Skip to main content
The Keckley Report

The Road to Value-based Care is Inevitable but Bumpy: The Realities that Must be Addressed

By March 2, 2020March 1st, 2023No Comments

The U.S. health delivery system is destined to replace its flawed volume-based incentives with value-based purchasing, but the process is proving difficult. That’s the consensus view from Chief Strategy Officers of major health systems convened by Lumeris over the weekend in Montana.

This comes as no surprise to industry stakeholders: major changes in our system often produce only incremental changes or take longer-than-expected to implement. But the shift from volume to value will likely prove to be our toughest challenge. The realities are these:

1-There is no universally accepted definition for “value” in the U.S. system nor methodology for its measurement.
Economists define value as “a fair exchange in return for a thing”. In essence, it is the relationship between what something costs and the benefits that accrue to its purchaser. But in healthcare, value-based purchasing is elusive. Each sector defines “value” in its own way and thinks its role in enhancing value is under-appreciated by other sectors. Costs are widely variable and protected information, and in some sectors bear no resemblance to prices. And virtually every sector in health delivery discounts consumers in their value equations assuming they are ill-informed or overly simplistic.

2- Alternative payment models (APM) sponsored by Medicare are important but inadequate to drive the volume to value transition effectively.
The cadre of alternative payment models introduced in the Affordable Care Act were designated as pilots targeting the Medicare population. Medicare played the role of protagonist hoping private insurers, large employers and state Medicaid programs would follow. Complicating matters, along the way, CMS made changes to each APM keeping providers off-balance and other payers left to design their own strategies.

Thus, wider use of CMS’ APMs by large employers, private insurers and state Medicaid programs has been spotty. In some cases, they’ve gone further via managed care, on-site/near-site primary care clinics carve outs, reference pricing and more. The transition from volume to value based on Medicare APMs has been directionally worthwhile but inadequate to drive the systemic transition from volume to value. 


I agree with the health system strategists who met in Montana over the weekend: the transition from volume to value is inevitable but the road from here to there is bumpy.

The U. S. is not alone in this journey: policymakers in the United Kingdom, Germany, Scotland, Netherlands and others have launched impressive initiatives to inject value-based methodologies in their health policies but with modest results. It’s tough, especially in a complicated system like ours where fee-for-service economics has been profitable for most of our stakeholders.

The unique challenge to the U.S. system’s transition from volume to value is apparent: each major payer– insurers, large employers, and Medicaid and Medicare—defines value uniquely creating tension and adding costs for the hospitals and doctors whose services they need.

If the U.S. system is to successfully transition from volume to value, defining value and standardizing methods for its pursuit is the necessary first step. Payers, providers, drug and device manufacturers and consumers should have a seat at the table in its design and a realistic timeline for implementation set.

Our system is evolving clumsily toward value-based healthcare. It’s understandable. What’s needed is a fresh, no holds barred re-set of the value agenda for healthcare. Otherwise, the bumps will be bumpier and results marginal. 



CMS Update:  Alternative Payment Model Participation, Changes

  • Physician participation in APMs up, down in MIPS: The Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 gave physicians the option of participating in the Merit-based Incentive Payment System (MIPS) or Alternative Payment Models (APMs). Both require reporting on specified quality measures: in MIPS, physicians who report avoid payment cuts while APMs offer physicians the chance to earn 5% annual bonuses. In 2018, MIPS participation decreased 5% to 890,000 clinicians: of these, 97% received a bonus payment of up to 1.68% vs. 2% who saw cuts of up to 5%.APM participation increased 84% to 183,000.

  • Bundled Payments: Hospital participation in the Bundled Payments for Care Improvement Advanced Program (BPCI-A) increased 57% to 2015 hospitals who are participating in 2020. Also, the number of episodes targeted by participants increased 65% including sizeable participation in the 3 new episodes added this year: 138 in bariatrics, 125 in aortic valve replacement and 375 in seizures. Currently, the 5-year BPCI-A pilot that began in 2018 covers 35 episodes.

  • ACO’s: CMS reported that 517 organizations are participating in its Medicare Shared Savings Program—down from a high of 561 in 2018. Since 2017, participation in the no risk track has declined from 91% to 26% this year as participants show more willingness to assume financial risk for savings.

  • Primary Care First (PCF): The Center for Medicare & Medicaid Innovation’s (CMMI)’s Primary Care First (PCF) model, originally scheduled to start January 2020 has been postponed to allow for stakeholder comment. A particular focus is behavioral health integration in primary care and integrating PCF with CMS’ Independence at Home Demonstration (IAH) that addresses the seriously ill population.

