Value-based care catching up to fee-for-service

Outcomes-based models are spreading, but fee-for-service still dominates payment landscape.

Is value-based care having a moment?

Health care policy experts and institutions have long agreed that fee-for-service (FFS) medicine is wasteful, outmoded and at least partially responsible for the U.S. spending far more than peer nations on health care, but with outcomes that are no better and often worse.

Now, after years of experimenting, cajoling, and incentives, value-based payment models — those tied to patient outcomes and spending targets — seem to be gaining traction. According to the Health Care Payment Learning & Action Network’s (LAN) annual measurement of participation in alternative payment models, slightly more than 60% of health care payments in 2020 included some form of quality and value component. That is up from 53% in 2017 and 11% in 2012.

Similarly, 49% of practices responding to the American Academy of Family Physicians (AAFP) 2022 value-based care survey said they are participating in some form of value-based payment, and 18% are developing the capabilities to do so.

That is welcome news to AAFP President Sterling N. Ransone, Jr., M.D., FAAFP. “Our system is set up to prioritize and reimburse based on volume of patient visits versus outcomes,” Ransone says. “Value-based care prioritizes outcomes. And however we can get our population healthier is where the health care expenditure should go instead of the transactional fee-for-service environment we’ve been in for so long.”

Pandemic spurs interest
in value-based care
Much of the energy behind the search for alternatives to FFS comes from the federal government through the Medicare Shared Savings Program and the Centers for Medicare & Medicaid Innovation Center (CMMI). The latter — established in 2010 as part of the Affordable Care Act, former President Barack Obama’s health care law — is tasked with developing and testing payment models aimed at improving care quality for Medicare and Medicaid beneficiaries while slowing cost growth in both programs.

The COVID-19 pandemic has also changed some practices’ thinking about the importance of participating in value-based payment programs, says Corinne Lewis, M.S.W., program officer for delivery system reform at The Commonwealth Fund.

“Fee-for-service is a volume-driven payment system, so when patient volumes dropped (in the early phase of the pandemic), especially for elective and primary care, payments decreased substantially.” Lewis says. “So, providers are recognizing the need tomove toward more value-based approaches for more flexibility and protection against future volume shocks.”

In recent years the search for workable alternatives to FFS has been fueled by growing recognition of the role that factors such as access to adequate housing and nutritious food — social determinants of health — play in determining patient outcomes.

“How can we address patients’ behavioral and social needs in order to meaningfully bend the health care cost curve?” Lewis asks. “There’s growing recognition that value-based care will be essential to all those things and that’s where a lot of the interest is coming from at the Medicare/Medicaid level as well as commercial payers and providers themselves.”

Obstacles to value-based programs remain

Do these developments mean value-based payment models are the wave of the future, and FFS medicine will disappear? Probably not, experts say. There are still numerous obstacles to increasing provider participation in value-based models, and powerful forces working to preserve FFS.

Among the obstacles is the term “value-based care,” says Suzanne Delbanco, Ph.D., Catalyst for Payment Reform’s executive director. “It implies that whatever care is provided is of good value, which isn’t always the case,” Delbanco notes. Instead, she says, we should think in terms of payment reform and care delivery reform, with the latter being defined as “approaching care more broadly than just one visit at a time.”

“Both are needed for either to succeed,” Delbanco argues. “Payment reform for its own sake isn’t exciting, but if it can lead to higher quality, more affordable care it becomes interesting. And new care delivery models aren’t likely to be sustainable unless there’s a way of paying for them that makes them attractive to providers and leads to better results.”

Judged by those standards, movement away from FFS is less impressive than it first appears. Although LAN’s data show 60% of 2020 health care spending was in some form of alternative payment models, most of that was in programs built on FFS but including opportunities for additional revenue such as care coordination fees or through shared-savings programs. Only 6% of total spending was population based, such as per-member per-month or global budgets, and not linked to FFS.

‘Incentives haven’t really changed’

“Fee-for-service is still at the base of most alternative payment models,” says Delbanco. “The doctor or hospital is still billing and getting paid that way. So, for the front-line physician the day-to-day incentives haven’t really changed.”

Little of this comes as a surprise to Robert Berenson, M.D., a fellow at the Urban Institute’s Health Policy Center and former vice chair of the Medicare Payment Advisory Commission. “In my view, the people who come up with value-based plans don’t really understand the strengths and weaknesses of the various models, so they just focus on what they think are elegant new incentives without realizing some of them can’t be implemented.”

He cites the example of Medicare’s implementation of a payment code for “check-in” telephone calls with patients before an office visit, under the premise that such calls might head off unnecessary visits and save the program money.

The problem, Berenson says, is that the code’s payment amount—$14.53—was less than what it cost practices to bill for the service when administrative costs were factored in. “Docs aren’t completely stupid. They aren’t going to work below costs,” he said. “It’s an example of what sounds like a good idea in theory but operationally it makes no sense.”

Another hurdle many practices—especially small ones—face with value-based payment contracts is the upfront cost of the technology and personnel they need to compile, analyze and report data showing they have met a payer’s quality metrics. Such is the case for Melissa Lucarelli, M.D., FAAFP, owner of a family practice in rural Randolph, Wisconsin, and member of the Medical Economics® editorial advisory board.

“Our margins are so thin right now that it’s hard for me to pay upfront to jump on board a payer’s (value-based) initiative that will increase my administrative burden and may or may not increase my revenues,” Lucarelli says.

