Value-Based Payment Models Can Limit Healthcare Spending


Value-based payment models, including accountable care organizations, bundled payment models, and capitation models, can generate savings for providers and limit healthcare spending.

As healthcare spending escalates in the US, stakeholders have started looking at value-based payment models to address rising costs, but many payments are still tied to fee-for-service models, according to a Health Affairs research brief.

During 2020, the first year of the COVID-19 pandemic, healthcare spending accounted for 19.7 percent of US gross domestic product (GDP). Previously, researchers had predicted that it would not reach that level until 2028.

Health Affairs started the Council on Health Care Spending and Value in 2019 to study excessive healthcare spending in the US and share strategies to address it. The research brief is part of a series that informed the council’s inquiry into healthcare spending drivers and interventions.

This brief focuses on value-based payment models as an intervention to curb excess healthcare spending in the US. Researchers used the Health Care Payment Learning and Action Network’s (LAN) framework for categorizing alternative payment models (APMs).

Categories three and four in the framework consist of APMs built on fee-for-service structures and population-based payment models, respectively. Category three includes accountable care organizations (ACOs) and bundled payments, while category four includes models that do not involve fee-for-service payments, such as global or per-person capitation.

Medicare is a top user of advanced APMs, due to the CMS Center for Medicare and Medicaid Innovation (CMMI), which has been developing APMs since 2014. The share of payments made under category three or four APMs has increased from 23 percent in 2015 to 41 percent in 2020. Only 6.7 percent of those payments were under population-based models.

Medicare Advantage had the highest share of payments in APMs in 2020, with 58 percent. In traditional Medicare, 42.8 percent of payments were made under APMs, while commercial payers had 35.5 percent, and Medicaid had 35.5 payments in APMs.

However, around 60 percent of payments were still tied to fee-for-service models. About 40 percent of payments were only fee-for-service, while 20 percent were fee-for-service tied to quality or value.

The brief detailed how accountable care organizations led to savings ranging from just below 1 percent to just above 6 percent. For example, savings in the Medicare Shared Savings Program (MSSP) ranged between 0.4 percent to 6.1 percent.

Researchers also noted that the effectiveness of bundled payments, in which prices are set on a per diagnosis, per procedure, or per episode basis, varies across procedures and patient populations. The Bundled Payments for Care Improvement (BPCI) and BPCI Advanced have generated savings for joint replacement procedures, while other procedures did not see savings.

Capitation, or population-based payment models, is when physicians receive a fixed amount of money per payment per unit of time paid in advance for delivering a full range of clinical services. Few healthcare organizations receive capitation as their primary reimbursement mechanism, resulting in limited data on the model’s potential savings.

The brief cited a survey from 2012 in which, among 21 large multispecialty medical groups, fully or partially capitated revenue accounted for around 30 percent of revenue.

Experts have determined that capitation success required risk adjustment of capitated payments, strong quality measurement, a broad clinical scope of capitation, a large patient population, and the ability of clinicians to share in savings resulting from the model.

CMMI has committed to addressing the challenges of its value-based payment models to increase participation. At the same time, CMS intends for all Medicare beneficiaries to be under a value-based payment arrangement by 2030.

In addition to addressing excessive healthcare spending, CMS has started spotlighting ACOs and other value-based payment models as methods to address health equity. Specifically, CMS had identified improvements to avoid disadvantaging rural populations and populations with older and sicker people, the brief concluded.

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