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Challenges in Adopting Value-based Payments

You may not be aware of it, but there is a quiet revolution going on in American health care.  For decades, the traditional business model in health care has been a set fee for a given service, regardless of how effective it was. In recent years, however, more providers are re-examining the value of this Fee-for-Service (FFS) system and the increasingly popular opinion is that it doesn’t work.  Not only does it produce a lot of waste because it encourages organizations to order as many services as possible, but it compromises patient outcomes by basing success on financial rewards instead of patient health.

That is why more medical organizations, including major government agencies like Medicare and Medicaid are implementing Value-based Care (VBC) initiatives. Instead of paying medical providers based on the number of services they provide, under a VBC system, physicians and hospitals would be paid depending on how much improvement occurred. Value-based care will reward providers that can produce the greatest benefit to patients while minimizing unnecessary health care expenses.

In 2012, the Institute of Medicine estimated that the U.S. health care system wasted more than $750 billion each year.  Considering that the U.S. spends more than $3.2 trillion a year on health care, that is almost a quarter of all health care dollars wasted.  The Institute of Medicine estimates that the primary forms of health care waste are unnecessary services ($210 billion each year), inefficient care delivery ($130 billion each year), inflated costs ($105 billion each year) and administrative costs ($190 billion each year).

Why Hasn’t VBC Been Adopted Before?

It seems that there is a significant upside for value-based care, especially compared to the current FFS model, so why hasn’t the health care system tried this before?  The answer is both simple and disheartening—a fee for service model is much simpler to manage.  After all, it is much easier to pay $500 for an MRI and get it done, rather than perform the test and see if the results actually help the patient before reimbursing an insurer.  Simplicity shouldn’t be the overriding principle that physicians and hospitals espouse, especially when lives are on the line, but in such a complex system, it is an unfortunate reality that the easiest option is the one most often taken.

If you look at VBC models, you will begin to understand why the health care system has held off for so long. The greatest and most obvious obstacle to implementing a Value-based care system is measuring patient outcomes.  For most of its existence, medicine has been considered a “noble” profession that was measured more by the effort invested rather than the patient’s improvement.  For the first time, that is changing, but lawmakers and industry payers must develop some uniform standards on how to measure “health care value.”

Healthcare Fees

At the moment, major payers like Medicare are using a combination of FFS and VBC reimbursement.  While they pay a predetermined fee for certain services, they offer shared savings bonuses based on meeting a number of key value-based benchmarks. This is primarily because the health care industry has yet to develop some widely accepted metrics on how to ascertain the value of a given service.

However, these emerging standards are an important starting point for medical providers. As major payers like Medicare to VBC models, more organizations are using more evaluation tools like audits and performance metrics.  This increased emphasis on efficiency and optimal patient outcomes will strengthen provider performance and minimize operational waste.

New Trends in Health Care

There is enormous appeal in value-based care, which is why so many health care providers and payers are integrating it into their business models.  Last year, ORC International and McKesson performed a survey of 465 payers and hospitals, and found that 58 percent of them were implementing new VBC reimbursement protocols. This is a significant jump over the 41 percent in 2015.

Among the organizations that implemented value-based care methodologies, there were major increases in financial efficiency and care quality.  Of those hospitals surveyed, 22 percent diminished their administrative costs and 26 percent experienced a decline in overall operational expenses.  Care quality was also improved as 40 percent had better patient outcomes.

These improvements are powerful incentives for many health care organizations that want to appeal to more patients and eliminate unnecessary expenditure.  These incentives support the upward VBC adoption trend and suggest that by 2020, more than half of the health care industry will incorporate value-based care in some fashion.

Obamacare Coverage

Remaining Obstacles to VBC Adoption

If you expect to use the services of a hospital or a clinic, you probably want anyone you see to be as focused on providing the best available care as possible.  That is why you should be rooting for widespread adoption of value-based care as early as possible, but you should recognize there are some important roadblocks to circumvent before you see it on a doctor visit.

Among the most problematic challenges is the entrenched resistance among the medical establishment.  Only one in five physicians is aware of the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA) which supports the transition to a VBC system. Currently almost 79 percent of physicians use the fee-for-service payment system, so it will be difficult to convince these medical professionals to migrate to a more complex and possibly less financially rewarding business model.

Perhaps the most difficult obstacle is a technical one.  Many physicians recognize that many of the services that they perform are unnecessary, but it is almost impossible to know which ones they are.  One of the most powerful tools currently being developed involves Big Data which can analyze patient data and compare it to millions of other cases to produce an optimal treatment strategy.  While there is enormous optimism about Big Data analytics, the technology has not yet matured to a point of reliability. Until it does, most doctors will rely on the tried and true method of using a battery of tests and therapies to combat elusive health problems.

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