Nearly all Lucarelli’s Medicare patients are in some form of FFS-based quality program that includes bonuses for meeting certain Healthcare Effectiveness Data and Information Set quality guidelines, she says. Whenever possible, she bills for services such as chronic care and transition care management, advance care planning and cognitive impairment assessments.

The numbers challenge

“These piecemeal things are how we’re staying afloat right now,” she says. “But the administrative burden even from these on my little independent practice is phenomenal. It’s like being in a game where they change the rules every year.”

Making the challenge even greater is the sheer number of value-based arrangements. In addition to those available through Medicare and Medicaid, virtually every commercial payer has them, each with its own reporting requirements and quality metrics. For practices in contracts with multiple payers, keeping track of it all can seem like an insurmountable hurdle.

“A lot of our members, especially in small and solo practices, say they don’t have the resources to make sure they’re following the participation requirements (for alternative payment models), or even find out what they all are,” says AAFP’s Ransone. “So, they just throw up their hands and say, ‘Forget it, I’m not even going to bother.’ ”

Ransone adds that the academy has a project underway to address the problem. Dubbed “Vision 2025,” its goal is to reduce variability in payment structure and participation requirements for value-based models so small practices can receive the enhanced payments they often provide.

CMMI, in its 2021 “Innovation Center Strategy Refresh” white paper, acknowledged these and other problems with the value-based care models it has developed and experimented with for Medicare and Medicaid. Among the challenges it cites are complexity and overlap among many of the models; difficulty for providers to join or stay in value-based plans due to administrative burden and upfront investments; and developing better coordination among stakeholders.

“Alignment with private payers, purchasers and states is needed to increase the number of providers participating in value-based payment models and to make their participation sustainable across payers,” the paper says. To accomplish this, CMMI promises more public outreach in the form of listening sessions with payers, providers and health care purchasers, as well as learning from nonparticipants about barriers they face to participating in value-based models.

The paper notes that although CMMI has launched more than 50 models during the past 10 years, only four have met its requirements for being continued and expanded. “I think a lesson from the last decade that CMMI has taken to heart is the need to focus on a smaller number of strategic models that can really move the system,” says Mark McClellan, M.D., Ph.D., professor of medicine and business at the Margolis Center for Health Policy at Duke University and a former CMSadministrator.

Support for the status quo

Another obstacle to widespread use of value-based care and payment models, experts say, is the number — and power — of individuals and institutions who are satisfied with the current system. “There are many stakeholders who are fat and happy with the status quo,” says Catalyst for Payment Reform’s Delbanco. “Too many providers, and even payers, have found ways to be profitable with payment systems and delivery models that aren’t linked to quality.”

Berenson notes that more widespread use of payment models such as capitation or bundled payments would benefit primary care physicians more than specialists, because many services the former perform are underpaid or not billable. “Many of them (specialists) earn more than twice as much as primary care doctors, and they have enough power to prevent CMS from changing that on its own or from Congress authorizing CMS to do it,” he says.

Where FFS remains useful

What lies ahead for value-based care and the payment models that support it? Experts believe participation will continue to grow, but that FFS is not going away — in part because it remains well suited to some forms of care. “I don’t think fee-for-service will ever be eliminated entirely, because in some cases it can be an appropriate mechanism for incentivizing care that we want to see more of,” says Lewis.

Berenson agrees, citing vaccinations as an example. Practices need to be reimbursed for purchasing the vaccines, which is next to impossible under a capitation model given their year-to-year price variation. Beyond that, Berenson says, “if you pay fee-for-service for immunizations it’s much more likely they will be performed. And when you’re using fee-for-service to make sure an important service is provided, it means you’re improving value.”

FFS is also appropriate in primary care for discrete services such as hospital visits or minor surgeries, Berenson says. But in general, he adds, primary care clinicians would fare better under some form of value-based model such as capitation.

He cites research showing that up to 30% of activities primary care doctors perform, such as calls to pharmacies or patient callbacks, are not coded and so are not billable under FFS. “The beauty of capitation is, you don’t have to code for all those services. Instead, the payer says, ‘We’re going to pay youfor taking care of this population of patients and you allocate your time and resources to accomplish that,’” Berenson says.

Paying for social determinants of health

Duke’s McClellan says the increase in telehealth visits resulting from the COVID-19 pandemic is another reason why primary care clinicians and their payers should favor alternatives to FFS. Under FFS, he says, there is little incentive to use telehealth for the patients who would benefit the most — such as those in rural areas — and to coordinate telehealth with other community-based services those patients often need to address their health issues.

“You rarely see significant programs to address the social (determinants) of poor health in an FFS model because there just isn’t any way to do that,” he says. “How are you going to pay for air conditioners or transportation or whatever else the patient needs? Community-based health services are easier to provide widely in value-based arrangements because they’re built on the foundation of accountability for total costs and outcomes for patients.”

Ultimately, experts say, what’s needed are payment models that combine elements of FFS and value-based arrangements. For Lucarelli, such a hybrid approach would include “some form of per-patient reimbursement, or income floor, that covers stuff like doing their prior (authorizations) and coordinating with specialists.” Such an arrangement, she explains, “would allow us to provide these services regardless of the ebb and flow of patient volume during the year.”

Specific procedures, such as minor surgeries or IUD implants, should remain under FFS, she adds. “That way I’m fully reimbursed and can practice to my full scope of training. If I’m just getting a capitated amount, then doing most procedures becomes money out of my pocket and I might as well send the patient to a specialist.”