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Advance Possibility

Navigating the Path to Value Based Care

Path to value based care
May 24, 2023

The United States spends a far higher percentage of its GDP on healthcare than other nations, yet the results are not as good. The United States has the greatest infant mortality rate and the highest rate of avoidable fatalities when compared to other high-income nations. Additionally, individuals with low income and people of color are more likely to suffer from worse health outcomes than the general population due to historical disparities in access to care. Additionally healthcare expenditures are on the rise (1).

Misaligned incentives incorporated into the country’s traditional fee-for-service payment plan for healthcare are a contributing factor to these persistent, pervasive issues. In this service model, providers are paid for each service that they provide, regardless of the outcome. In other words, they are compensated for volume, even if they don’t produce the intended results (1). Health care spending will keep rising if alternative payment models aren’t adopted more widely in the business market, where per-enrollee costs continue to exceed inflation and wage growth (2).

Value-based care is a healthcare delivery model that emphasizes quality of care over the quantity of services provided. It is a system that rewards healthcare providers for achieving positive patient outcomes and reducing healthcare costs. This model has been gaining traction in recent years, and it is expected to continue to grow.

According to a report by McKinsey & Co., the transition to value-based care is still in its early stages, with only 10% to 20% of healthcare payments tied to value-based contracts. However, the report predicts that this trend will accelerate in the coming years, with up to 80% of healthcare payments tied to value-based contracts by 2025 (3).

The Affordable Care Act (ACA) codified reimbursement for value, or quality in 2010. Numerous value-based initiatives were created in the 2010s, including the ACA-created ACOs for Medicare’s Shared Savings Program (MSSP).

The most common types of value-based care models are the following (4):

  • Performance-Based Payments: In this model, healthcare providers are incentivized to meet or exceed performance metrics related to quality of care, patient outcomes, and cost reduction.
  • Bundles: In this model, healthcare providers receive a fixed payment for all services related to a specific treatment or episode of care. This encourages providers to work collaboratively to coordinate care and reduce costs.
  • Shared Savings & Risk: The conventional FFS model is used to pay a provider organization, but at the end of the year, total spending is compared to a target; if the provider organization’s spending is lower than the target, it can receive a portion of the difference as a bonus. A provider organization must give back some of the excess money as a penalty if it exceeds the budgeted amount.
  • Global Capitation: The global capitation model provides healthcare providers a fixed budget to provide care to a defined population. Providers are incentivized to manage costs while maintaining the quality of care.

Challenges For Providers And Payers

Unlike the FFS model, value-based care is driven by data because providers are required to report on specific quality measures that suggest a patient’s health is improving. Value-based compensation is determined using a variety of quality indicators and population health as a whole. Hospital readmissions, adverse events, population health, patient involvement, and other topics could be tracked and reported by providers.

The use of evidence-based medicine, patient engagement, improved health IT, and data analytics are all encouraged under the new payment methods.

FFS and value-based care have very distinct revenue cycles. The FFS cycle is founded on a single encounter, lasts 90 days, and pays according to the services rendered. A value-based model has an 18-month revenue cycle that is retrospective in nature because it is based on accumulated encounters that occur over the course of the year and the payment and coding are based on disease burden. For payer and provider organizations looking to make the switch to value-based care, balancing these two revenue cycles and altering processes is another significant challenge (6).

By 2025, CMS is preparing to tie 100% of reimbursements to value-based contracts. Hence it is crucial for physicians to stay ahead of the curve and get ready for this transition. Risk adjustment will be extremely important for providers and health plans to leverage in order to succeed in value-based care.

Value-Based Care & Risk Adjustment

Value-based care and risk adjustment are closely related concepts. Both are aimed at improving the quality of care delivered to patients and reducing the costs of healthcare. The goal of risk adjustment is to ensure that healthcare providers and plans are fairly compensated for the care they deliver. Hence the relationship between value-based care and risk adjustment is critical. Value-based care depends on accurate risk adjustment to ensure that providers are rewarded for delivering high-quality care to patients who are sicker and require more resources. In addition, risk adjustment helps to ensure that providers are not penalized for factors outside of their control, such as patient demographics and socioeconomic status.

Episource’s Director of Product, Meleah Brideford’s article in Medical Economics emphasizes the significance of risk adjustment for physicians in value-based care contracts. It stresses the need for accurate and complete risk adjustment and coding data to account for the patient population’s health status. Physicians must stratify high-risk patients, such as those with chronic conditions, into cohorts and develop effective interventions to manage their care. The article also highlights the importance of establishing a sustainable path to health management and using a risk adjustment analytics platform to segment patients based on clinical needs and financial utilization. Physicians must have a clear understanding of the value-based care contracts they are entering into, including revenue, capitation, division of financial responsibility, control prohibitions, assignment limitations, and capitation deductions. Accurate and complete risk adjustment data is essential to ensure that physicians take on the right level of risk aligned with their organization’s capabilities (5).

In conclusion, the transition to value-based care will not be without challenges. These challenges include the need for greater collaboration across the healthcare system, the development of new payment models, and the need for healthcare providers to adopt new technologies and processes. The future of value-based care is bright, with the trend towards value-based contracts expected to accelerate in the coming years. Healthcare organizations that invest in the infrastructure to support value-based care are far more likely to succeed.

To learn about some technologies and resources that can help your organization transition to value-based healthcare, don’t hesitate to contact us.


1. Lewis , C. (2023, February 7). Value-based care: What it is, and why it’s needed. Commonwealth Fund. Retrieved April 4, 2023, from https://www.commonwealthfund.org/publications/explainer/2023/feb/value-based-care-what-it-is-why-its-needed

2. Werner, R. M. (2021, July 26). The future of value-based payment: A road map to 2030. Penn LDI. Retrieved April 4, 2023, from https://ldi.upenn.edu/our-work/research-updates/the-future-of-value-based-payment-a-road-map-to-2030/

3. Abou-Atme, Z., Alterman, R., Khanna, G., & Levine, E. (2022, December 16). Investing in the new era of value-based care. McKinsey & Company. Retrieved April 4, 2023, from https://www.mckinsey.com/industries/healthcare/our-insights/investing-in-the-new-era-of-value-based-care

4. Mark J. Bethke. (2020, December 16). Value-based health care payment models. Deloitte United States. Retrieved April 4, 2023, from https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/value-based-care-payment-models.html

5. Bridgeford, M. (2023, February 13). Why physicians in value-based contracts need to get ahead of Risk Adjustment. MedicalEconomics. Retrieved April 4, 2023, from https://www.medicaleconomics.com/view/why-physicians-in-value-based-contracts-need-to-get-ahead-of-risk-adjustment

6. The silent step: The first course of action in operationalizing your risk adjustment program. Episource. (2023, March 1). Retrieved April 4, 2023, from https://www.episource.com/resources/first-course-of-action-in-operationalizing-your-risk-adjustment-program