The rise of value-based care and the pursuit of 10x better solutions

Ian Chiang
4 min readDec 2, 2019

--

iStock Photos by Getty Images

Rise of Value-based Care:

Over the past decade, the United States healthcare system has gone through unprecedented change to expand access to care, improve quality, and manage healthcare expenditure. One of the most significant changes has been the rise of value-based payment models to move payment of healthcare services from a fee-for-service (FFS) to a fee-for-value (FFV) model. While many forms of FFV payment models exist in practice across primary care, specialty care, diagnostics, drugs, and others, the core principle of FFV payment or value-based care (VBC) is to reward providers of healthcare services financially based on patient-centered, evidence-based care, while eliminating over-utilization of services and drugs that does not lead to better outcome/quality. The push for the FFV payment model has led to the rise of Accountable Care Organizations (ACOs) and the development of other value-based care models by the Centers for Medicare & Medicaid Services (CMS) and commercial payers. On the public side, the Affordable Care Act (ACA) has paved the way for the creation of Medicare ACOs in 2011 (see brief history), and the program continued to evolve under Pathways to Success to accelerate financial incentive alignment. On the private sector side, every one of the commercial payers has all accelerated their ACO programs (e.g., Cigna has 230 Collaborative Care / ACO agreements, Humana has more than 1,000 value-based relationships across 43 states and Puerto Rico). Given our aging society and increased chronic disease burden, VBC is here to stay and will have an outsized impact on how healthcare will be paid for and delivered in the future.

Today’s challenges from a 30,000 ft view and opportunities for Innovators to create a 10x better solution for healthcare providers:

With the advent of VBC, many healthcare providers and other key stakeholders have been asked to drastically change their operating model from a fee-for-service oriented baseline, which rewards volume, to a fee-for-value and population health outcome-oriented new norm, which they are asked to adhere to the Triple Aim[1]. Many healthcare providers have been asked to radically change the way they engage and manage patients and transform the way they run their operations.

As an example, under FFS, many of the primary care providers would spend roughly 10 to 20 minutes with a patient per visit. The goal is to see as many patients as possible. However, under FFV, primary care organizations will need to adopt a team-based care approach, which may now require a care team to spend 45 to 90 minutes with a patient per visit to address patient needs, including behavioral health and social determinants of health (SDoH).

On top of this drastic shift in operating model, the wide array of FFV arrangements (e.g., P4P/P4Q, Bundles, Shared Savings, Shared Risk, Partial Capitation) and the rise of quality reporting have increased administrative burden and cost for healthcare provider organizations. The movement to VBC should, in theory, curtail or eliminate significant cost due to administrative complexity (a recently published JAMA article estimated that the administrative complexity contributed to an estimated $265.6 billion of the total annual cost to the U.S. healthcare system). The elimination of this type of waste would require discontinuation of certain administrative tools (e.g., prior authorization for medical necessity and non-emergent treatment) and delegation of services to clinicians.

However, despite the increased adoption of VBC and FFV contracts, most providers are still living in the dual world of FFS and FFV (only around 34% of health care payment is tied to some VBC contracts in 2017). It is nearly, if not outright, impossible for providers and payers to discontinue many of the FFS administrative tools. The FFS and FFV administrative work could often be additive. In addition, most primary care providers are not ready to take on additional delegated services (i.e., tasks, such as Utilization Management, that used to be done by the payers) due to operational complexity and not having enough hours in a day[2].

There are many reasons behind the rise of physician burnout, and the increased administrative burden has been highlighted as one of the root causes (see American College of Physicians’ position paper). Physician burnout has profound societal ramifications, and the cost of it could be staggering — roughly $4.6 billion a year, according to the Annals of Internal Medicine. To accelerate the enablement of VBC, our healthcare system must also prioritize care team satisfaction and experience. Our system ought to move from Triple Aim to Quadruple Aim. Our healthcare system must help providers accelerate their path to FFV and move out of this dual world of FFS and FFV they live in.

To help accelerate FFV, the market have seen an emergence of point solution vendors and technology-enabled physician management and value-based enablement platform companies (e.g., Agilon Health, Aledade, Privia Health, VillageMD), that aim to make taking on value-based contracts “10x” easier for individual providers and/or healthcare provider organizations, in recent years.

The rise of VBC and pursuit of Quadruple Aim has undoubtedly unlocked unique market opportunities for innovators to create new technologies, services, and business models for years to come.

[Note — I will highlight value-based care enablement and physician management capabilities and the emergence of investor-backed physician management & value-based enablement companies in a future article]

[1] Improve the per capita cost of healthcare, the health of the population, and the patient experience and quality of care

[2] A study published in the Annals of Family Medicine estimated that a primary care physician works 11.4-hour workday

--

--

Ian Chiang

VC @FlareCapital | founding member & former SVP of Product & Innovation@ Cigna-CareAllies | ex-Digital Health entrepreneur | ex-McKinsey | HBS & Cornell Alumnus