Benefits of a Value-Based Payment System

A receptionist examines a patient’s insurance information.
Insurers are increasingly using a pay-for-performance, or value-based, system of reimbursing medical providers.

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Pay-for-performance and value-based purchasing are terms used to describe healthcare payment systems that reward doctors, hospitals, and other healthcare providers for their efficiency, rather than the total volume of services they provide. Efficiency is usually defined as providing higher quality for a lower cost, with improved patient outcomes, high patient satisfaction, and reduced per-capita medical spending.

A receptionist examines a patient’s insurance information
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Value-based payment models have played a significant role in the health care reform debate that's been ongoing in the U.S. for well over a decade. The federal government has spent the last several years implementing a variety of value-based payment programs in the Medicare program. Medicare accounts for more than a fifth of all medical expenditures in the U.S., and private health insurance companies often follow Medicare's lead when it comes to innovations.

The Medicaid program, which is jointly run by the federal and state governments, has also been shifting to value-based payment models under Medicaid managed care programs, in which the state contracts with private health insurance companies that manage the payment of medical claims for enrollees.

Why Adopt a Pay-for-Performance System?

For most of the history of the American medical system, doctors, hospitals, and other medical providers were simply paid for each service performed (ie, a fee-for-service system), giving healthcare providers a strong financial incentive to perform as many services as possible—sometimes including unnecessary services such as duplicate testing or treatments that aren't recommended by evidence-based medicine. This, combined with providers' understandable reluctance to expose themselves to potential lawsuits, may lead to overprescribing and overutilization of healthcare services.

Furthermore, some health policy experts believe that the fee-for-service payment system is lacking because it neglects the role that preventive care can play in improving health and reducing healthcare costs. Under a fee-for-service payment model, providers receive more money for treating a patient with diabetes who suffers kidney failure than they would for working with the patient to try to prevent kidney failure through better blood glucose control. This seems backward to many healthcare reformers.

The value-based programs that Medicare has implemented are specifically designed to improve quality and efficiency of care, reduce hospital readmissions, reduce the incidence of hospital-acquired conditions, and generally shift payments away from volume and towards value—ie, financially incentivizing medical providers for health outcomes and efficiency, as opposed to just the volume of work they do. A value-based pay-for-performance model rewards doctors for providing care that has been proven to improve health outcomes and encourages them to minimize waste whenever possible.

Types of Value-Based Payment Models

Although value-based payment models existed before the Affordable Care Act (ACA), the enactment of that law ushered in a new level of commitment to shifting to value-based approaches to paying for health care. Medicare has created several different types of value-based payment programs that apply to both hospitals and doctors. There are also accountable care organizations (specifically created by the ACA) and bundled payment models, both of which utilize a value-based approach to payments.

Medicare Advantage plans often use some type of value-based payment system, and some studies have shown that they end up with lower overall costs then traditional Medicare or accountable care organizations. Medicaid managed care programs are also increasingly utilizing value-based payment models as a means of reducing costs while improving patient outcomes.

Some value-based payment models have shown success in reducing overall spending on health care while improving or maintaining outcomes and patient satisfaction, but results for others have been mixed. Value-based payment models are much more widespread than they were pre-ACA, but they have not proven to be a panacea for the high health care costs in the U.S.

Challenges to Value-Based Payment Models

One of the challenges in implementing value-based payment systems is getting everyone to agree on quality standards. Quality standards are objective measures used to determine whether providers are offering high-quality care. For example, one possible quality standard would be for doctors to test A1C levels in patients with diabetes four times a year. In a P4P system, doctors who meet this standard would be rewarded appropriately.

The problem is that many healthcare providers believe that the practice of medicine is as much an art as it is a science and that boiling everything down to checklists and treatment algorithms would do a disservice to patients. Also, providers sometimes disagree on the proper course of treatment in patients with the same diagnosis and similar medical histories. But a solid utilization review protocol rooted in evidence-based medicine can help to quantify things like efficiency and quality.

There are also practical obstacles that sometimes make it challenging to switch to a value-based payment model, including a lack of interoperability for electronic medical record systems, the technological challenges involved in reporting everything to the insurer, and concerns among health care providers that a transition to value-based care could result in unpredictable revenue streams. ​

How Will Value-Based Payment Models Affect Me?

Value-based payment models have been phasing in over the past several years, but because the changes are primarily focused on how physicians, hospitals, and other healthcare providers get paid for their work, they have had a fairly minimal effect on individual patients. Over the long haul, the hope is that with more insurers utilizing value-based payment models, patients may enjoy better healthcare without having to pay more for it.

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Article Sources
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