3 Risks in the Shift to Value-Based Care — and How to Deal With Them

The COVID-19 pandemic has quickened efforts to implement value-based care arrangements, also known as “bundled payments,” with major implications for hospitals and physicians, and how they deliver care.

When in-person visits slowed to a trickle in 2020, fee-for-service revenues collapsed and as many as 16,000 physician practices closed as a result.¹

However, those providers that had value-based care payment contracts weren't as heavily affected, and some thrived. For instance, orthopedic practices with value-based care arrangements maintained monthly cash flow.² That doesn't include the many providers who embraced telehealth.

What is value-based care?

First introduced by the Centers for Medicare & Medicaid Services (CMS) in 2013, value-based care is an incentive-based reimbursement model. Contracts are structured around target prices for specific areas of care. Current CMS programs that include value-based care involve end-stage renal care, hospital readmissions and home health.³

Value-based care is also applicable to primary care providers; for example, primary care physicians would be reimbursed on how well they help patients manage a chronic health condition like diabetes. Instead of tying payments to services, value-based care ties reimbursement to long-term health outcomes.

Providers are incentivized to adopt innovative care solutions as they benefit when care meets or costs less than target prices.

What are the risks?

There are three major risks in transitioning to value-based care: costs, downside risk and programmatic risk. The risks are explained below, along with ways to manage them.

1: Costs. Value-based care changes payer relationships, revenues, cash flow and costs. In addition, CMS requires extensive detail on methodologies for sharing savings and meeting regulatory compliance. Another issue is the need for sophisticated data analytics to guide care coordination between providers.

One solution to the cost risks are conveners, intermediaries that bring together different providers involved in delivering care in value-based care programs. Conveners are responsible for distributing the bonus or paying penalties.

These third-parties help reduce expenses in delivery of care, and there are creative ways to cover the cost of these partnerships. For instance, splitting a percentage of projected savings on contracts can fund data analytics and facilitate care coordination.

2: Downside risk. Providers — including hospitals and physician practices — must reimburse payers when expenditures exceed target prices, creating a risk of incurring penalties for exceeding the negotiated target price. The penalty could easily exceed the amount a given medical practice can put up in collateral.

Risk transfer via stop-loss insurance can help reduce downside risk. The stop-loss market is starting to grow for physician groups as value-based care programs expand. Pricing of stop-loss coverage is tied to the contract's target price, data analytics and care coordination. The expense of stop-loss coverage means providers may need to find financial partners.

3: Programmatic risk. Although there are pilots of value-based care plans across the U.S., there remains a dearth of available programs. Enrollment can be onerous. The downside risk has tempered the enthusiasm of private insurers (though their value-based care offerings are starting to expand).

However, programmatic risk is likely to diminish over time. Along with the CMS, private payers are likely to fully embrace the value-based care model. That leaves a window of opportunity for providers to be prepared to do the same.

If you're already under value-based care contracts or are preparing to do so, HUB experts can help you with covering risks and making the transition.

¹ U.S. News & World Report, “Doctors' Offices Buckle Under Financial Stress of COVID-19,” November 30, 2020.

² Healthcare Finance, “The move to value accelerates in 2021, spurred by lack of fee-for-service payments during pandemic,” December 23, 2020.

³ Centers for Medicare & Medicaid Services, “What are the value-based programs?”, accessed August 20, 2021.