The healthcare industry is undergoing a major shift as payment for care moves from “fee-for-service” contracts toward value-based care. While the concept of value-based care isn’t new, it’s gained fresh momentum in recent years — with sweeping implications for providers, patients and payers.
The healthcare industry is undergoing a major shift as payment for care moves from “fee-for-service” contracts toward value-based care. While the concept of value-based care isn’t new, it’s gained fresh momentum in recent years — with sweeping implications for providers, patients and payers.
We asked industry experts across the Redesign Health ecosystem how value-based care adoption is unfolding right now—and what to expect in the coming years. Our panel includes two members of the RH Advise program, which connects our internal team and our Operating Companies with industry thought leaders to help accelerate and commercialize business development. Redesign Health Venture Chair Missy Krasner moderated the conversation:
"As an analogy, imagine taking your car in for a full-service oil change — and then having your engine fail because the dealership didn’t check whether your air filters needed replacing. In a fee-for-service world, the technician gets paid for the oil change, and you’re stuck with replacing the engine or even buying a new car." - Rachael Jones, Stealth Company built at Redesign Health
Missy Krasner: Juliette, you’re currently at Helgerson Solutions Group, a highly respected firm that supports major provider systems and health plans with value-based contract design and negotiation. You’ve led extremely complex contract negotiations, and know firsthand that this contracting process creates a documentation burden. Do you think that burden is heavier for payers or providers?
Juliette Price: With the hyper-fragmentation of the healthcare industry, payers and providers typically have an overwhelming number of contracts to manage. The documentation burden is equally heavy on providers and payers. Both sides are often understaffed, under-experienced and overburdened.
This is a core challenge for the adoption of value-based models. If this workforce burns out before we reach a critical mass of transition to value-based contracting, we run the risk of not fully capturing the potential of value-based care to transform care delivery.
Missy Krasner: Rachael, how do value-based arrangements work in practice? Can you walk us through the value-based contract negotiation process between a payer and provider?
Rachael Jones: Sure. I’ll just clarify that value-based programs are designed to align the incentives of healthcare delivery to reward value — that is, quality and cost-effectiveness — rather than volume.
The best value-based payment models have three main components:
With that in mind, let’s look at the contracting process from the standpoint of a payer who’s proposing a new value-based arrangement with a provider group (this explanation is very simplified, but it provides a general framework).
First, the payer typically does the groundwork to establish an outcome they want the value-based arrangement to achieve. This modeling phase has several steps: assigning members to providers to manage their care and the associated costs; establishing a cost target for the attributed population; defining the measurement period; establishing quality and utilization measures; and estimating potential savings for the health plan and potential earnings for the provider.
At the modeling stage, payers also determine what percentage of shared savings to offer to providers who achieve lower-than-expected costs while meeting quality targets.
After contract modeling, the payer and provider group discuss the structural details and contract terms of the value-based program and in some cases, education takes place to explain attribution or why certain costs or measures are being done. The provider group may issue a counter-proposal— such as requesting a lower cost target, a validation of the members attributed or a higher percentage of shared savings earned. Once both sides are finished negotiating the contract terms, the contract is implemented. Even some of the best models can take more than 6 months to build out and negotiate.
Juliette Price: I’ll add that during value-based model design and negotiation, both parties are sharing ideas, data, lessons learned and modeling of how certain terms would impact each party. The process quickly starts resembling a large group project from grade school with glue, construction paper and scissors everywhere. Even file versioning quickly becomes a challenge. By the end of a negotiation, the agreed-upon measurement set or attribution list may resemble the comical “Final.Final.FINAL.V14.PDF” notation that we all know too well.
Missy Krasner: Francois, you and I have known each other for years. You were really at the forefront of value-based care back when the CMS was calling it pay-for-performance in demonstration projects. Given all you’ve seen over the years, let’s turn to adoption of value-based care arrangements. What are some of the administrative capabilities that a payer or provider might need to gain in order to take on value-based models?
Francois de Brantes: To some extent, it’s easier for physician practices, hospitals and health systems to shift how they practice from volume-based medicine to value-based medicine, because giving the right care to the right patient at the right time is how they were taught to practice medicine. It’s the business of healthcare that forced many of these providers to change the way they practice. For providers, adopting new capabilities mostly involves spreading best practices and more rapidly processing information that will help improve patient care.
