Value-based care: Health executives think it will happen, but are they being rational?

The global investment firm Lazard recently published their Global Healthcare Leaders Study: 2017 based on in-depth interviews they conducted with more than 300 C-level executives and investors across health care sectors including pharmaceuticals and biotechnology, medical devices/technology and diagnostics and healthcare services such as large provider systems and hospitals. One of the questions asked of these executives was the following:

“Which of the following do you believe will most transform the healthcare industry over the next 5–10 years?”

Advances in big data, demographic changes, and scientific breakthroughs all ranked below what these executives think will MOST transform health care in the coming decade.

What will be most transformative? The move to value-based care (see chart below from Lazard Executive Summary).

And just in case you were wondering, the C-level executives are pretty certain the move to value-based care will continue under the Trump administration. Recent rumblings from the administration itself seem to confirm this, even if the signals are mixed, and we have no reason to disagree. Yes, HHS has now twice delayed the implementation of Medicare bundled payment models for cardiac rehabilitation and joint replacement (implementation is now slated for January 1, 2018), but the draft HHS FY2018 budget released late in May includes a portfolio of administrative actions that would allow the Food and Drug Administration (FDA) to clarify the treatment of value-based purchasing arrangements related to prescription drugs, especially in public programs such as Medicaid.

 In our work at the state level, we see Medicaid agencies committed to increasing value-based purchasing (VBP) – for example, reaching 80% of payments in New York Medicaid by 2020 and 90% of payments in Washington State Medicaid by 2021.

Additionally, the largest health plans in the U.S. have all come forward in the past year or two with significant VBP goals, some of which are shown in the chart below:

But will “adopting value-based care” actually happen? I mean it in a very literal way. Will payers over a consistent period of time actually be able to reimburse health care providers or the systems they work in, in a way that relies on cooperation and will very likely result in lower payments?

Value-based care or payment is an umbrella term to refer to anything from bonus payments for quality, to bundled payments, to one-sided or two-sided risk sharing agreements between payers and providers. At its most basic, VBP is NOT paying for each intervention delivered (fee-for-service). In theory, the system needs to pursue value-based care in order to reduce costs while still maintaining quality. We need to “bend the cost curve” so health care costs don’t become Godzilla taking over everything else.

The view from inside a sophisticated U.S. health system that actually works with health care professionals to deliver care and negotiate reimbursements from payers is pretty pessimistic. Paul F. Levy, the former CEO of Beth Israel Deaconess Medical Center from 2002-2011, writes in an athenainsight blog that a simple negotiation game shows why “value-based care is doomed.” His short piece is worth reading, but Levy essentially argues that VBP is the latest approach to use financial incentives to change behavior, but these models, at least as they are built now, don’t seem to recognize that health care professionals are rational economic actors – and it will be incredibly difficult to get them to voluntarily give up income over a sustained period of time.

Because of this lack of acknowledgement about what it really takes to change behavior, Levy argues, “value-based pricing, however well-intentioned, is likely to be an energy-sapping distraction…”

We health policy people are all buzzing about VBP right now, much in the same way that capitation or HMOs held our attention in years past. I don’t disagree that adopting VPB would have a transformative impact on the health care system. But it also seems obvious that getting people to do more work and get paid less – whether they are physicians or any other type of worker – is incredibly difficult. Thinking rationally about being rational economic actors will be an essential element in actually achieving the transformative health care system we have in mind.