What Is Value-Based Care and How Does It Work?

When the Affordable Care Act (ACA) was passed by the federal government in 2010, the wheels of value-based care were set in motion. Traditionally, the healthcare industry in the United States has operated a fee-for-service model, with healthcare providers being reimbursed based on the services they deliver. Increasingly, however, states are instituting value-based payment programs, causing organizations to consider changing their priorities.

What Is Value-Based Care?

Value-based care is an alternative model to fee-for-service that centers upon incentivizing care providers to prioritize the quality of the services they provide, rather than the quantity. The incentive is a financial one, with providers receiving payment based on patient health outcomes. As a result, they are encouraged to deliver the highest standard of care possible to each individual patient and are financially rewarded for doing so. To present it as a process:

An organization enhances the quality of care they provide to each patient > the health outcomes of their patients improve > the organization receives larger reimbursement from the Centers for Medicare & Medicaid Services (CMS).

How Does Value-Based Care Work?

Value-based care works by financially rewarding healthcare providers that deliver a high standard of care. Through a variety of programs, CMS reimburses healthcare providers based on more than just the service they provide. The specific factors that providers are judged on differ depending on the program applicable to them.

Let’s take the Merit-Based Incentive Payment System (MIPS), which falls under the Quality Payment Program, as an example. Under MIPS, the performance of providers is measured across four areas¹:

Quality —"Assesses the quality of the care you deliver, based on performance measures created by CMS, as well as medical professional and stakeholder groups.”
Improvement Activities —"Assesses how you improve your care processes, enhance patient engagement in care, and increase access to care.”
Promoting Interoperability —"Promotes patient engagement and the electronic exchange of health information using certified electronic health record technology (CEHRT).”
Cost — “Assesses the cost of the patient care you provide.”

Some value-based care programs also encourage and reward increased efficiency. The Affordable Care Act promotes the formation of networks between doctors, hospitals, and healthcare providers that coordinate patient care. When a network delivers care more efficiently, it becomes eligible for bonuses².

What Are the Benefits of Value-Based Care?

There are many benefits to following a value-based care model, both for providers and their patients. They include³:

Reduced Costs — By prioritizing patient recovery, value-based care helps to reduce costs for organizations and patients by minimizing the services an individual requires.
Increased Patient Satisfaction — When providers focus on delivering value and preventing conditions, rather than managing them, patients receive a better service, remain healthier, and are generally more satisfied.
Improved Societal Health — The emphasis on prevention, recovery, and improved patient outcomes results in healthier individuals and, consequently, a healthier society.
More Informed Patients — Electronic medical records (EMRs) and shared data are a focal point of value-based care, and this approach gives patients access to all the care information they need.

Value-Based Care vs Fee-for-Service

The fundamental difference between value-based care and fee-for-service is how payments are determined: quality vs quantity.

Under a fee-for-service system, like the one traditionally used in the U.S., care providers are compensated for each individual service they deliver. This includes every office visit, test, procedure, or treatment. This framework financially rewards providers for delivering as many services as possible, which acts as an incentive to maximize the number of services they provide to each patient instead of treating a patient efficiently⁴.

In contrast, reimbursement through a value-based care model encourages providers to focus entirely on achieving the best outcomes for patients, not treating them as often as possible.

How Common Are Value-Based Care Programs?

For more than a decade, CMS has been pushing for value-based care to play a larger part in the U.S. healthcare landscape. They say that value-based programs are “part of our larger quality strategy to reform how healthcare is delivered and paid for”, and that the programs support CMS’ three-part aim of better care for individuals, better health for populations, and lower healthcare costs⁵.

Over the last decade, CMS has introduced a variety of value-based care models, and since 2008, federal government has passed a host of measures, including²:

Medicare Improvements for Patients & Providers Act (MIPPA) — 2008
Affordable Care Act (ACA, also known as Obamacare) — 2010
Hospital Value-Based Purchasing Program (HVBP) — 2012
Hospital Readmissions Reduction Program (HRRP) — 2012
The Medicare Access & CHIP Reauthorization Act (MACRA) — 2015
Merit-Based Incentive Payment System (MIPS) — 2019

In addition to legislation passed at a federal level, state-issued value-based care and payment models are in operation across the United States. In 2018, 48 U.S. states and territories operated value-based reimbursement programs, a number that represented a seven-fold increase from five years previous⁶. A comprehensive breakdown of value-based care in America, state by state, is available here.

How Do I Prepare for Value-Based Care?

With many healthcare providers accustomed to the fee-for-service model, preparation is necessary in order to implement a value-based care approach. The American Medical Association (AMA) lists five steps organizations can take to prepare for value-based care⁷:

Identify your patient population and opportunity.
Design the care model.
Partner for success.
Drive appropriate utilization.
Quantify impact and continuously improve.

The AMA also says that:

“Value-based care models are the future of sustainable healthcare. This module is designed to help your practice make the shift towards this model so that your patients and team can reap the benefits of this outcomes-focused approach that incentivizes high-quality, patient-focused care, and reduces overall healthcare costs.”

Before embarking on the five steps, be sure to plan thoroughly and carry out comprehensive internal assessments to ensure you organization is equipped to thrive under value-based care and that your revenue will be positively impacted.