What is Value-Based Care? 5 Observations in 5 Minutes!

What is Value-based Care_staff on desk

Value-based care: a term we hear about a lot these days.  There are also its synonyms, value-based reimbursement, and value-based payments.  Although they are often used interchangeably, they really can mean different things.

In this Article …


What is the definition of Value-Based Care?

In our third-party payment system, value-based care could be defined as that level and quality of care that satisfies all three parties to the transaction: patients, payers, and providers. Of course, there is no universally accepted recipe for that mixture. Instead, we fall back on the synonyms like reimbursement and payments. For now, we will accept the interchangeability of the terminology and use value-based care to include the financial aspects of the concept.


Historical efforts to introduce Value-Based Care

Although we think of more recent efforts to introduce value-based care regimens, the concept of realizing more value for the cost of care goes back several decades. For instance, the implementation of Medicare reimbursement for inpatient services based on diagnostic-related groups in 1973 was an attempt to get more value (more care) for fewer dollars. The Centers for Medicare and Medicaid (CMS) also began issuing contracts to health maintenance organizations in 1985 to provide care to Medicare beneficiaries.  The value-based care proposition, in that case, was the capitation rate.  CMS set the rate at 95% of the average amount Medicare was paying for services in the same geographic area.


Early Value-Based Programs

CMS tried to implement several value-based programs in the past ten years.

  • CMS introduced the End-Stage Renal Disease Quality Incentive Program (ESRD QIP) in 2012. This program was the first of its kind in Medicare.  It changes the way CMS pays for the treatment of patients who receive dialysis.  It links a portion of payment directly to dialysis facilities’ performance on quality of care measures. CMS can reduce the payment to facilities by up to 2%, based on their performance on a series of quality measures
  • The Hospital VBP Program rewards acute care hospitals with incentive payments for the quality of care provided in the inpatient hospital setting. CMS withholds 2% of payments to hospitals. It uses this pool to fund value-based incentive payments to hospitals based on their performance in the program.
  • Hospital Readmission Reduction Program (HRRP) is a Medicare value-based purchasing program that encourages hospitals to improve communication and care coordination.  The intent is to better engage patients and caregivers in discharge plans and, in turn, reduce avoidable re-admissions. A hospital’s reimbursement can be reduced based on the hospital’s performance on six measures HRRP measures each year.
  • The Physician Value-Based Modifier or PVBM. The Value Modifier provided for differential payment under the Medicare Physician Fee Schedule (PFS) is based on the quality of care furnished to Medicare beneficiaries compared to the cost of care during a performance period. This program has been replaced by the Quality Payment Program in 2019.
  • CMS implemented the Hospital-Acquired Conditions (HAC) Reduction Program in 2014. The program encourages hospitals to implement best practices to reduce their rates of infections associated with health care.


Some of the Current Value-Based Programs

CMS has introduced a few new programs in its seemingly eternal quest to find the right formulas to incentive quality and de-emphasize quantity. The goal of these new models is to achieve the triple aim of providing better care for individuals, improving population health management strategies, and reducing healthcare costs.

ACOs. In an Accountable Care Organization, a group of providers (hospitals and physicians) come together to provide higher quality of care for their patients. There is an emphasis on identifying risk factors in the population and applying best practices to treat everyone with the risk factor.  For instance, identifying people at risk for developing diabetes, and offering interventions to reduce the risk.

Bundled payments. Patients are cared for by doctors, nurses, pharmacists, anesthesiologists, surgeons, and many other providers when they are in the hospital for a surgery or other healthcare service. In this model, the services are reimbursed through one payment, which is then split between the providers.

Capitation. This model pays groups of providers a specific amount of money based on the number of patients assigned to the group. The group is then expected to provide all of the covered medical services to the population assigned to it. Individual Primary Care Physicians may receive capitation payments for their services to the patients assigned to their individual practice.

MIPS and APMs. Individual physicians and other types of providers who participate in Medicare can earn incentives (and avoid disincentives) by participating in the Merit-based Incentive Payment System (MIPS), and Alternative Advanced Payment Models (APM).


Benefits and Risks of Value-Based Care

Naturally, participation in these programs can have benefits to both providers and patients, and risks, mainly to providers.

  • Providers can benefit from incentive payments. But many incentives are based on withholds that fund incentive pools, not extra payments for achieving quality goals.
  • Patient satisfaction may increase, leading to better retention of patients over time.
  • Providers may experience operational pressures as they attempt to implement new strategies like population health.
  • There is a downside financial risk for providers who participate in some value-based care programs like advanced alternate payment programs.

And some of the older value-based programs are still around, including ESRD QIP, Hospital VPB, HRRP, and HAC. We can anticipate these and other strategies will continue to roll out of CMS in its search for higher quality and lower costs.

When you need proven expertise and performance

Jim Hook, MPH

Mr. James D. Hook has over 30 years of healthcare executive management and consulting experience in medical groups, hospitals, IPA’s, MSO’s, and other healthcare organizations.