The shift is relatively harder for health plans, because they’re saddled with systems that were built around the fee-for-service system. Modifying these systems is incredibly complex and costly. And since payers have been able to maintain high levels of profitability in the fee-for-service system, it's difficult for many to justify what they see as a massive investment in system upgrades.
"Modifying [fee-for-service] systems is incredibly complex and costly. And since payers have been able to maintain high levels of profitability in the fee-for-service system, it's difficult for many to justify what they see as a massive investment in system upgrades." - Francois de Brantes, High Value Care Incentives Advisory Group
Missy Krasner: Why do we see a much larger uptake in value-based contracts among provider groups, like multi-physician practices or accountable care organizations, than among single-physician practices?
Francois de Brantes: Some of it has to do with capabilities, in that larger multi-specialty care practices or health systems have more people and resources to contract and manage value-based payments. And some of it has to do with operational simplicity for payers, where larger practices, hospitals and health systems typically have more of a health plan's plan members. As a result, one contract can cover many more plan members than a contract with a smaller practice.
This “density” factor is one reason why we’ve seen the emergence of conveners, which aggregate smaller practices and contract on their behalf. That's good news for everyone, including patients, because it allows health plans to include smaller practices in value-based payment agreements.
Missy Krasner: Juliette, you’ve worked with large safety-net service providers to help clinically adjacent providers understand how to partner with health care to improve patient outcomes by addressing the social drivers of health. How do social determinants of health factor into value-based care models? What are value-based care providers doing to enable these initiatives?
Juliette Price: Unmet social needs pose a huge problem to patients’ health and well-being, but solving these needs poses huge philosophical and implementation questions. How can we ask the healthcare system, which was designed to deliver health care, not social care, to suddenly begin providing both? First, it’s clear that partnership with the social care sector is critical.
We’re also learning that rolling these health-related social needs into value-based arrangements allows for maximum flexibility. We can empower a care team to decide that a $300 air-conditioning unit is going to do more for their COPD patient on hot summer days than five trips to the emergency department.
The care team can implement that obvious solution without finding a billing code, asking for permission, seeking a new government grant or changing policy. Value-based care fundamentally allows providers to do what they went into healthcare to do: help their fellow humans be healthy.
"Unmet social needs pose a huge problem to patients’ health and well-being, but solving these needs poses huge philosophical and implementation questions. How can we ask the healthcare system, which was designed to deliver health care, not social care, to suddenly begin providing both? First, it’s clear that partnership with the social care sector is critical." - Juliette Price, Helgerson Solutions Group
Missy Krasner: Rachael, in your eyes, what’s the biggest risk to further adoption of value-based care models?
Rachael Jones: The big question is whether health plans and provider organizations can collaborate around trust, transparency and transformation, which the Alliance of Community Health Plans says are key components of success for value-based models.
Trust requires alignment and confidence that there’s a shared goal. From a provider perspective, alignment of value-based payment arrangements across multiple payers is critical. Acknowledging and removing “gotchas” from contract terms will help with payer/provider trust-building, as well, especially if that can start trending. Physicians have a role to play in fostering trust as well, by taking a proactive role in managed care contracting and accepting more financial risk.
Transparency among payers and providers, with regard to data-sharing transparency that supports accurate, actionable performance data, is essential to success in all value-based arrangements.
Finally, transformation requires acknowledgement of the barriers to entry for small physician group practices and healthcare providers with less capital, who tend to care for underserved communities. That cash flow problem is a reality and needs consideration and coordination to keep these practices in the conversation. Many provider organizations will experience a financial gap after their performance period has ended and while the health plan calculates the physician’s performance.
"The big question is whether health plans and provider organizations can collaborate around trust, transparency and transformation." -Rachael Jones, Stealth Company built at Redesign Health
Driving Solutions Forward
With unsustainable healthcare spending levels and new companies that are developing new care management approaches, value-based care is undoubtedly gaining significant traction. However, a lack of infrastructure to establish and manage value-based care agreements is holding the industry back. We see a major opportunity for companies to be built at Redesign Health that deliver value-based care solutions in order to enable uptake of these models. We’re eager to drive this innovation forward!
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