We have officially reached the Value-Based Care “Trough of Disillusionment.” Following years of hype and promise regarding the shift from volume to value — including countless slide decks, conference presentations, and Internet debates extolling its virtues — sentiment has shifted. Gone (or at least significantly diminished) is the hope that performance-based programs are poised to usher in a new era that rewards quality, cost-effectiveness, and outcomes. As VBC continues to stumble out of the starting gate, a certain malaise and cynicism has set in. During a recent conversation, someone suggested that I’m a VBC skeptic (which I suppose is fair). To clarify, I’m not skeptical of the concept of rewarding high quality, high value, evidence-based care, I’m dubious about the way we’ve gone about it. I’ve long contended that value is best attained as a byproduct of process and approach and is not something that can be rewarded or penalized into existence. Though broader sentiment towards VBC has shifted, I find myself softening my stance (being the contrarian that I am). Perhaps I’ve been enlightened.
CMS has unmistakably committed to the idea of VBC for Medicare and Medicaid Beneficiaries with the goal of having 100% patients under some form of accountable care program by 2030. The recent announcement of the Making Care Primary (MCP) program further supports CMS’ belief in VBC. While commercial insurers’ approach to VBC has been a bit more talk than action so far, CMS has fewer barriers to implementation. Hospitals, health systems, and physicians can continue the incentive-based payments dance with payors, but their ability to fend off CMS is limited. Until now, participation in government-backed value programs such as ACOs, BPCI, CJR, and the like has largely been voluntary. But the expectation is that “voluntary” will soon become “mandatory.” If the government wants VBC to happen, there’s a good chance that it will. To their credit, CMS and CMMI appear to have recognized the shortcomings of past and present efforts and seem committed to evolving their approaches. Commercial insurers may lag but can’t resist forever. Medicare Advantage, a significant present and future business line, will continue to warm payors to the idea of VBC for privately insured patients too. Similarly, employer-sponsored health plans will continue to seek high-value care to gain some measure of cost control. Forward-thinking, entrepreneurial healthcare providers can seize this opportunity and help shape the transition. Doing so is the most effective way to ensure the programs are equitable, well-designed, and achieve their goals of better care, improved outcomes, and lower costs. Continued skepticism and belief that the VBC future is never coming may catch many flatfooted and unprepared. These factors have forced me to re-evaluate my stance on VBC.
Against this backdrop, I read with great interest a recent article written by health policy luminaries Bob Kocher and Robert M. Wachter published recently in Health Affairs Scholar. (H/t to Health Tech Nerds “Weekly Health Tech Reads” digest for surfacing it). It seems that Drs. Kocher and Wachter also have their doubts about the implementation of value-based care, at least as it pertains to academic medical centers (AMCs). The opinion piece outlines potential causes for AMCs’ failure to shift from fee-for-service (FFS) to VBC. While the piece raises some interesting points and highlights barriers to adoption, there are a few areas that invite a differing perspective. Drs. Kocher and Wachter also omit additional potential solutions to the AMC-VBC problem that warrant consideration.
The two principal arguments made here are: AMCs are unable to redesign clinical workflows and are too strongly favor high-cost specialists over cost-saving primary care providers. Neither claim is new or controversial. Changing from a FFS model to a VBC model requires a significant shift in care processes and priorities. Administrative costs and burden (already high in large health systems) often increase as a necessary function of ensuring success. AMCs aren’t necessarily known for being nimble or quick to adapt — even simple changes often require multiple meetings and stacked layers of approval processes. To be fair, clinicians (including nurses, therapists, and doctors) are often resistant to change too.
The second point is also a common refrain when discussing AMC economics: it’s all about revenue-generating specialty care. As seen from the graph above, the top revenue generators are all procedure-based specialties including Cardiovascular Surgery, Neurosurgery, Orthopedics, and Gastroenterology. Family practice, Pediatrics, and Psychiatry are all in the bottom nine. Specialty care is viewed (and treated) as the engine that drives the bottom line while primary care is a “loss leader” that serves to control the flow of patients. Again, none of these contentions are new or necessarily disputable. What is a matter of debate is how best to solve these problems and move AMCs more strongly toward VBC. As part of the discussion, it’s worth considering whether the goal should be to move AMCs to VBC or to move VBC away from AMCs.
