Study: Value-Based Models Might Not Save Healthcare Costs


A new study has shocking results about market-level rather than model-level impacts of value-based payment.



Early experiments with value-based payment (VBP) have yet to reduce the total cost of care or improvement in clinical quality care at the market level, according to a new study.

What Is Driving Total Cost of Care? An Analysis of Factors Influencing Total Cost of Care in U.S. Healthcare Markets” was conducted to determine what’s driving the total cost of care-both variations in baseline costs and variations in cost growth-in different markets across the country.

The study was conducted by the Healthcare Financial Management Association (HFMA), Leavitt Partners, and McManis Consulting, with support from the Commonwealth Fund. It used commercial data from 2012 to 2014, and Medicare data from 2007 to 2015, to conduct two quantitative analyses: the first examined correlations between the penetration of population-based VBP models and total cost of care for Medicare and commercial payers; the second looked at other market factors related to baseline Medicare costs and cost growth. A qualitative study of nine geographically and demographically diverse markets was also conducted.

The study found no statistically significant correlation between the penetration of VBP models and growth in the total cost of care for Medicare (2012 to 2015 data) or commercial payers (2012 to 2014 data) in more than 900 markets throughout the United States. Researchers attributed this finding to the limited prevalence of VBP models in many markets, the lack of strong financial incentives for managing the total cost of care, healthcare organizations’ preference for an incremental approach to risk, and employers’ reluctance to change benefit design, among other factors.

Unlike many other studies, this study focuses on market-level rather than model-level impacts of value-based payment.

“The alternative payment models that were prevalent during the study period-and that are still common today-lack strong financial incentives for managing the total cost of care. Other factors were in play as well, but that’s a big one,” says Richard L. Gundling, FHFMA, CMA, senior vice president, Healthcare Financial Practices, HFMA. “Forward-looking healthcare leaders realize that a sustainable healthcare system is one where the rate of cost growth does not exceed the rate of inflation. As an industry, we must figure out how to get there.”

This study also showed several key findings regarding the impact of industry consolidation on Medicare’s total cost of care:

  • Markets that were less consolidated, or less aligned vertically, tended to have higher costs.
  • Conversely, costs were lower in markets with well-organized provider networks.
  • Consolidation in lower-cost markets had left between two and four health systems with good geographic coverage as competitors within the market.
  • Physicians in lower-cost markets were typically employed by or closely aligned with the health systems, and the market usually included at least one integrated delivery system with a health plan, a hospital, and clinician capabilities.

The study also aimed to identify other market factors, including disease prevalence, socioeconomic factors, demographics, and quality, that may influence growth in the total cost of care for Medicare. Overall, baseline cost variation was more readily explained than cost growth; the 23 factors identified by researchers explained 82% of baseline cost variation, but just 27% of variation in cost growth. Also, the study found that employers in most markets studied were reluctant to change benefit design or choose health plans that might be perceived as limiting their employees’ choice of provider. Some were skeptical about the merits of population-based VBP models.

Other unique findings

The study also found:

  • Although employers continue to express concern about costs, they are reluctant to adopt alternative payment models that might be perceived as limiting employees’ choice of providers, according to the study.
  • Industry consolidation is a controversial topic. “We often hear concerns that consolidation will drive up the cost of care,” Gundling says. “But this study found that what type of competition may be a more important question than how much, with markets that were less aligned vertically tending to have higher costs.”
  • Variation in baseline cost was much more readily explained than variation in cost growth. “The most significant factor in predicting baseline costs was the prevalence of chronic diseases within a local market,” he says.

Based on the study, Gundling offers three takeaways:

  • Both government and commercial payers should move toward models that increase financial incentives for managing the total cost of care, and should closely monitor the results. “Experimentation should not be limited to population health management models,” Gundling says.
  • Balance the benefits of competition with the benefits of integration. “The type of competition may be more important than how much competition exists in any given market,” he says.
  • Support organized mechanisms for price and quality transparency; this study found that transparency is associated with lower-costs.
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