How are providers paid under value-based care?
A value-based care model is one where hospitals and physicians are paid based on patient health outcomes. Providers are rewarded for improving the health of their patients, reducing symptoms of chronic diseases, and helping their patients live healthier lives on the whole.
Also known as value-based payments, financial incentives are a key component of value-based care. These payments may link clinician, hospital, or health system compensation to performance on specific cost, quality, and equity metrics.
Payers and payviders were more optimistic than providers about the impact of VBC on costs. Overall, only a minority of respondents believed VBC is very successful in improving outcomes, controlling costs or improving patient experience. Though organizations are optimistic, they are cautiously so.
The difference in reimbursement is the core difference between FFS and VBC. Under FFS, providers receive incentives based on service volume whereas under VBC, incentives are based on value, i.e., meeting quality metrics.
Patient-centered care, a hallmark of VBC, happens when physicians are empowered to spend the necessary time with each patient to make sure their needs are met. This results in better communication, a more fulfilling patient experience, and oftentimes, better patient compliance, which can ultimately reduce costs.
The terms “value based care” or “value based payment” include a variety of reimbursement arrangements including: alternative payment model (APM), advanced APM, bundled payments for episodes of care, pay for performance, shared savings programs, and “full” or “capitated” payments.
In this model, payers have reimbursed healthcare providers based on the number of services or procedures they provide to their patients. The payers are billed for tests, scans, or treatment when a patient visits a doctor or is admitted to a hospital.
In contrast to traditional fee-for-service payment models that are based on the volume of care provided, value-based payment models reward providers based on achievement of quality goals and, in some cases, cost savings.
1. Siloed patient information. Interoperability issues have been a pain point within the healthcare industry for some time and is one of the most significant challenges of value-based payment models.
The cons of value-based healthcare include:
The demands of a value-based system can lead to a tougher, less sustaining work environment for physicians. Organizations that lack data managing skills find it difficult to reach value-based care objectives which might end up in hefty penalties.
What are three ways in which providers receive reimbursement for services?
The three primary fee-for-service methods of reimbursement are cost based, charge based, and prospective payment. Under cost-based reimbursement, the payer agrees to reimburse the provider for the costs incurred in providing services to the insured population.
Value-based care and pay for performance are related concepts but not identical. Pay for performance typically refers to financial incentives tied to meeting specific performance metrics, while value-based care encompasses broader payment models focused on improving overall value, quality, and outcomes.
In short, fee-for-service is a traditional payment model where healthcare providers are reimbursed for each service they deliver to a patient, while value-based care is a newer approach that incentivizes providers to focus on quality outcomes rather than the quantity of services rendered.
Value-based healthcare delivery is a system in which healthcare providers are reimbursed based on the quality of care they provide, rather than the quantity of care. Value-based care models are intended to improve patient health outcomes and reduce costs.
Payments fall short of the cost of delivering quality care.
Moreover, hospitals and other types of providers incur significant fixed costs to deliver essential services, and as a result, a reduction in the number of services delivered reduces their revenues more than their costs.
In PMPM billing, healthcare providers and payers agree to a fixed amount that is charged per member per month. This fixed amount is typically based on the expected cost of providing healthcare services to the member and may include the cost of preventive care, acute care, and chronic care services.
Defining Value-Based Payment
In this brief, “value-based payment” is used interchangeably with “Alternative Payment Models” (APMs). These terms refer to a variety of arrangements, all of which are best defined by what they are not: open-ended fee-for-service payments, or straight pay for volume.
Value-based pricing , also known as value-added pricing or value pricing, is a method of setting prices based on your customers and how they perceive the value of your product. The more your audience thinks your product or service is worth, the more you can charge.
The National Academy of Medicine defines value-based care (VBC) as safe, timely, efficient, equitable, effective, and patient-centered — or STEEEP. The University of Utah Health offers a more practical definition, the value equation:2 Value = (Quality × Patient Experience) / Cost.
Capitation reimbursement models are designed to support the goals of value-based care (VBC) – improving individual and population outcomes while reducing healthcare costs. For payers, global capitation contracts ensure cost predictability (because they are paying a fixed amount) and a reduction in administrative costs.
How many providers use value-based care?
While our survey doesn't reveal what share of a physician's total payments are value-based, it does reveal that more PCPs are receiving FFS payment than VBP. Seventy-one percent of respondents reported that their practice was receiving any FFS payments, while fewer than half (46%) reported receiving any VBP.
Perceived value is not always stable
Also, competitors might come up with a better offer that comes with a higher perceived value. With value-based pricing, this means you are forced to lower your prices in these situations, which can severely affect revenues and profit.
Value-based care places patients at the center of their healthcare journey, fostering better communication, trust, and empathy between providers and patients. This patient-centric approach contributes to higher levels of satisfaction, as patients feel heard, respected, and actively involved in their treatment plans.
The Medicare Advantage (MA) Value-Based Insurance Design (VBID) model will be extended for calendar years 2025 through 2030 and will introduce changes intended to more fully address the health-related social needs of patients, advance health equity, and improve care coordination for patients with serious illness.
Weaknesses of VBM
Using VBM as your only criteria may cause you to discount projects and strategies that have a highly uncertain outcome, but could make a large contribution to long-term growth and sustainability.
References
- https://innovaccer.com/resources/blogs/fee-for-service-vs-value-based-care-differences
- https://www.healthaffairs.org/do/10.1377/hpb20221014.526546/
- https://www.rocketdigitalhealth.com/insights/per-member-per-month-billing-digital-health
- https://www.annetteandco.co.uk/advantages-and-disadvantages-of-value-based-pricing/
- https://www.elationhealth.com/resources/blogs/fee-for-service-vs-value-based-care-the-differences-explained
- https://www.agilonhealth.com/news/blog/how-does-value-based-care-lower-costs/
- https://www.managedhealthcareexecutive.com/view/how-capitation-contracts-benefit-providers-payers-and-patients
- https://www.commonwealthfund.org/blog/2023/engaging-primary-care-value-based-payment-new-findings-2022-commonwealth-fund-survey
- https://www.chargebee.com/resources/glossaries/value-based-pricing/
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- https://account.ache.org/eweb/upload/GapenskiReiter_chapter2-2acdcc36.pdf
- https://www.foreseemed.com/value-based-care
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- https://www.macpac.gov/subtopic/value-based-purchasing/
- https://www.cms.gov/priorities/innovation/vbid-extension-fs
- https://prognocis.com/value-based-healthcare/
- https://chqpr.org/VBP_Problems.html