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Thought Leaders: What’s next for Value-based Care?

Rick Weil, PhD was featured in the July/August edition of MCOL Thoughtleaders newsletter. The question asked was:

What’s next for value based care in the next coming years – has the term become too broad – are providers still on board – and will there be further innovations, approaches, or public program initiatives?

Has the term “Value-based care” become too broad? HHS was certainly overly broad in its initial application of the term “value” when it said it wanted 90% of its payments tied to “value-based payments.” Commercial payers followed suit lumping a variety of performance metrics under a “value-based” umbrella whether or not risk sharing was involved. Payers and providers are even starting to expand the definition of what constitutes risk by assigning all contract dollars as being “at risk” when the provider in fact has minimal downside exposure.

For example, the annual membership risk survey of the American Medical Group Association has shown a steady increase in risk contracting among their membership since 2015, involving a wide variety of value-care options with varying degrees of downside exposure. The AMGA’s most recent survey estimated that by 2020 70% of their members’ federal revenue and 36% of the commercial revenue will be made through some type of “risk-based” contract. In 2015 only 45% of the government revenue was in a “risk-based” contract, and 22% of their commercial revenue.

Given these trends, providers need to stay on board with risk-based value care, and be thoughtful in deciding how to play across the value continuum.

A key point is that the basis of competition is shifting much more quickly in the government than the commercial market: Medicare Advantage and original Medicare and Medicaid have become risk-based businesses with the growth of Medicare Advantage and Medicaid Managed Care. The most successful and profitable Medicare providers (Iora, ChenMed, CareMore, and Oak Street) are now fully capitated, riskbased models. Those models will proliferate over time at an accelerating rate as increased capital flows into the space, and they develop the ability to scale their models within and across markets. Sensible assumption of risk, the development of specialized primary care with tight payer-provider integration is what will work in the government segment.

The tight payer-provider integration, however, is not nearly as important in commercial contracting as it in the federal segment. Here a strategy of shifting to lower cost sites of service, curating a network of highly efficient specialists, and improving productivity are more important strategy elements. Because the commercial market segment remains highly profitable for providers, a commercial contracting strategy will focus on preserving and growing market share. This should be the basis of a provider’s payer contracting—not about positioning themselves to get more of the premium dollars to make margins on insurance operations.

What is next? Providers should expect a continued transference of risk from payers & governments to providers. Gain-share models will likely give way to risk-share models. Expect more mandatory episode bundles from CMS. But do not expect episodes to be the norm in the commercial space: those models will be replicated primarily by providers in markets where they already have a total cost of care advantage—resulting in market share gains for them without a large corresponding price drop.

But the commercial market remains the big wildcard. How long will America’s employers continue to subsidize payment shortfalls by governments? Will provider systems begin offering trend guarantees in return for all of an employer’s business? Will employers be willing to give up their broad access PPO networks and instead limit choice for their employees? Will the emergence of ever higher deductibles and full rate transparency in the commercial market usher in the era of retail healthcare for stoppable services?

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