Industry Voices—The pandemic shows why value-based models are the future of U.S. healthcare

As it crushes the finances of physician practices and hospitals, the COVID-19 pandemic is making the most compelling argument yet for a fundamental shift in how our healthcare is funded and prioritized.

That shift had already been quietly underway pre-pandemic as more healthcare groups embraced value-based care models in place of the fee-for-service model that still dominates the U.S. healthcare system.

But the coronavirus has painfully exposed the vulnerability and unsustainability of fee-for-service, creating the potential for 2021 to be a landmark year for the more widespread adoption of value-based care by providers, insurers and government agencies.

A nationwide survey by the American Medical Association found that medical practice revenues have plunged 32% on average during this public health crisis. Around 58,000 primary care practices were projected to close by the end of June this year, according to the American Academy of Family Physicians, while many others have laid off or furloughed staff.

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Those are deeply worrying statistics at a time of such tremendous need for medical, behavioral and social services.

Under fee-for-service, physicians get paid per patient they see and per treatment or test they prescribe, regardless of the end result on the patient’s condition. So, the plunge in patient visits to clinics amid the pandemic has dealt a direct blow to physicians’ and hospitals’ revenues.

By contrast, the pandemic has had a very limited financial impact on value-based systems, in which reimbursements are tied to patients’ health outcomes regardless of the number of visits and treatments.

By aligning payments with positive health outcomes, value-based care creates incentives for providers to keep people healthy and out of the hospital. It encourages physicians to come up with innovative solutions, such as providing medical services remotely or supporting patients with nutrition and physical therapy programs that reduce the likelihood of expensive hospital stays.

Take a typical diabetes patient, for example. It’s common for patients with diabetes to struggle with keeping their blood sugars under control, resulting in frequent hospital visits and an elevated risk of complications. Physicians will happily prescribe medications and run tests, but they aren’t usually incentivized to tackle the single most important factor in diabetes management—good nutrition.

Among the first steps in a value-based approach, by contrast, would be to help patients with their budgeting and meal planning to ensure they’re getting the nutrition they need to manage their diabetes and avoid hospital stays. It might also entail checking in with the patient every day to make sure they are well and sticking to their diet, an approach that goes completely un-incentivized under fee-for-service.

Value-based models encourage innovative approaches to community health that seek to head off medical problems at an earlier stage. Financial structures, or bundles, can be created that take an integrated approach to care. Intervening earlier to support lower-income women in their pregnancies, for example, can lower maternal mortality and reduce the chances of a premature birth, which in turn lowers the costs of neonatal care.

The harsh lessons learned from the pandemic should help drive more resources toward value-based models in 2021. Federal and state healthcare agencies will be key in driving this change by pressuring insurers through the Medicaid and Medicare programs to better align incentives with patient outcomes.

The Centers for Medicare & Medicaid Services plans to roll out direct contracting with healthcare providers in 2021 to allow more seniors to get access to value-based care. We may see the emergence of regulatory frameworks to use telehealth as a way to expand value-based care. At the state level, there’s scope for a push toward value-based care in the bids for Medicaid contracts that are put out every few years.

Some insurance companies are taking the initiative by addressing the economic challenges that providers face in making the transition to value-based care. Blue Cross Blue Shield of North Carolina, for example, is subsidizing primary care providers to help them shift away from fee-for-service, convinced that the cost savings and improved patient outcomes of value-based care are worth it. The insurer said its reform push had saved $153 million in its first year.

Humana estimated that it saved $4 billion in medical expenses in 2019 through its transition to value-based care for its Medicare Advantage beneficiaries.

To be sure, the transition to value-based care isn’t an easy proposition for most providers—and perhaps even less so now when many are in financial distress. Providers tend to be heavily invested in fee-for-service, having spent millions of dollars on staff and equipment that may be less useful under a value model. Independent physician practices often don’t have the financial resources to make the transition or to cover the inherent risks if patient outcomes don’t improve.

Practices that are part of hospital systems are more financially secure but can face conflicting incentives because the goal of value-based care is to send fewer people to hospitals. Taking better care of people simply doesn’t align with the financial incentives in these systems, making it easier to continue with the old ways.

Still, the trend toward value-based care is very much intact and is undoubtedly going to be accelerated as the pandemic exposes the serious shortcomings of fee-based systems.

The transition should be reinforced as we start to see tangible results from that, including fewer health disparities and better health outcomes, particularly for the most marginalized communities.

Toyin Ajayi, M.D., is chief health officer and co-founder at Cityblock.