Report: Value-based payment models haven't cut costs yet

Value-based payment models have been pointed to time and time again as the panacea for rising health costs.

But they haven't yet led to significant reductions, according to a new analysis. 

Leavitt Partners, the Healthcare Financial Management Association and McManis Consulting teamed up to dive into the factors that are driving healthcare costs up in the U.S., and found across 900 different markets, value-based care models had not produced the expected cost savings. The researchers cited several reasons for this trend including the fact many markets have few value-based options available, and many of the current models lack incentives that push providers to take on more risk. 

"[When you have] very small amounts of revenue under a risk-based model, you don't have a compelling business case to change," David Muhlestein, chief research officer at Leavitt Partners and one of the study's authors, told FierceHealthcare in an interview. 

The report notes that the lack of cost reductions was true for both Medicare and commercially-insured populations. 

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Ongoing consolidation in the healthcare industry also played a role in driving the total cost of care, according to the report. The researchers found that less-consolidated markets or markets that had less vertical alignment were the costliest, while markets with strongly-organized provider networks were often the least expensive. 

Markets with the lowest cost included only two to four health systems competing in a geographic region, and often included one integrated system with a health plan, hospital and physician groups.  This suggests, Muhlestein said, the impactful competition doesn't lie with the number of competitors, but with how they're competing. "Meaningful competition doesn't really mean dozens of different providers," Muhlestein said. "A handful with similar market share...can aggressively compete on the Medicare market." 

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Patient advocates have warned that mergers rarely pay off financially for patients, as healthcare organizations with significant market share are more likely to charge high prices unchecked. But markets with less consolidated had intense competition but also had less of a focus on reducing utilization, according to the report. High levels of utilization can drive up costs significantly, the researchers said. 

For example, in Oklahoma City, there are 28 different acute care hospitals operating and competing directly for patients. However, a staffer interviewed by the researchers at one health system said the utilization rates were "an unanswered question." In this case, having a large number of hospitals available didn't provide meaningful competition to lower costs, the researchers concluded. 

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In addition to examining the role of value-based care and competition in the cost equation, the report found that employers are hesitant to redesign benefits in a way that may limit patients' provider networks, and the instability in Affordable Care Act exchanges is also a contributor to rising costs. 

Further research on cost trends, Muhlenstein said, is crucial to painting a full picture. 

"There is work we need to do, digging into 'Why are costs growing at such different levels in these markets?'" Muhlestein said. "What is the differential drivers of these cost growths?"