Need For Alignment
In the US, the term “value-based care” describes a collection of reimbursement models intended to facilitate the correction of an underlying misalignment in stakeholder incentives. This misalignment—a byproduct of well-reasoned and well-intentioned decisions made a century ago (primarily by physicians)—has led payer and provider organizations to race to the bottom. If this trend continues, these organizations, who generate revenue from the interaction between patient and provider, will employ increasingly perverse methods to extract money from its customers and—ironically—sacrifice the very interaction upon which they rely.
While the system has not collapsed (it’s too big to fail), this misalignment exacts a heavy toll on its participants. From the healthcare professional’s standpoint, delivering care to patients has become increasingly transactional and less rewarding as they are continually pressured to do more with less. From the consumer’s perspective, the average American has less medical services covered by their payer (or charged more if paying out-of-pocket) and less of a personal relationship with their primary physician while paying more for this level of service than in past. By definition this is “low value” care—pay more, get less.
Furthermore, the rate at which healthcare costs are increasing outstrips wage inflation and there is no indication of this rate of increase slowing as more Americans turn 65 everyday—the most expensive demographic. This means a relatively higher proportion of Americans’ income will need to go towards paying for healthcare resulting in reduced spending in other of the US economy.
Yet there is reason to be bullish on healthcare’s future in the US. Value-based care helps correct this severe misalignment by addressing the most fundamental structural flaw in our current system: how care is evaluated. With appropriate evaluation, costs and quality can be aligned. Viewed through this lens, value-based care is both a logical and emotional imperative.
Evaluation As The Key
Today’s reimbursement model is called fee-for-service. Inherent to its name, “services” inappropriately combines both goods (i.e. the medical advice and clinical management a patient receives) and services (i.e. the patient’s experience of receiving care, such as wait time) into one product. Consequently, this has meant that the amount billed will be proportional to the quantity and types of “services“ conducted during a patient visit. This is cost-plus pricing and, in theory, fair: the more “services” consumed, the more that should be paid by the consumer. However, this has led to measurement of output to be based on volume and cost to be positioned primarily an externality to the producers.
In contrast, value-based pricing strategy is predicated upon the notion that price is set according to the customer’s perceived value of the goods and services. The distinction between goods services consumers causes two effects. First, consumers will have greater ability to determine what they are willing to pay more for when seeking care (as well professionals choosing what type of organization they want to work for). Second, provider organizations can no longer purely maximize the for the clinical benefit (aka the newest and “best” test or treatment) without quality or expense of the service. In this way, cost is no longer an externality. And this is the key —and distinctive—feature of value-based care.
Given this design, it is important to acknowledge that value-based care is not about more Americans receiving the “best” medical care, but rather about the entire population receiving care that is more equitable and relatively higher quality than what is offered today.
While this represents a dramatic change in the underlying business model, it is not—contrary to some perspectives—necessarily harmful to the payer or provider organizations. In fact, when value-based pricing is employed successfully, it actually allows organizations to achieve greater profitability as they can increase prices without necessarily needing to increase volume. Additionally, this type of shift is not unprecedented: the automotive industry has undergone a similar transition over the last few decades and can provide healthcare leaders with valuable lessons.
Ultimately, a shift to value-based care mandates organizations to become proficient and increasingly more sophisticated in evaluating trade-offs between market tactics. And, although the industry is in its infancy in understanding these trade-offs today, competition will stimulate organizations to innovate and drive efficiency as they seek that optimal balancing point. As a result of these efforts however, Americans will be able to choose the best fit for their value system and the system will experience sustainable, positive change.
Eliot Wall is the Founder & CEO of Beacinsight, an operations intelligence solution that optimizes workflow decision making for care teams in real-time. Beacinsight lowers patient wait times, increases patient-provider face-time, and sets service expectations while capturing the data necessary to help organizations prepare for value-based care.
Prior to founding Beacinsight, he worked as an educator, process improvement specialist, and researcher at leading national hospitals including Boston Children’s Hospital, Massachusetts General Hospital and St. Luke’s-Roosevelt Hospital. His background is in Geographic Information System mapping technologies that previously led him to develop other location-based applications in healthcare.