Volume vs. value: the new age of healthcare is here

Reflections on the evolution and future of value-based strategies for improved outcomes

Ben Pilon,
Ben Pilon,
Business Development & Marketing
January 26, 2024

In case it got buried in your inbox or you missed the webinar, the healthcare industry is smack in the middle of a significant paradigm shift. Value-based care models and, more specifically, operationalizing them seem to be the most important and challenging objectives for nearly every organization. Here at Radial, we are using novel technologies to support these initiatives for payers and providers who are moving away from the old and into the new. So how did we get here and why wasn’t this always the approach?

The terms "value-based" and "volume-based (or fee-for-service)" are used to describe different approaches to purchasing, organizing, and delivering healthcare services. These approaches have evolved over time, and their history is shaped by changing healthcare landscapes and the ongoing efforts to improve the quality and efficiency of healthcare delivery. This blog post provides a brief overview of the history of value-based and volume-based healthcare, together with a few thoughts on what to expect in the future.

Volume-based healthcare

  • Fee-for-Service Model (Pre-20th Century): In the early days of healthcare, the dominant model was fee-for-service. Healthcare providers were paid based on the volume and type of services they delivered, often without a direct link to the quality or outcomes of those services.
  • Growth of Fee-for-Service through Insurance (20th Century): With the rise of health insurance, the fee-for-service model became even more prevalent. Insurance companies typically reimbursed providers for each individual service rendered, leading to a system that incentivized the delivery of more services.
  • Critiques and Rising Costs (late 20th Century): As healthcare costs soared, criticism of the fee-for-service model intensified. The focus on volume was seen as contributing to inefficiencies, overutilization of services, and fragmented care.

Value-based healthcare

  • Emergence of Managed Care (late 20th Century): In response to rising costs and concerns about the quality of care, managed care models emerged. Payer-sponsored health maintenance organizations (HMOs) and other managed care entities attempted to control costs and improve quality by emphasizing preventive care and care coordination. Some HMOs were successful in achieving all of these objectives. However, many others focused too aggressively on financial goals, successfully driving down cost but also undermining quality of care.
  • Institute of Medicine Reports (early 21st Century): Influential reports, such as those by the Institute of Medicine (now the National Academy of Medicine), drew attention to issues of healthcare quality and safety. These reports catalyzed a shift in focus towards optimizing the value of healthcare – defined as the relationship between outcomes and costs.
  • Value-Based Reforms (2000s-2010s): Various value-based payment and delivery models were introduced. CMS initiatives like the Hospital Value-Based Purchasing Program and the Medicare Shared Savings Program aimed to tie reimbursement to quality metrics and encourage care coordination.
  • Affordable Care Act (2010): The Affordable Care Act (ACA) included provisions to promote value-based care, such as accountable care organizations (ACOs) and bundled payment models. These efforts aimed to gradually transition the entire industry from fee-for-service to payment models that reward value - measured by improved patient outcomes and cost-effectiveness.
  • MACRA and MIPS (2015): The Medicare Access and CHIP Reauthorization Act (MACRA) introduced the Merit-Based Incentive Payment System (MIPS), further emphasizing the importance of value in healthcare. MIPS adjusts Medicare payments based on provider performance in areas such as quality, cost, and practice improvement.
  • Ongoing Iteration (2020s): Value-based care continues to evolve, with ongoing efforts to refine payment models, expand value-based initiatives, and address challenges in measuring and rewarding value in healthcare.

What is the future of value-based care?

The value-based care movement is accelerating. In 2023, CMS announced new initiatives to expand accountable care relationships, impacting over 13.2 million Medicare beneficiaries and involving more than 700,000 healthcare providers. With this announcement, CMS reaffirmed its goal of 100% of Traditional Medicare beneficiaries in accountable care relationships by 2030. The three largest CMS value-based initiatives are as follows:

  • The Medicare Shared Savings Program, the most significant accountable care model in the nation, had 456 ACOs with 10.9 million beneficiaries in 2023. New CMS policies are expected to drive further growth in participation, especially in rural and underserved areas.
  • ACO REACH focuses on improving care coordination, increasing access to accountable care in underserved communities, and addressing racial and ethnic disparities among Traditional Medicare beneficiaries, with 824 participating health centers in 2023.
  • The Kidney Care Choices Model aims to coordinate care for beneficiaries with kidney disease. 130 entities participated in 2023, with over 8,398 healthcare providers serving 249,983 beneficiaries.

The history of value-based vs. volume-based healthcare reflects a broader shift in the industry towards prioritizing quality, outcomes, and cost-effectiveness in care delivery. While fee-for-service models still persist, there is growing recognition of the need to align incentives with the value of care delivered, ultimately improving overall outcomes and securing future sustainability.

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