finally arrived at the magical but workable single price . . . your journey, brave provider, has only just begun.
Risks that Multiply and Compound
What comes next is the gauntlet of pain where the price you negotiated gets whittled down due to a variety of layered financial risks. Effectively, the VBP is a fixed budget that shifts numerous risks onto providers, many of which are difficult, if not impossible, to fully anticipate or mitigate. These risks include:
- Health Risk: Variability in the underlying health of different populations leads to significantly different utilization patterns. Providers are expected to manage these disparities under the fixed VBP arrangements. Miscalculating health risk is the most common reason providers go bust when entering VBP arrangements.
- Utilization Risk: The way patients use healthcare services is influenced by many factors including educational background, health literacy, cultural norms, accessibility of services, and benefit design. This variability can lead to over-utilization scenarios where the planned budget doesn’t cover the cost of care incurred. We’ve seen as much as 300% variation in usage patterns for the same services across geographies/populations.
- Attribution Risk: VBP models often involve complex rules for attributing patients to providers. These rules change frequently, leading to shifts in the population a provider is responsible for (and how they get paid). When patient attribution shifts, providers may have already delivered a large portion of the annual care but are then unable to receive full payment due to these often (arbitrary) changes in who is eligibile and therefore what care to which patients actually gets compensated.
- Eligibility Risk: Unique to employer payers, changes in a patient’s employment status, insurance coverage, or plan design can all affect their eligibility for care under VBP arrangements (another form of attribution risk). Providers may find themselves providing care for which they won’t be fully paid or putting significant resources to manage care for individuals who are no longer eligible. Both decrease predictable payments and can lead to financial instability.
- Payment Risk: Under VBP arrangements, providers are effectively required to “finance” care over the course of the year, with payments trickling in monthly. This payment structure is divorced from care utilization as a feature (the entire purpose of getting away from fee-for-service), but can become a bug when any of the above factors come into play. We’ve seen multiple situations where we offer a full year’s worth of care in the first few months of the year, but may not get paid if there’s a change in attribution or eligibility. The assumption that risks will “balance out” over time is often overly optimistic, leaving providers chronically underpaid. As a final insult, there’s often the idea of “downside” penalties for not meeting performance metrics which can be severe. Providers who optimistically enter into downside arrangements often overestimate their ability to achieve them and underestimate the clinical and finanical performance risks they are assuming.
The Unhealthy Burden on Providers
In theory, VBP is designed to encourage providers to innovate and find new ways to deliver care more efficiently. In practice, the providers are burdened with an unhealthy level of financial risk. The promise of better outcomes is overshadowed by the reality that providers are expected to shoulder the costs of those outcomes, often without sufficient resources or support. The support is supposedly found in the new payment models which pay Primary Care “more and better”, but that concept quickly collapses under the weight of all the compounding risk. What started as an idealized (and agreed upon) $100 payment can quickly diminish by 25 – 40% in a hurry. Providers who enter these agreements often must resort to upcoding, increasing procedures, or getting into the “lotions and potions” game to supplement revenue.
Ironically, the pressures of managing these additional risks can actually stifle innovation. Providers find themselves more focused on managing costs and meeting the requirements of their contracts than on delivering high-quality care. Insurers—who understand these risks better than anyone—are also experts at passing these along to unsuspecting medical groups who willingly, but naively, enter these arrangements without the right financial protections.
Hope Springs Eternal
Ultimately, the concept of VBC and their associated VBP arrangements as a panacea for the healthcare system feels deeply flawed in its current iteration. While the idea of rewarding providers for keeping patients healthy is appealing, and the move away from fee-for-service is an absolute necessity, the current execution of VBP doesn’t reflect the hidden risks that reduce payment by 25% – 40%. Providers are asked to deliver high-quality care, manage complex patient populations, and achieve cost savings—all while navigating a minefield of financial risks that can undermine their financial stability and practice viability.
For VBP to be effective, there must be a more equitable distribution of risk to reward. That means higher payments to Primary Care, which must come from specialist care so that the total cost remains balanced. Everyone agrees with this, but actually getting payers to “pay more and better” for Primary Care to offset the increased risk has been challenging is daunting. Ultimately, companies like Crossover are starting to “cross the desert” in the commercial space and building objective actuarial and health outcomes results to prove our “single price on average” methodology as well as our actual ROI value. Given that “hope springs eternal”, we will keep plodding along. However, until the “burden of risk” issues outlined above are addressed the promise of VBP to make a meaningful difference will remain a mirage—a distant vision of a better healthcare system that, for many providers so far, has been just a mouthful of sand.
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