Healthcare is not only expensive, unfortunately, it’s also wasteful. In fact, nearly $760 billion annually is spent unnecessarily in healthcare, according to a recent study published in JAMA.
In addition to identifying the problems within healthcare, the researchers of the JAMA study also suggested methods of addressing waste. One such solution is greater adoption of value-based payment programs. Primarily aimed at improving care quality and reducing costs, value-based payment programs have downstream effects on both care and business processes that can reduce administrative waste for payers and everyone they work with in delivering and financing care.
Value-based vs. volume-based
Value-based payments are transforming the healthcare industry. Traditionally, in a fee-for-service model, payers pay providers for the individual services they provide. For example, each office visit, each medication, each MRI is a claim and a payment.
One challenge with the fee-for-service paradigm is that it pays doctors based on activity. Additionally, each service stands alone with its own transactions, which inherently means more shuffling of papers between payers and providers, and more administrative waste on both ends.
Value-based payments, on the other hand, consolidate payments and paperwork by giving global payments to cover either an entire population or an entire episode of care. They help payer reward providers for the value of the services they deliver to patients, rather than the volume.
Value-based payment programs come in many forms. CMS has developed models such as the Bundled Payments for Care Improvement Advanced Model for bundled, episode-based care, or the Medicare Shared Savings Program for accountable care organizations. Commercial payers are following suit, opting to pay doctors one payment for an entire population, episode, or procedure. For example, many insurance companies are contracting directly with doctors on joint replacements and other high-volume care episodes.
Adoption of these programs is rising, and the fee-for-service model is declining. A recent study from HHS revealed that more than one-third of healthcare payments are now tied to value-based care.
Improving care and reducing waste
Value-based payments don’t just arbitrarily cut back on waste. These programs encourage providers and payers to develop new ways of thinking, doing, and working together that help improve care.
Any reduced administrative waste is a result of a few key things:
- Putting everyone on the same team. In fee-for-service models, it’s every entity for itself. Though providers and payers have the same goal of delivering the right care to the patient, much of the administrative inconvenience between them pits the two entities against each other. In value-based payments, payers and providers agree together on a lump sum to cover what the patients need, and both have skin in the game. Payers are often giving money upfront, hoping it helps providers choose the best route in advance. Providers are often on the hook for anything that exceeds the agreed-upon price. This meeting of the minds, and risk on both sides, ensure that payers and providers are working toward the same goal—better care at reduced costs.
- Lumping transactions together. Naturally, the global payment aspect of value-based payments reduces administrative transactions by effectively lumping payments and paperwork together. Instead of processing separate claims and other paperwork for an office visit, MRI, surgery, and post-acute facility, providers payers can process the paperwork for one joint replacement bundled payment. This reduces the number of steps in the overall administrative process, allowing payers, providers, and everyone in between to repurpose their time toward activities that are more productive.
- Improving care quality. The goal of value-based payments is to improve care outcomes for patients, while also reducing the costs associated with that care. One way value-based programs achieve this is by increasing care coordination among providers. For example, one study highlighted that some ACOs in value-based payment programs added hospitalists to their care teams for patients having surgery. While a primary care physician in an ACO may be responsible for the patient, the hospitalist may be better suited to care for the patient in the hospital thereby reducing the chances of a costly and wasteful readmission after discharge. Better quality acute care may translate to less care needed down the line and less administrative hassle for that care.
As adoption of value-based payments increases, we will undoubtedly discover more ways to leverage this new method of incentivizing providers, and paying for care, that helps cut down on administrative waste. In the meantime, given the amount of money we waste each year in healthcare, it’s certainly worth a try.
Jim Dougherty is an entrepreneur and innovator, specializing in disrupting manual administrative processes by introducing new automation in healthcare and finance. At Madaket, he leads the team toward its goal of automating healthcare’s hidden administrative transactions for frictionless payer-provider relationships.