It's time to rethink how Value-Based Care (VBC) can achieve lower costs, higher quality, and better outcomes in a sustainable way.
Current VBC models that rely on non-compounding annual cash incentives—where providers aspire to earn adequate revenue each year based on quality metrics, reduced utilization, and shared savings—are not sustainable. This approach fails to recognize the fundamental need of providers to achieve revenue requirements necessary to keep up with operating costs and deliver high quality care. Since operating cost increases are cumulative, relative and adequate fee for service revenue increases must also be cumulative and independent of cash incentives.
To create a sustainable healthcare delivery system, we must ensure that unit price increases reflect both actual operating costs and projected trends throughout a contract’s duration. While premium setting will continue to rely on prior period utilization and medical costs, providers can significantly improve projected utilization and cost by aligning VBC incentives with effective population health management, care coordination, and appropriate site of care management.
By offering fair and adequate rate terms, both payers and providers can align incentives to achieve desired outcomes. Under current VBC models, providers have little incentive to fund population health organizations on an at-risk or percentage-of-savings basis, especially when it reduces total revenue from reimbursable care delivered. Instead, a sustainable model must ensure fair compensation for the care providers deliver while allowing them to participate in savings from baseline performance. When preventive care, chronic care management, and appropriate use of care settings are prioritized, member/patient retention improves, and delivery system capacity grows.
The post-COVID inflationary period has introduced new challenges, including rising healthcare system operating expenses, higher payer premiums, and increasing out-of-pocket costs for consumers. This environment presents a unique opportunity for payers and providers to rethink the prevailing VBC model. By doing so, we can incentivize real medical cost savings, improve consumer well-being, and reduce financial burdens for patients.
A sustainable VBC model that aligns incentives between payers and providers is in the best interest of both parties and the populations they serve. We welcome the opportunity to discuss how these mutually beneficial approaches can be introduced into your next negotiation.
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To explore how sustainable Value-Based Care models can drive predictable, sustainable revenue growth while delivering lower total cost, high quality and better outcomes, please contact Shawn Fitzgibbon, Managing Director, BDC Advisors at (332) 373-5546 or shawn.fitzgibbon@bdcadvisors.com.
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