How a Value Focus Could Change Health Care


How will the drive to health care value affect health care’s structure? We tend to assume that the health care structure we’re become accustomed to is the one we’ll always have, but that’s probably far from the truth. If we pull levers that incentivize the right care at the right time, it’s likely that many of the problems we think we’re stuck with, like overtreatment and a lack of accountability, will disappear.

A large part of getting the right results is making sure that health care vendors have the right incentives. All forms of reimbursement carry incentives, so it’s important to align them, to choose payment structures that work for patients and purchasers as well as providers. Fee-for-service sends exactly the wrong message, because it encourages unnecessary utilization, paying for each component service independent of whether its necessary and independent of the outcomes. Compare US treatment patterns to those in other industrialized nations and you’ll find ours are generally bloated with procedures that have become part of practice not because they’re clinically necessary but simply because they’re billable.

By contrast, value-based arrangements are really about purchasers demanding that health care vendors deliver better health outcomes and/or lower cost than what they’ve experienced under fee-for-service reimbursement, and the payment structure often asks the vendor to put his money where his mouth is, at least where performance claims are concerned. In a market that’s still overwhelmingly dominated by fee-for-service arrangements, one way for a vendor to get noticed is to financially guarantee performance. Integrated Musculoskeletal Care, a musculoskeletal management firm based in Florida, guarantees a 25% reduction in musculoskeletal spend on the patients they touch. This typically translates to a 4%-5% reduction in total health plan spend, just by contracting with this vendor, a compelling offer in an environment that makes it hard for upstarts to get market traction.

But the real power of possible payment reforms become clear when one considers how it might affect utilization, cost, and workforce patterns in medical domains that have been particularly out of control. Think about spine surgery, where good data exist to argue that half or more of procedures are unnecessary or inappropriate. What would happen if, in addition to tying payment to health outcomes, reimbursement for spine surgeries suddenly was no longer fee-for-service, but a capitated rate, meaning that a limit was imposed on funds that could be devoted to it?

  • Fewer surgeries would likely take place because there would be little or no financial benefit in doing unnecessary procedures,  plus any inability to show a positive impact on health outcomes in questionable cases. 
  • Spine surgeons’ caseloads would drop and incomes would fall. Some spine surgeons would retire or transition to other specialties.
  • The spine surgery market might quickly become very competitive. In an effort to win volume, spine clinics would quantify and then market their health outcomes and pricing, particularly to health plans and primary care practices seeking , preferred surgical providers.
  • Spine surgeons would become far more interested in approaches that consistently deliver better health outcomes and/or lower costs. Evidence-based medicine would find a much more receptive audience and treatments that have data showing they work would gain a following much more quickly than they do now. Non-operative treatments would become much more mainstream.
  • Spine surgery organizations with excellent performance would grow at the expense of their competitors and the variability of health outcomes would diminish. Centers of excellence would become much better established.
  • In general, costs of spinal surgeries would drop, possibly precipitously, and health outcomes would blossom.

Imagine the implications if similar payment reforms were implemented across all health care, impacting other niches with excessive utilization and cost, like cancer care and cardiovascular medicine. The workloads, numbers of physicians, and revenue base within each specialty would be reshaped, each one finding a new level.

In general, health care professionals who have become comfortable over the past several decades will find the new financial normal less to their liking than before. The winners here would be patients, purchasers, and primary care physicians who will benefit from market-based pricing and a greater reliance on true evidence-based care.

If risk-based arrangements get traction in ERISA health plans as they have in Medicare Advantage and Managed Medicaid, a health care market will take shape and strengthen. The kinds of changes I’ve described above will be increasingly prevalent. The question is whether employers and unions will finally insist that we pay for results rather than for activity.

Brian Klepper is a health care analyst and the EVP of the Validation Institute.