Value-based care (VBC) reimbursement models will continue to gain traction in 2023 and beyond as provider organizations, commercial payers, and government programs pursue more ways to improve patient and population health outcomes while reducing costs.
In a report that makes the case for why VBC holds great promise as an area of investment, McKinsey writes, “Providers specializing in value-based care have become attractive to investors because of the distinctive quality of care that they can provide and the investable opportunity they present, with a diversity of risk levels and business models.”
Below are three things investors should keep in mind regarding VBC investments:
1. Value-based care is growing
Nearly 60% of healthcare payments in 2021 had some sort of incentive linked to quality and value, with 20.4% comprised of upside-only rewards to providers for appropriate care and 19.6% with a combination of upside and downside risk, data from the Health Care Payment Learning & Action Network (HCPLAN) reveals.
Data from multiple surveys and studies shows most payers and providers anticipate greater involvement in VBC models:
· The McKinsey report estimates that “the number of patients treated by physicians within the value-based care landscape could roughly double in the next five years.”
· Eighty-three percent of payers expect increased adoption of alternative payment models (APMs), particularly ones that include downside risk for providers, according to HCPLAN. Payers cited provider willingness to take on risk as the top barrier to APM adoption.
· In a Bain & Company survey of providers, 77% of physicians said they were interested in VBC with upside, while only 67% indicated a willingness to assume some type of downside risk. These downside models include shared risk, episode of care (one fee for all care services), bundled payments, and partial or full capitation (a fixed amount of money per patient per unit of time paid in advance to a clinician for healthcare services).
· The Centers for Medicare and Medicaid Services (CMS), the largest payer in the U.S., also is driving adoption of VBC through its 2021 initiative to have all Original Medicare beneficiaries and the vast majority of Medicaid beneficiaries in accountable care relationships by 2030. The CMS Innovation Center continues to test models and tools to improve access to high-quality, value-based specialty care.
The continued growth of the VBC market eventually “could lead to a valuation of $1 trillion in enterprise value for payers, providers, and investors,” McKinsey forecasts.
2. Covid as catalyst for VBC
The Covid-19 pandemic that began in early 2020 not only instantly disrupted how healthcare was provided in the U.S., but it also set back VBC initiatives. However, the major changes in care delivery prompted by the pandemic – such as the rapid adoption of virtual care – now are helping to drive VBC adoption. A 2021 RAND Corporation survey of more than 2,000 patients in the U.S. shows that 66.5% preferred at least some video visits in the future, though higher out-of-pocket costs would sway some patients toward in-person and vice versa.
Further, the chaos in hospitals, clinics, and private practices caused by the pandemic “created the conditions for healthcare systems to deliver better value to patients,” PwC concludes in an article. It detailed how Covid-19 paved the way for VBC by forcing health systems to structure themselves in VBC delivery models – specifically population management protocols – to care for patients with the virus as well as those with other illnesses and injuries.
“Healthcare systems quickly defined centralized goals based on outcomes that mattered most to patients,” PwC writes. “This definition enabled unprecedented collaboration among stakeholders, including policymakers (such as regulators), providers, payers, and life science companies, to achieve these high-value patient outcomes holistically.”
Similarly, Optum found that health systems involved in VBC models prior to the onset of the pandemic are in better shape today because they were less reliant on fee-for-service (FFS) payments, which plummeted nearly 60% in early 2020 amid public lockdowns and provider office restrictions. “Organizations that had significant stake in VBC saw financial gains that are hastening the move to value,” Optum said.
3. The value-based care boom
For hospitals, the pandemic was a wakeup call that many now are heeding. “More than 50% of hospitals are accelerating information technology (IT) investments to cope with the challenges brought forth by the COVID-19 pandemic,” Frost & Sullivan writes in a 2021 report based on a survey of healthcare IT decision-makers. Top priorities for survey respondents were improving customer experience (CX) and operational efficiencies through deployment of digital health solutions.
Investors are responding to the opportunity presented by the upswing in demand for VBC solutions. Investment in VBC companies quadrupled from 2019 to 2021, according to McKinsey, while hospital construction (which the consulting firm calls a “proxy for investment in legacy-care delivery models”) was flat.
In addition, a survey of digital health startup investors released by GSR Ventures in December 2022 identified changing reimbursement models as the second-biggest challenge technology startups should address, trailing only provider shortages/burnout. But investors responding to the survey also said emerging VBC models (along with healthcare consumerization) offer the most opportunity for digital health startups. These investors cited potential return on investment (94%) and clinical validation of a digital health startup’s technology platform (79%) as major investment criteria.
Regardless of where providers and payers are on their VBC adoption trajectories, they need technology that meets them where they are. In healthcare, typically this means technology compatible with legacy systems. It is imperative, then, that investors seek out solutions that support all adoption levels. Tech companies like Aledade, Cedar Gate, Clarify Health, HSBlox, Signify Health, Nuna, and SpectraMedix are among those that provide platforms and solutions to fast track the VBC journey for organizations.
Legacy systems, built for the fee-for-service environment, lack the structure to operationalize VBC programs at scale. VBC programs necessitate the need for multistakeholder data exchange and movement of funds across the continuum of care, not easily done with traditional system architecture. Implementation of VBC contract models requires the ability for service providers to participate as individuals, as parts of groups, across programs and with multiple payers. The ability to implement this hierarchical view of the participant relationships is a critical component of automation and scaling VBC programs.
Technology for implementing VBC models must provide end-to-end support for the entire enterprise – including patient/member communication and engagement – while reducing administrative complexity. As consulting firm RTI Health Advance notes, “Support services and technologies will be needed to realize progress to greater levels of risk and reward.”
Michael Roach is an experienced healthcare executive, leading highly successful growth, business development, marketing, and channel marketing organizations for major health and insurance carriers, and specialty healthcare companies. Roach’s experience includes senior leadership roles with BCBS NC, InformedDNA, IPG, Resolution Health, Provident Life & Accident. He currently serves as the lead investor at D&S Entrepreneurial Fund, LLC.