Shifting care away from specialists (and the procedures they perform) through primary care-focused cost incentives is a key tenant of value-based care and is espoused here by Drs. Kocher and Wachter. In theory, supporting and rewarding PCPs to reduce specialist referrals will make them less likely to simply triage problems or focus on satisfying the AMC admin goal of keeping specialists busy. There are a couple of problems here. First, PCPs want to do what’s right for patients. They shouldn’t feel pressured to make care decisions or take on problems outside their comfort zone based on financial carrots and sticks. Second, specialist referrals may simply reflect an acknowledgement that a higher level of evaluation and treatment is necessary (and appropriate). Interestingly, a recent study showed a higher rate of specialist referrals for PCPs in capitated models compared to PCPs operating in FFS (though I disagree with the authors’ conclusions as to why this is the case).
Undoubtedly, more emphasis should be placed on primary care, and the system would benefit by figuring out how to better reward PCPs. But such a goal isn’t going to be accomplished by burdening primary care with responsibility for managing specialist problems. Instead, PCPs should have more time to manage primary care problems and the freedom to refer when necessary. Also, if primary care isn’t the main cost driver, why are we focusing VBC programs primarily on PCPs? Wouldn’t a more effective approach be to design and implement specialist focused VBC to achieve better cost controls and higher quality? One of the advantages of AMCs (or any integrated healthcare delivery system) is the tight integration of primary and specialist care. That advantage should be leveraged not avoided. For instance, by adopting quality-based payments in Orthopedic Joint Replacement, an average savings of around $20,000 per case could be achieved. For a single high-volume AMC performing 5,000 joint replacements a year this represents $100 million in savings. By comparison, one of the nation’s most successful primary care ACOs, Aledade, achieved $390 million of savings in 2021 across 356 practices and 28 states. Forcing PCPs to non-operatively manage hip and knee arthritis is a much less effective way to realize savings. Designing care programs that engender coordination and shared savings between specialists and PCPs benefits both sides of the equation. Condition-specific VBC programs can be implemented in Cardiology (stents, catheterizations), Neurosurgery (spine fusions), and GI (endoscopies). The onus should not be placed solely on PCPs to drive down demand for procedures and hospitalizations. Of note, the CMS Making Care Primary program may be such a model.
Drs. Kocher and Wachter correctly point out that AMCs’ market power and strong brand awareness allow them to resist the transition to VBC. They argue that pressure to shift from FFS will come when PCPs in VBC arrangements begin referring patients to non-AMC specialists who offer better value. This situation ignores two realities: AMCs and health systems control PCPs (and thus referral patterns), and patients frequently seek out AMCs based on reputation alone (well-earned or not). The former situation is a difficult one that may require politically challenging policy changes to support PCP independence and patient choice. Transparency efforts are growing but have been resisted.
Addressing the second point (brand recognition) requires creating credible competition for AMCs. As someone who practices in the shadow of the biggest healthcare mecca in the United States (and possibly the world), I am acutely aware of the power of brand recognition. In fact, it’s probably more accurate to say that patients choose brand first and the physician second. Is care superior at AMCs? While AMCs have less variability in care quality compared to the community, I would argue that the difference between experienced, high-quality community doctors and AMC physicians is small. A 2019 comparative analysis found that AMCs had lower pneumonia mortality rates, but there was no difference in readmissions or mortality rates for any other condition compared for non-AMCs (AMCs scored better for patient satisfaction on most metrics). Joint replacements performed in ASCs are associated with fewer readmissions and postsurgical complications compared to hospital outpatient departments. Finally, a Navigant study from 2018 found AMCs to be inferior to non-AMCs for a variety of cost and quality metrics. AMCs received more value-based penalties and trailed non-AMCs on readmissions, hospital-acquired conditions, and value-based program measures. The authors of the study concluded that most AMC admissions and procedures could be performed at non-AMCs. [Note: the link to the original study is broken but I do not find any indication that it was retracted].
