Defining Value-based Care


VBC: Value-based Care FFS: Fee-for-service

If you’re in healthcare, you’ve probably heard of value-based care (VBC), but you may not know a ton about it. In this article we’ll define VBC, compare and contrast it with FFS and dive into thoughts about the future of VBC. 

Healthcare deductibles, diagnosis codes, benefits, etc. can get confusing, even for billing experts, but the concept of fee-for-service (FFS) is fairly simple: a patient goes to an appointment and the bill reflects the care given. The easiest ways for health care organizations to increase revenue with FFS is to see more patients or order unnecessary tests or treatments for patients.

Value-based Care (VBC), on the other hand, consists of reimbursement programs that reward providers for the quality of care they provide. The Centers for Medicare and Medicaid Services (CMS) programs for Medicare recipients are “part of a larger quality strategy to how health care is delivered and paid for.” 

VBC programs support CMS’s mission to provide better care for individuals, better health for populations and lower patient costs. The graphic below from NEJM Catalyst breaks down benefits to VBC:

Image from NEJM Catalalyst

With VBC, all doctors and Electronic Medical Records (EMRs) are supposed to be in contact to ensure that the best care is offered to patients. In essence, it should also eliminate unnecessary tests and missed diagnoses, making care better and more affordable for patients. 

Those with chronic illness can obtain care that makes a large difference now and in the future. Diabetic patients, for instance, can talk to their doctor about management and treatment, as well as talk to nutritionists about appropriate diet and exercise practices. This holistic approach where the patient  sees all doctors needed is designed so that patients can avoid preventable illnesses or complications. Treatment is bundled to provide the best care at the cheapest cost to the patient.

For payers (insurance providers), risk is reduced by spreading it across a larger population. The idea is that a healthier population (with fewer claims) translates into less drain on payers’ premium pools and investments. 

“Suppliers” in the graphic above refers to prescription drug suppliers. They benefit from VBC as they link positive patient outcomes with their products and services. Reduction in cost would also help to provide better socially determinant outcomes for patients, especially as national health expenditures on prescription drugs continue to rise. 

As a bonus: “Many healthcare industry stakeholders are calling for manufacturers to tie the prices of drugs to their actual value to patients, a process that is likely to become easier with the growth of individualized therapies,” according to NEJM Catalyst

How is payment calculated in VBC versus FFS?

Earlier we touched on how simple FFS is in concept. Providers are paid up to the contractual amount (for insurance holders) and patients essentially pay the remaining balance (or the entire balance if self-pay/uninsured). Out-of-network and In-network benefits are taken into account, but it is still fairly straightforward. Payment is billed for services rendered. 

With VBC, billing gets complicated. It’s important to know that FFS is built into VBC. 

As of right now, CMS’s VBC (for hospitals) uses FFS payment, but instead of offering the entire FFS payment amount, it maintains 2% of the payment to be distributed at the end of the fiscal year (FY) based on healthcare outcomes measured throughout the year. 

CMS states that less than, equal to or more than 2% will be paid out based on the score obtained. Though an incentive to do better as an organization, many hospitals have yet to adopt the VBC structure.

The score that hospitals obtain is comprised by these four categories (25% of their score for each):

  • Clinical Outcomes 
  • Person and Community Engagement
  • Safety
  • Efficiency and Cost Reduction

See more about scoring in this article.

Future of VBC

No current legislation stipulates adherence to value-based care programs as of January 2022, but we may see incentives and eventual legislation in the years to come. 

Overall, VBC programs are largely aspirational, especially considering that CMS has several times deemed VBC experimental and entirely voluntary,  but VBC could seriously decrease spending for the United States healthcare system. With nearly 18% of Gross Domestic Product (GDP) made up of healthcare expenditures (CMS, 2020), this could really change how healthcare is administered.

To learn more about the value-based care framework, see this research article from the National Library of Medicine.

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