Value-Based Healthcare: Four Elements for Success

As it exists under the current fee-for-service (FFS) paradigm, US Healthcare is unaffordable, untenable and unsustainable. It is crucial that the prevailing framework evolve with value-based care (VBC) models, which have achieved significant success when implemented thoughtfully and correctly. This article outlines support for VBC and suggests several essential elements for successful implementation of VBC models.

Value-Based Care is a Key to Keeping Physicians at the Forefront of Healthcare:

Although it may seem like VBC has been around for decades, many of the specific CMS innovation programs have only been available to independent physicians in the last few years. Those who suggest that value-based care is somehow a “failed experiment” disregard the significant, though incremental, progress that has been achieved to date. This view further ignores the extent to which the existing FFS model is flawed and needs attention.

In the FFS system, physicians have been competing against hospitals and corporations on an uneven playing field. Because of their size and scale, hospitals and larger corporations have leverage to negotiate the highest reimbursement rates possible.   And thus far, they have been able to do so without price transparency.

Price transparency is coming, but under a FFS system threatens to further commoditize the practice of medicine and stifle innovation.

True price transparency within a VBC system would unleash competitive market forces, as it rewards those who actually provide the most valuable care. Price transparency combined with VBC creates an opportunity for physicians to provide the most comprehensive, consistent care to their patients. When VBC models contain certain key design elements, such as price transparency, they are likely to increase participation, enthusiasm and lasting success.

Ingredients for a Successful Model:

Even for providers who fully support team-based, patient-centered care, transitioning to value-based care from fee-for-service is a daunting undertaking. The transition requires investment in data analytics infrastructure, coordination of patients throughout an entire continuum of care, and understanding of the complex rules and requirements of each program in which the patients and providers participate. The following four key “ingredients” can improve opportunity for success among partners looking to transition to VBC models:

1. Per Member Per Month Payments 

Per member/ per month (PMPM) payments help participants invest in the infrastructure necessary to succeed under a VBC model. In CMS’ Oncology Care Model (OCM), for example, many of the groups that have invested the PMPM (“Monthly Enhanced Oncology Services,” or “MEOS”) payment dollars wisely have proven to be successful and become some of the biggest proponents and most vocal leaders in VBC.

Without upfront money from the program sponsor, groups are forced to use dollars from the FFS system – straining budgets and often creating internal conflicts. PMPM payments help to break down these barriers. Accountability for how PMPM dollars are spent is reasonable; not providing them at all makes it difficult for independent practices, particularly in the post-Covid-19 environment.

2. Progression to Risk 

As successful transition to a VBC model does not happen overnight, it would be impractical to take immediate downside risk. Ultimate success in value-based care first requires investment and consistent adaptation based on ever-changing data. It is an evolution and takes time for all stakeholders to figure out the drivers of inconsistent quality and wasted resources. While many groups have failed by not respecting the time the process requires, this is not an inherent failure of the VBC model; rather, it is indicative of a lack of consideration of the need to support the movement and the progression to risk.

Moreover, without a thoughtful progression to risk, stop-loss insurance coverage can be unaffordable from the outset – threatening models before they even begin. The stop-loss insurance market for downside risk is growing in parallel to the VBC market, and pricing is largely based on a group’s perceived ability to lower the cost of care.  Until groups implement necessary interventions and learn to measure them, actuaries and underwriters will struggle to develop appropriate stop-loss pricing models. For the stop-loss market to run efficiently, groups need time to establish a framework that insurers can use to quantify risk. Once groups can demonstrate their ability to lower costs, they will pay reasonable premiums for stop-loss insurance. Therefore, thoughtful progression to risk is not only good practice, it is essential to long-term predictability and sustainability.

3. Safe Zone

The primary goal of VBC is to improve outcomes while reducing the cost of healthcare. To measure cost reduction, participating groups are given a benchmark under which total spend is expected to fall. Generally, before participants receive “shared-savings,” they do not need to just reduce costs below the benchmark, but below an established “target price,” which is typically set at a percentage below the benchmark.  Some models penalize participants for not reducing costs below the target price, even if they are below the benchmark.  These models therefore lack what is known as a “safe zone” for the providers.

Like the OCM, VBC models should not penalize groups that bend the cost curve, even if they do not hit their target prices. The “penalty” is that they will not realize any shared savings.

The Covid-19 pandemic has created a whole new level of uncertainty.   A truly collaborative model that considers providers’ and other partners’ current situations, and builds to support rather than punish them, will go a long way towards developing innovative models that support comprehensive care for individuals.  Incorporating a safe zone is an important step.

4. Site Neutrality and Site Freedom

VBC participants should have unabridged medical judgment when treating patients, including recommending the “site of service.” Too often, site requirements generate unnecessary expense and added stress, therefore compromising outcomes. For example, CMS’ BPCI-A program requires that episodes initiate in a hospital setting. The cost to have a procedure in a hospital can be as much as four times an independent facility and can account for roughly one-third of the total cost of an episode. In situations where the hospital setting is not a critical component of care, this is an unnecessary cost burden.

Further, as illustrated by the Covid-19 crisis, it is potentially dangerous for individuals to be in the hospital unnecessarily. Models that insist on putting patients in the hospital, regardless of real need, create anxiety for patients, threaten our collective healthcare, and increase costs unduly. It is then difficult to achieve the most meaningful savings, unless considerable pre- and post-acute care costs are identified.

VBC models instead allow physicians and patients to neutrally choose the most effective site of service. Site neutrality not only creates more opportunity to achieve cost savings without compromising care but brings transparency into an opaque corner of healthcare.


US Healthcare under the existing FFS paradigm is unaffordable and unsustainable. Value-based care is the answer, but only with smart, meaningful changes that will make it accessible to more physicians. By including the four elements outlined herein, program sponsors can progress toward making VBC a reality for all physician groups.

This article is the first in a series by Deep Risk Management’s Value-Based Risk Advisory Board.  Contributing authors include Lili Brillstein, Amy Ellis, Bill Burns, Chris Wojciechowski, Brian Kern and the Honorable Paul Armstrong.

Visit our Advisory Board page to learn more.