Our value-based care crystal ball
July 22, 2023
Value-based care is healthcare that focuses on improving holistic patient outcomes across a population while controlling costs.
More precisely, it involves alternative reimbursement models that reward healthcare providers for keeping patients healthy through holistic and preventative care—in contrast to traditional, fee-for-service reimbursement, which rewards providers simply for providing a higher volume of care.
In our recent research, we've addressed three common questions about the future of value-based care and the role of private capital:
1. Will the US healthcare system ever fully transition to value?
Our short answer: no.
Our long answer: It depends on what you mean by "fully."
CMS—the Centers for Medicare and Medicaid Services, the nation's largest health insurer and driving force behind the industry's shift to value—intends for all Medicare and most Medicaid beneficiaries to be value-based arrangements by 2030. Commercial (employer-sponsored) plans will transition to accountable care much more slowly, but employers, with the assistance of care navigators, will drive their own transition toward value as they work to control costs while improving employee welfare and productivity.
But there are other corners of the health system that are unlikely to participate substantially in value-based care, including on-demand care providers, which trade ease of access for longitudinal patient-provider relationships; high-margin, hospital-based specialties, such as radiation oncology and neurology; and providers at the intersection of aesthetics and medicine, such as orthodontists, plastic surgeons, and medspas.
Then there is the pharmacy benefit. Although a few companies, such as bluebird bio, are piloting value-based pricing agreements for high-cost therapies, widespread value-based prescribing is a distant proposition.
2. Why is the transition taking so long?
Even for a provider fully committed to pursuing value-based care, the hurdles are immense. Health systems, many of them stretched to near-breaking by the COVID-19 pandemic and its aftermath, must make enormous up-front investments in organizational change and technology infrastructure to successfully move into value.
On the payer (insurance) side, value-based contracts are highly complex and often bespoke, and payers are often reticent to embrace novel approaches. This is one reason why we think the enablement model will be key for advancing VBC in the coming years.
Add to this the fact that our clinical understanding of how to consistently improve patient outcomes remains limited in some areas, such as oncology; in other areas, such as mental health, care pathways are better defined, but acute provider shortages restrict access to care. Merely aligning incentives cannot solve these problems; research, technological innovation, and policy action are required to move the needle on care quality.
3. Is value-based care still worth investing in?
Yes—though we caution against the buzzword effect.
Many industry actors claim to advance value-based care but come up short in their care delivery model, payer relationships, or financial sustainability. We believe the key questions to ask of a value-based care play are:
Does this company materially improve patient outcomes while reducing total cost of care? Does it do so without increasing the burden on providers, and can the company bring providers into its vision to ensure their alignment and participation? Are early results replicable in subsequent cohorts, different payer relationships, and new geographical markets? Are payment mechanisms in place to capture enough of those savings to sustain the company's operations and growth?
The VBC transition will continue because the fee-for-service reimbursement model is unsustainable at a macroeconomic level and fundamentally at odds with the values that draw most healthcare professionals to the industry.
Moreover, technological progress has reached a tipping point: Cloud-based EHRs, predictive analytics, and improved interoperability are finally beginning to make driving and measuring value achievable. Given the challenges that remain, we believe private capital has an important role to play in the US healthcare system's transition to value.
For more data and analysis, read our VBC research:
Value-Based Care: An Investor's Guide
Anatomy of a Population Health Program
The Value-Based Care Enabler Landscape
Feel free to email me to discuss any of the above or join my distribution list for healthcare private markets research.
More precisely, it involves alternative reimbursement models that reward healthcare providers for keeping patients healthy through holistic and preventative care—in contrast to traditional, fee-for-service reimbursement, which rewards providers simply for providing a higher volume of care.
In our recent research, we've addressed three common questions about the future of value-based care and the role of private capital:
1. Will the US healthcare system ever fully transition to value?
Our short answer: no.
Our long answer: It depends on what you mean by "fully."
CMS—the Centers for Medicare and Medicaid Services, the nation's largest health insurer and driving force behind the industry's shift to value—intends for all Medicare and most Medicaid beneficiaries to be value-based arrangements by 2030. Commercial (employer-sponsored) plans will transition to accountable care much more slowly, but employers, with the assistance of care navigators, will drive their own transition toward value as they work to control costs while improving employee welfare and productivity.
But there are other corners of the health system that are unlikely to participate substantially in value-based care, including on-demand care providers, which trade ease of access for longitudinal patient-provider relationships; high-margin, hospital-based specialties, such as radiation oncology and neurology; and providers at the intersection of aesthetics and medicine, such as orthodontists, plastic surgeons, and medspas.
Then there is the pharmacy benefit. Although a few companies, such as bluebird bio, are piloting value-based pricing agreements for high-cost therapies, widespread value-based prescribing is a distant proposition.
2. Why is the transition taking so long?
Even for a provider fully committed to pursuing value-based care, the hurdles are immense. Health systems, many of them stretched to near-breaking by the COVID-19 pandemic and its aftermath, must make enormous up-front investments in organizational change and technology infrastructure to successfully move into value.
On the payer (insurance) side, value-based contracts are highly complex and often bespoke, and payers are often reticent to embrace novel approaches. This is one reason why we think the enablement model will be key for advancing VBC in the coming years.
Add to this the fact that our clinical understanding of how to consistently improve patient outcomes remains limited in some areas, such as oncology; in other areas, such as mental health, care pathways are better defined, but acute provider shortages restrict access to care. Merely aligning incentives cannot solve these problems; research, technological innovation, and policy action are required to move the needle on care quality.
3. Is value-based care still worth investing in?
Yes—though we caution against the buzzword effect.
Many industry actors claim to advance value-based care but come up short in their care delivery model, payer relationships, or financial sustainability. We believe the key questions to ask of a value-based care play are:
Does this company materially improve patient outcomes while reducing total cost of care? Does it do so without increasing the burden on providers, and can the company bring providers into its vision to ensure their alignment and participation? Are early results replicable in subsequent cohorts, different payer relationships, and new geographical markets? Are payment mechanisms in place to capture enough of those savings to sustain the company's operations and growth?
The VBC transition will continue because the fee-for-service reimbursement model is unsustainable at a macroeconomic level and fundamentally at odds with the values that draw most healthcare professionals to the industry.
Moreover, technological progress has reached a tipping point: Cloud-based EHRs, predictive analytics, and improved interoperability are finally beginning to make driving and measuring value achievable. Given the challenges that remain, we believe private capital has an important role to play in the US healthcare system's transition to value.
For more data and analysis, read our VBC research:
Value-Based Care: An Investor's Guide
Anatomy of a Population Health Program
The Value-Based Care Enabler Landscape
Feel free to email me to discuss any of the above or join my distribution list for healthcare private markets research.
Tags:
Join the more than 1.5 million industry professionals who get our daily newsletter!