In the early 1940’s less than 9% of the US population had health insurance. A quick adoption began during World War II when employers sought innovative ways to incentivize workers amid wage caps. By 1960 nearly 60% was insured. That number continued to rise steadily after Medicare and Medicaid were signed into law in 1965. As health insurance crossed the chasm, so began the road to value-based care and the struggle to align incentives across patients, providers, and payers to minimize costs while also maximizing “value”. Forward progress has been challenging thus far. Back in 1960 healthcare spending accounted for just 5% of gross domestic product (GDP), today it is nearly 20%.
A CMS article breaks down our healthcare spending history into five distinct “eras.” If you are a history and healthcare wonk do your inner nerd a favor and give it a read. But for now (or if you are feeling a little TL;DR), here is a quick summary:
- Pre-Medicare and Medicaid (1961-1965): while private health insurance had taken hold, almost half of healthcare spending still came out of pocket.
- Coverage Expansion and Rapid Price Growth (1966 – 1982): spending growth is driven by expanded health coverage and strong price inflation. Notably, this was also the era when the large-scale sales of prescription drugs began.
- Payment Change and Moderate Price Growth (1983 – 1992): moderate spending growth was driven by lower inflation and by increasing the cost-consciousness of consumers, employers, and government agencies. This was the era where Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) were introduced and Medicare underwent a serious overhaul.
- Cost Containment and Backlash (1993 – 2002): cost-cutting measures in the previous era helped moderate spending until consumers had had enough – demanding less restrictive plans. This resulted in rapid spending growth from 2000 – 2002 in particular.
- Recent Slower Growth (2003 – 2013): health spending slowed in this period as a result of an increase in cheaper generic drug offerings and the economic recession.
Because it was written in 2015, the article doesn’t account for “modern” spending eras, but if I had to take a stab at them, they would be:
- Thanks Obamacare (2013 – 2019): the Affordable Care Act (aka Obamacare) was implemented from 2010-2013, and while it is best known for expanding access to insurance, it also included a number of dimensions to slow healthcare spending. Attribution is highly debated, but there was a notable slowing of spending post-ACA.
- OMG WTH (2020 – 2022): COVID-19 has had a wild impact on all things, including healthcare spending. If you look at the totals, this era represents the single largest increase since National Health Expenditures (NHE) began tracking back in 1960. What is interesting is that much of this spending is in the form of financial assistance to providers, not spending related to the delivery of care. If you remove the financial assistance from the equation, spending has actually slowed due to a dramatic reduction in the use of care and services during the pandemic.
I did not intend this blog to be a history lesson, but I feel that the historic context is important to understand how we got where we are today, and why “Value-Based Care” is the hottest health-related Google search since “keto”. Many believe this fee-for-service replacement is the answer to our spending problems. If you haven’t actually googled it yet, the New England Journal of Medicine (NEJM) defines value-based care as:
“A healthcare delivery model in which providers, including hospitals and physicians, are paid based on patient health outcomes. Under value-based care agreements, providers are rewarded for helping patients improve their health, reduce the effects and incidence of chronic disease, and live healthier lives in an evidence-based way.”
NEJM suggests that moving away from the traditional fee-for-service model into value-based care models might just benefit nearly everyone:
And how! Let’s get off the volume train and hop on the value train… what are we waiting for?
Like all things in healthcare, it’s complicated. While it may feel like value-based care is a new-fangled approach, it actually dates back to the “Recent Slower Growth” era when CMS ran a Medicare demonstration project with 10 providers. From 2005 to 2010 the program saved a net of $137.8 million – huzzah! Since then, interest has steadily grown – CMS has expanded programs and many commercial insurers have introduced programs of their own. In 2015 Health and Human Services set some concrete goals for expansion and adoption of value-based or “advanced” payment models (APM). APM adoption fell short of the 2015 goals and they were reset in 2019.
There are many obstacles that have slowed the adoption of value-based care (our friend Nikhil at Out-of-Pocket recently broke down many of them), but I’d like to focus on provider hesitancy to take on APM risk. Already operating on razor-thin margins, voluntarily shifting to models that put those tiny margins at risk is a hard pill to swallow. Payers need to offer the right incentives to get providers on board. Medicare is leading the charge (or nudge) toward wider APM adoption, but commercial payers can take a more proactive role by building trusted risk-sharing partnerships with providers.
John Bennett, MD, Chief Executive officer of CDPHP described this shared risk in a recent HealthPayer Intelligence article.
“An effective payment system should ensure that payers retain insurance risk (i.e., the risk of whether patients have health problems or more serious health problems) and that providers accept performance risk (i.e., the risk of whether care for a particular health problem is delivered efficiently and effectively).”John Bennett, MD, Chief Executive Officer, CDPHP
I interpret this as payers must demonstrate their commitment to keeping patients healthy and support providers in reaching their targets through the delivery of efficient and effective care. This can take many forms including taking responsibility for addressing patient social determinants of health, implementing programs that support patients with chronic conditions, identifying and relaying care gaps to providers, and streamlining processes like prior authorization that increase administrative burden. For value-based care to work, the healthcare system must work together on the same team – rather than as adversaries skeptical of each other’s every move and constantly trying to take advantage of one another.
To be an effective team, the real-time exchange of data between payers and providers is required. All members of the team should have a shared 360-degree view of the patient and the ability to collaborate in a more agile way. In a recent preview of their HIMSS22 plans, Cerner’s Vice President of Interoperability acknowledged the importance of data exchange as providers take on more risk:
“The biggest evolution will come in care coordination as healthcare providers take on more risk arrangements with their payers. Having timely clinical and claims data exchanged between organizations is key to successfully managing the care and expense of a population.”Sam Lambsom, Cerner Vice President of Interoperability
As you may have guessed, Redox can help! Payers looking to enter into APMs with providers would be well-served by establishing bi-directional interoperability. Taking in real-time data from the provider’s electronic health record (EHR) will allow payers to build a more accurate picture of their members so that they are best equipped to build programs supporting social determinants of health and at-risk populations. It will also open up the ability to offer insights back to providers to help them close care gaps and streamline administrative processes.
I am under no illusion that value-based care, even if fully adopted, will be the single answer to our 60+ year healthcare spending crisis. But, absent blowing up the entire system, it may be our best chance at making some really tangible progress on our journey. So why not really go for it? Get some Redox, build some trust, save some money, improve some lives. Set up a meeting with one of our experts to learn more and get started or check our our Redox for Payers site to learn more.