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What should physicians consider when recommending a medical procedure: insurance reimbursement or the patient’s health? In a fee-for-service healthcare setting, reimbursement may be a consideration. In contrast, a value-based payment (VBP) system prioritizes cost management, high-quality care, and healthy patients.

The fee-for-service payment model reimburses physicians and health systems for each visit, test, and treatment. This model increases costs because it encourages excessive care. It can be harmful to patients when unnecessary medications have side effects or unnecessary invasive procedures have complications.

To shift the focus to patients, the Centers for Medicare and Medicaid Services (CMS) has worked for a decade to shift the U.S. health care system to a VBP system through initiatives like the Medicare Shared Savings Program. Practitioners and hospitals in the program form Accountable Care Organizations (ACOs) that are financially rewarded for meeting quality and cost-savings benchmarks, such as for cancer screening, diabetes control and patient satisfaction. By 2022, the program will have saved Medicare $1.8 billion and improved quality metrics of patient care.

CMS wants all traditional Medicare beneficiaries to be covered by value-based care by 2030, but progress has been slow. A commentary from Viewpoint for JAMA Internal Medicine by LDI Senior Fellows Amol Navathe and Ezekiel Emanuel, with Daniel Shenfeld of the Perelman School of Medicine, lists critical challenges—with solutions—to achieving VBP goals.

Healthcare institutions must be able to reduce costs without this being at the expense of income. ACOs with large numbers of primary care physicians do well in the Shared Savings Program, with high Medicare savings and physician bonuses. One of their strategies is to use outpatient care instead of inpatient care when appropriate. However, these cost savings can come at the expense of revenue for short-term acute care hospitals and nursing facilities. These types of organizations can struggle to reduce costs without cutting revenue due to fixed costs such as equipment, beds and space.

In the commentary of Viewpoint and two Health Affairs In articles on VBP design and implementation, Shenfeld, Navathe and Emanuel say CMS needs to develop ways for healthcare organizations to cut costs without cannibalizing revenue. One model with proven success is the CMS Comprehensive Care for Joint Replacement program, which reduces patient stays in post-operative facilities after hip and knee replacements without affecting patient outcomes. A key feature of the program is bundling payments for all care for a procedure rather than reimbursing for each service, encouraging hospitals to refer patients only to necessary services. Patients who forgo post-discharge facilities because they don’t need that level of care save Medicare money without affecting a hospital’s bottom line.

CMS should revise risk assessment to eliminate “phantom savings.” VBP reimbursements are risk-adjusted, with higher payments for patients predicted to need more care based on diagnostic codes in their records. For patients, risk-adjusted levels the playing field so practices don’t turn away people who need expensive care because of poor overall health.

Risk adjustment encourages practitioners to code intensively, to capture every condition that contributes to risk scores, in order to maximize revenue. One result is that Medicare patients appear sicker under VBP than under fee-for-service, creating opportunities for “phantom savings” that are achieved through coding and appear only on paper. Shenfeld, Navathe, and Ezekiel argue that CMS should require VBP participants to generate real monetary savings. New risk adjustment methods could shift financial incentives from documentation to improving patient outcomes.

CMS must support the VBP transition with technical assistance. Under fee-for-service, healthcare organizations determine their revenue by counting patient visits and treatments. Under VBP, organizations are partially reimbursed by achieving quality and cost benchmarks. This makes financial forecasting more difficult, because organizations must estimate revenue based on events that do not occur, because they eliminate unnecessary care and costs.

Healthcare organizations need help with this transition. CMS must provide them with forecasting tools and software to predict and track finances under VBP. These predictive tools require timely, standardized, and reliable data—and expert assistance—to interpret and apply the results. Currently, these tools are expensive, so CMS must make them affordable or free.

According to Navathe, VBP shows promise: the Shared Savings Program and joint replacement programs show that VBP can work for patients, physicians, and taxpayers. However, only about a third of traditional Medicare beneficiaries are currently in ACOs. Nevertheless, Navathe is confident that if we can solve the challenges uncovered over the past decade, we can create the necessary stepping stones for future VBP success.

The article, “The Promise and Challenge of Value-Based Payment,” was published on May 20, 2024 in JAMA Internal MedicineAuthors include Daniel K. Shenfeld, Amol S. Navathe, and Ezekiel J. Emanuel.

Ongoing work by Navathe and colleagues, including Adjunct Senior Fellow Joshua Liao, involves studying the impact of value-based payment on health disparities, including in surgical care.

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