What is value-based compensation in healthcare?

While value-based compensation models are beginning to pop up, healthcare has pretty much been a fee-per-service industry for as long as you or anyone in your family could possibly remember.
This means that your doctor gets a payment for every service they provide to you, whether it’s an office visit, a test, exams or any other type of procedure or service.
And, particularly for private practices, it’s not cheap to run a healthcare business. When you add together paying staff and general operational costs, not to mention the massive student-loan debt most physicians carry from medical school, doctors need to provide a lot of services just to keep things going.
This has led to a model that encourages as many services to be provided and as many patients to come through the doors as possible, without much regard to long-term health outcomes.
And as recently as last year, between 85 and 96 percent of healthcare providers are still paid this way, according to Forbes.
MACRA is changing everything
You may not have heard of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), but it’s playing a major role in the shift from fee-per-service to value-based compensation in healthcare.
MACRA changes how physicians are compensated for treating Medicare beneficiaries. As NRHI summarizes, “Under MACRA, participating providers will be paid based on the quality and effectiveness of the care they provide.”
While this act only applies to Medicare, it sets the stage for a fundamental shift in healthcare payment and business models. As Deloitte argues, “[MACRA] lays the groundwork and provides strong incentives for other payers to move in the same direction, thus potentially disrupting the health care system at all levels.”
What MACRA does is change expectations. Health outcomes become the most important piece, as opposed to how many patients were seen in a single day. Treatment under this model will be about finding approaches that require less services over time, not the other way around like we have now.
Defining value
Most physicians and healthcare professionals agree that the fee-per-service model is unsustainable. It’s expensive, fragmented and encourages behaviors that don’t necessarily lead to the best health outcomes.
The goal of shifting to a value-based system is to encourage treatments and approaches that eventually improve overall health outcomes, meaning less cost to the healthcare system over the long-term.
But, as one healthcare executive puts it, “The problem is that few, if any, payers have rationally explained how value-based payment will work or how we will get from where we are to a very different compensation model that rewards value instead of volume.”
Try to define quality while having a beer among friends, and then think about applying a universal definition of quality among the immense, fragmented beast that is the healthcare system.
It’s no easy task. Everyone, from doctors to surgeons to patients to insurance providers to legislators and beyond has their own idea of how quality and value should be measured in healthcare.
The key will be to avoid getting hung up achieving some kind of consensus among every party, because that would be virtually impossible. For value-based compensation to work, it will require collaboration among multiple stakeholders and a willingness to share risk across a coordinated care community.
You can’t always rush disruption
When you hear the term “disruptive,” you imagine a change so powerful that an entire industry is changed overnight. In today’s world it’s hard to imagine that Amazon was ever anything more than a place to buy used books online, or that Netflix only sent you DVDs in the mail once upon a time.
Disruption can take time, and especially for an industry that is highly regulated and as fragmented as healthcare, the shift to value-based care will likely take a long time, even though it truly is disruptive. As Deloitte notes, “Congress intended [MACRA] to put the industry on a path toward delivering much more cost-effective and outcomes-based health care. Congress and the Administration have made it clear that it will be an evolutionary process and will take place over many years.”
It might not be a pretty process, but regulators are aware of that and are willing to create policies which encourage a transition where things are done right the first time. That said, it’s also opened a space for new players to enter the game and potentially shake things up with new business models never before seen in healthcare.
Short on specifics