After years of incremental progress, healthcare stakeholders are accelerating their adoption of value-based care (VBC) reimbursement models. In a recent report, McKinsey wrote, “Our research suggests that the number of patients treated by physicians within the value-based care landscape could roughly double in the next five years, growing approximately 15 percent per annum.”
Meanwhile, Health Care Payment Learning & Action Network (HCPLAN) data shows that 59.5% of healthcare payments in 2021 were linked in some way to quality and value incentives, with 20.4% comprised of upside-only rewards to providers for appropriate care and 19.6% with a combination of upside and downside risk.
Other survey data indicates most payers and providers anticipate a greater commitment to VBC models. More than three in four (77%) physicians in a Bain & Company survey released last November said they were interested in VBC with upside potential, though fewer (67%) indicated a willingness to assume downside risk.
Further, the Centers for Medicare and Medicaid Services (CMS) – the largest payer in the U.S. – also is driving adoption of VBC. The federal agency in 2021 announced an initiative to have all Original Medicare beneficiaries and the vast majority of Medicaid beneficiaries in accountable care relationships before the end of the decade.
Attracting investors
Not surprisingly, this increasing commitment to VBC is drawing growing interest from investors who see huge growth potential in alternative payment models. “Continued traction in the value-based care market could lead to a valuation of $1 trillion in enterprise value for payers, providers, and investors,” McKinsey writes.
Part of the momentum behind VBC can be traced to the Covid-19 pandemic, which instantly disrupted how healthcare was provided in the U.S. while also setting back VBC initiatives. Ironically, the major changes in care delivery prompted by the coronavirus – such as the rapid adoption of virtual care in response to lockdowns and office closings – today are helping to fuel VBC adoption. For example, roughly two-thirds of more than 2,000 U.S. patients in a RAND Corporation survey said they preferred at least some video visits in the future.
By bringing confusion and chaos to hospitals, clinics, and private practices, Covid-19 created the conditions for healthcare systems to deliver better value to patients, according to PwC.
“Before the pandemic, healthcare systems had struggled to put value-based healthcare into practice. Segmenting the population, defining standardized outcome measures, setting up the technology to collect them, and exchanging leading practices at scale seemed too complex,” the professional services firm writes. “As they reorganized, healthcare systems have made significant strides toward a value-based approach, establishing a patient-centered and data-driven model for delivering healthcare.”
Health systems participating in VBC models prior to the onset of the pandemic are in better shape in 2023 because they were less reliant on fee-for-service (FFS) payments, which plummeted nearly 60% in early 2020 amid public lockdowns and provider office restrictions. “Organizations that had significant stake in VBC saw financial gains that are hastening the move to value,” health services provider Optum wrote.
Investors are seizing the opportunity presented by heightened demand for VBC solutions. McKinsey estimates investments in VBC companies quadrupled from 2019 to 2021 and that “private-capital inflows in value-based care assets rose from 6 percent of the capital investment in hospitals to nearly 30 percent within two years.”
In a survey of digital health startup investors released by GSR Ventures, respondents identified changing reimbursement models as the second-biggest challenge technology startups should address, behind only provider shortages/burnout. However, investors responding to the survey also cited emerging VBC models (along with healthcare consumerization) as providing the best current opportunity for digital health startups. These investors see potential return on investment (94%) and clinical validation of a digital health startup’s technology platform (79%) as the top criteria for major investment.
Overcoming legacy technologies
Built for the fee-for-service environment, legacy systems lack the architecture and infrastructure to support VBC programs at scale. VBC programs require multi-stakeholder data exchange and movement of funds across the continuum of care, which is difficult with legacy systems. To fully implement VBC contract models, service providers must be able to participate as individuals, as parts of groups, across programs, and with multiple payers.
The ability to implement this hierarchical view of the participant relationships is essential to automation and scaling VBC programs. Technology for implementing VBC models must deliver end-to-end support for the entire enterprise – including patient/member communication and engagement – while reducing administrative complexity.
Conclusion
No matter where provider and payer organizations are on their VBC adoption trajectories, they need technology compatible with costly legacy systems. For investors, this means there are opportunities for solutions at all levels of adoption. Among the tech companies that provide platforms and solutions for VBC implementations are Aledade, Cedar Gate, Clarify Health, HSBlox, Nuna, Signify Health, and SpectraMedix.
The pandemic exposed the flaws and vulnerabilities of the fee-for-service payment model while opening our eyes to the possibilities of VBC. Look for investors to continue making bets on alternative payment models that are more efficient and produce better outcomes for patients.
Michael Roach
Michael Roach is an experienced healthcare executive, leading highly successful growth, business development, marketing, and channel marketing organizations for major health and insurance carriers, and specialty healthcare companies. Roach’s experience includes senior leadership roles with BCBS NC, InformedDNA, IPG, Resolution Health, Provident Life & Accident. He currently serves as the lead investor at D&S Entrepreneurial Fund, LLC.