AMCs will rightfully argue that they treat a more complex, higher acuity, and less well insured patient population leading to worse outcomes and the need to charge more to offset poorly compensated care. While there is truth in these arguments, this leads to a larger debate regarding whether the future of healthcare is on sprawling medical campuses or outpatient and community-based centers. Pressure to adapt to changing healthcare market dynamics may come from smaller, nimbler, more tech-forward centers that offer high-quality, cost-effective care and unparalleled patient experience. AMCs may also face pressure from the continued intrusion of Big Retail into healthcare and the rise of healthcare navigation services aimed at steering patients to vetted providers. This latter point raises an interesting paradox — while AMCs have struggled with traditional VBC, many have developed Centers of Excellence programs in conjunction with self-insured employers. A well-known Harvard Business Review article detailed Walmart’s experience with their COE program. COE programs deserve their own post, but it’s worth touching on this briefly. Such programs represent a form of value-based care with AMCs contracting directly with employers to deliver ostensibly higher quality care than the patient would receive in their local community. Given the right incentives, it seems AMCs can embrace and succeed in VBC. Much of the cost savings in COE programs appears to come from surgery avoidance. If COE models can create such incentives for specialists, why can’t government or commercial payors do the same?
Drs. Kocher and Wachter unintentionally make an argument in favor of physician-owned hospitals (POHs) as an outside threat to spur AMCs to change. [I’ve also written about this previously]. The authors note that “most successful ACOs are independent physician groups that benefit economically…” If I’m being intellectually honest, the end of that sentence is “…from the savings derived from lower specialist and hospital utilization.” However, the same incentives that drive performance in non-AMC ACOs apply to POHs. POHs have been shown to reduce costs, deliver good outcomes, and offer excellent patient experience. They also create their own version of value-based care by allowing physicians to benefit from cost-savings measures. Criticisms of POHs are valid and discussed in my prior article. But, the potential of POHs to pose a real and present danger to AMCs shouldn’t be tossed aside. Closing this section, it bears special emphasis that when doctors are in charge, costs and quality are better.
This article is not intended to be anti-AMC. AMCs play a vital role in performing research and training the next generation of doctors, nurses, pharmacists, therapists, etc. (Notably, training programs are subsidized by the government and research is often supported by grants and industry sponsorship). They also take on complex cases and offer a level of care not otherwise available in many communities. I wouldn’t be where I am today without the excellent training I received as a resident (nor would many of my colleagues). Maybe AMCs shouldn’t be subject to the same value-based incentives as non-AMCs. The article also fails to explore another possibility: the failure of current VBC programs is a reflection of the programs themselves, not the AMCs. In Orthopedics, value-based programs like the Bundled Payments for Care Improvement (BPCI) Initiative, its successor BPCI-Advanced, and the Comprehensive Care for Joint Replacement (CJR) model have produced modest results at best. As a cautionary tale, one of the largest and most well-respected Joint Replacement AMCs, Jefferson Health, experienced substantial financial loss in the BPCI-A program despite marked improvements in quality metrics. Due to shifting target metrics from BPCI to BPCI-A, Jefferson went from a $1459 gain to a $890 loss per episode of care despite lowering readmission rates and increasing discharge-to-home rates. Is this a failure of the AMC or of CMS’ ability to design a program that appropriately rewards quality care?
The article concludes by reflecting on the future of AMCs in what (gulp) seems to be an inevitable VBC future. Drs. Kocher and Wachter posit that AMCs who fail to adapt to changing reimbursement models risk losing their place in the healthcare hierarchy (or worse, extinction). As we continue to wait for VBC to gain steam, it’s worth pondering the future of large medical centers and health systems. We need AMCs to train and educate, produce innovative research, and manage complex, rare, and high acuity cases. But the move to VBC also brings with it the notion that cost-effective treatment means shifting care to outpatient/community centers, ASCs, and into the home. That shift may force us to reconsider the role of AMCs and how to design systems that best leverage their strengths while capturing value.