The Value-Based Care Myth

The Ineffectiveness of "Pay for Performance"

The widely used method of payment based on value is known as "pay for performance" (P4P). Under this approach, a healthcare provider may receive additional payments if its performance surpasses that of other providers based on a specific set of quality, utilization, or spending measures defined by the payer. On the other hand, it may face penalties or reduced payments if its performance falls below that of other providers on these measures. Due to the implementation of P4P programs like the Merit-Based Incentive Payment System (MIPS) for physicians, the Hospital Value-Based Purchasing Program, and the Skilled Nursing Facility Value-Based Purchasing program in Medicare, most physicians, hospitals, and other healthcare providers now participate in at least one pay-for-performance system. According to the Centers for Medicare and Medicaid Services (CMS), this falls under "Category 2: Fee for Service with a Link to Quality and Value" (as opposed to "Category 1: Fee for Service - No Link to Quality & Value").

The quality of care has not been improved by this method due to the following factors:

• No additional charges are applied for services that aim to enhance the quality of care. Healthcare providers, including physicians and hospitals, continue to be reimbursed for the same services as in the traditional fee-for-service system. However, they may experience financial losses if they provide care in different ways or prioritize patient wellness.
• Payments do not cover the full cost of delivering quality care. Even if a healthcare provider qualifies for performance-based payments, the amount is usually insufficient to bridge the gap between fee-for-service payments and the actual cost of providing high-quality care. Additionally, the administrative burden of measuring quality can result in increased costs that exceed the additional revenue received from performance-based payments.
• The measures used to assess quality may not be accurate or comprehensive. Quality is evaluated based on whether a patient's care meets a general standard, even if meeting that standard could be detrimental for the specific patient. Furthermore, since quality measures only apply to a limited range of health conditions and services, there may be no measure of quality at all for certain health problems and patients.
• Healthcare providers may face penalties for factors beyond their control. For instance, if a patient is unable to afford necessary medications for their diabetes treatment, the provider may receive a lower score on the quality measure and consequently, a reduction in payments. This is despite the provider having no control over the patient's adherence. Additionally, a provider may be penalized for the quality of care provided by other unrelated providers for completely different health issues.
• There is no guarantee of high-quality care for every patient. Healthcare providers are paid for providing subpar or inappropriate services to a patient, regardless of their performance on quality measures. In fact, in cases where performance-based payments are based on the percentage of patients meeting the quality standard, a provider may receive higher payments for delivering poor-quality care to an individual patient if their overall quality scores for other patients are above average.
• The payments discourage collaboration for care improvement. In certain Pay-for-Performance (P4P) programs, such as Medicare's Merit-Based Incentive Payment System (MIPS), a provider can only receive a bonus for good performance if other providers are penalized for poor performance. This discourages collaborative efforts to improve care, as high-performing providers who help others improve may receive a smaller bonus.

The common belief is that P4P systems have failed due to insufficient incentives, but the true issue lies in the fact that P4P does not effectively address the challenges of fee-for-service payment. Additionally, the oversimplified quality measures utilized in these systems may discourage healthcare providers from treating disadvantaged patients who have intricate medical needs or struggle with adhering to conventional treatment methods.

The Ineffectiveness of Joint Savings and Risk-Sharing

In recent years, payment systems have shifted their focus towards lowering healthcare expenses instead of enhancing the quality of care. The most common approach used is the "shared savings" payment model, where a healthcare provider receives standard fees for their services but may also be eligible for a bonus payment if the payer determines a decrease in total spending for their patients or lower spending than expected. However, there is a growing trend of implementing "downside risk" in these models, meaning that providers may face penalties if the payer's total spending increases or exceeds their expectations.

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The Centers for Medicare and Medicaid Services (CMS) has developed several "alternative payment models", such as the Medicare Shared Savings Program, the Bundled Payments for Care Improvement (BPCI) program, and the Comprehensive Care for Joint Replacement program, which all follow a similar structure. These programs still provide providers with standard fees for their services, making them essentially variations of the pay-for-performance concept. However, the main difference is that they aim to reduce spending rather than improve quality, with the bonuses and penalties being based on changes in spending. This is why CMS categorizes them as "Category 3: Alternative Payment Models Built on Fee-for-Service Architecture."

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Overall, the implementation of shared savings and downside risk models has not effectively decreased healthcare expenses or enhanced the level of care due to their failure to implement fundamental modifications in the payment structure for healthcare providers.

• There is currently no financial support to implement new or alternative services that could potentially reduce the use of more expensive services. However, there are numerous opportunities to decrease healthcare costs without compromising patient well-being and even improving outcomes. This can only be achieved by offering a different range of services to patients, but the current fee-for-service systems do not provide payments for such services. As a result, providers participating in shared savings and downside risk programs are unable to pursue cost-saving measures without negatively impacting patients, as there is no change in their payment structure.
• The payments provided are inadequate to cover the expenses of providing high-quality care. Even if a healthcare provider qualifies for a shared savings payment, it may not be enough to cover the costs of the services required to generate savings. Additionally, hospitals and other providers have fixed expenses associated with providing essential services, so a decrease in the number of services provided leads to a greater decrease in revenue compared to costs. The shared savings payments may not be enough to compensate for these losses.
• It is still difficult to compare providers based on the cost of treating health issues. While shared savings and downside risk payment systems typically estimate the expected spending for a procedure or for all services provided during a specific period, these calculations are usually done after the services have been rendered. Even if the expected spending is determined beforehand, the complex calculations involved in determining bonuses and penalties can only be done after services have been provided, making it impossible to know the exact amount that will be paid in advance.
• Healthcare providers may receive incentives for not providing necessary services to patients. In a payment model based on shared savings, a physician can receive a bonus payment by not ordering tests, procedures, or medications for a patient, regardless of whether the patient actually needed those services. However, the limited number of quality measures used in these models do not effectively address the risk of undertreatment.
• Providers may face penalties for caring for patients with greater needs. Patients with higher needs typically require more and more expensive services, but the risk adjustment systems used in shared savings models do not adequately account for this. As a result, providers who care for a larger number of high-need patients may be assigned higher spending, reducing their chances of receiving a shared savings bonus and increasing the likelihood of financial penalties.
• Funds are allocated towards avoiding losses instead of improving patient care. Providers participating in downside risk models must invest significant amounts of money into data systems, stop-loss insurance, risk score optimization, and other activities aimed at increasing the likelihood of receiving bonuses and reducing the chances of paying penalties. This diverts resources away from patient care improvement.

The Ineffectiveness of Full-Risk Population Based Payment Model

Fee-for-service payment has the advantage of ensuring that providers are only compensated if they provide care to patients in a timely manner. On the other hand, population-based payment guarantees payment to providers regardless of whether patients receive necessary services. Therefore, there is no guarantee that patients will receive care when they require it.

• The payment amounts set in proposals for capitation and population-based payments are often not enough to cover the cost of providing high-quality care. This means that if fee-for-service payments were inadequate to cover these costs, the same will likely be true for capitation payments.
• Under capitation payments, providers are not incentivized to deliver more services or a wider range of services, as the payment amount remains the same regardless. This can lead to providers saving money by withholding necessary services, rather than providing the full range of care that patients may need. Additionally, the limited quality measures in these payment models do not effectively prevent undertreatment.
• Fee-for-service payments have the advantage of providing additional compensation for caring for patients with more healthcare needs. However, population-based payment systems often do not adjust the payment for patients with new chronic conditions, multiple acute problems, or non-medical barriers to care. This can penalize providers who care for patients with higher needs.
• In population-based payment systems, providers are responsible for covering all of a patient's healthcare needs with a fixed payment amount. This can result in providers being penalized for factors beyond their control, such as increases in drug prices or services provided by other providers or health systems. This can discourage providers from caring for patients with higher needs.
• Due to the financial risk involved in population-based payment systems, healthcare providers may have to pay vendors and consultants to identify ways to maximize profits and minimize losses. This reduces the amount of revenue available for patient care. Private investors and financial intermediaries may also try to maximize profits by cherry-picking patients and inflating risk scores, rather than improving the quality of care.

Conclusion

Although it is important, a patient-focused approach to evaluating quality is not enough to enhance the quality of healthcare and address disparities. Without adequate payment from payers, healthcare providers are unable to provide the necessary services for high-quality care. Simply offering bonuses and penalties based on quality measures, as is done in most current "value-based payments," will not eliminate the significant obstacles to patient-centered care that exist in current payment systems. To accomplish this, a payment system that prioritizes patients and provider profitability is necessary.

In my career I saw countless providers burned by the value-based care myth. The fee-for-service model may not be perfect, but until payers start doing what they exist to do - PAY providers a fair market rate that prioritizes sustainable, long-term profitability for the providers themselves the fee-for-service model is the best structure we have. It is important we as a society protect the fee-for-service model because our lives depend on it, literally.