  • CMS: CCJR proposed rule changes: On February 20, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule regarding the Comprehensive Care for Joint Replacement (CJR) Model. The changes would add outpatient hip and knee replacements to the episode of care definition, change target prices, and extend the program for an additional three years to 2023. Currently, the model pertains to lower extremity joint replacement (LEJR) or reattachment of a lower extremity. The proposed rule seeks to change this by redefining joint replacement episodes to include outpatient hip and knee replacements.

Study: Quality as Defined by Professional Societies Not Factored into Medicare VBP Programs

The research team analyzed 3175 hospitals participating in the Hospital Readmissions Reduction Program and 2781 hospitals participating in the Value Based Purchasing program in fiscal year 2018. They found hospitals recognized for quality by the American College of Cardiology and American Heart Association were more likely to be financially penalized in the HRRP and VBP programs. They found that a hospital’s performance in Medicare’s VBP programs is often due to the population served/patient mix rather than the quality of care provided.

Wadhera et al “Performance in Federal Value-Based Programs of Hospitals Recognized by the American Heart Association and American College of Cardiology for High-Quality Heart Failure and Acute Myocardial Infarction Care” JAMA Cardiology. February 19, 2020

Kaufman Hall: 2019 Year in Review for Hospitals

The KF analysis showed hospital operating margins and revenue growth improvements but expense increases offset much of the growth. Regional differences were significant: the highest declines were in the Great Plains and lowest in the South and West. Comparing hospital finances for 2019 vs 2018:

  • Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rose 2.0% while Operating Margin rose 7.4 %

  • Adjusted Patient Days increased 2.5%. Adjusted Discharges were up 0.7% year. Average Length of Stay (LOS) and Operating Room (OR) Minutes increased 2.0%.

  • Net Patient Service Revenue (NPSR) per Adjusted Discharge rose 3.7 % and NPSR per Adjusted Patient Day rose 1.5%.

  • Total Expense per Adjusted Discharge rose 3.4% year.

 “National Hospital Flash Report: 2019 Year in Review” Kaufman Hall

Menges: Medicaid Managed Care Prescription Drug Costs Below Medicaid FFS

In fiscal year 2018, net costs per prescription (which factor in rebates) were 27% below the net costs in traditional Medicaid FFS program yielding $6.5 billion in savings for states and taxpayers. Over the 5-year period from 2013 to 2018, net costs per prescription increased 13% faster in FFS settings vs. Medicaid managed care plans. Note: Medicaid enrollment in private managed care plans doubled from 25.6 million people in 2010 (51% of Medicaid enrollees) to 56.5 million people (77% of enrollees) in 2018 including 2 million veterans. More than 70% of all Medicaid prescriptions nationwide were delivered through Medicaid managed care plans in 2018 vs. 28% in 2011.

“Value of Managed Care Organizations and Pharmacy Benefit Managers in Managing the Medicaid Prescription Drug Benefit” Menges Group October 2019

 Primary Care Utilization Drops

Almost half of insured Americans (46%) skipped a visit to their primary care doctor in 2016 vs. 38% in 2008. Also, 46% of adults age 18 to 64 who did not have a primary care visit in any given year increased to 46% compared to 38% in 2008. Among those 18 to 34, 57% did not see a primary-care doctor in 2016 vs.48% in 2008. Among those aged 55 to 64, 34% did not see a primary care doctor in 2016–up from 27% in 2008.

Ganguli et al “Declining Use of Primary Care Among Commercially Insured Adults in the United States, 2008–2016” Annals of Internal Medicine February 13, 2020

CDC: Obesity Rate Increases to 4 in 10 Adults

The Centers for Disease Control and Prevention (CDC) released new data last week indicating that in 2017 – 2018, 42% American adults were reported as obese—an increase from 31% since 2000. the prevalence of severe obesity increased from 4.7% to 9.2%. The report noted that “the estimated annual medical cost of obesity in the United States was $147 billion in 2008 US dollars; the medical cost for people who have obesity was $1,429 higher than those of normal weight.”

Centers for Disease Control and Prevention


Coronavirus Puts Public Health on Alert, Pandemic Feared

Last week, the American Hospital Association (AHA) and the American Nurses Association (ANA) asked Congress to appropriate $1 billion in new funds to help hospitals and healthcare workers fight the COVID-19 outbreak. To date, 3000 have died worldwide including two in the U.S.—both residents in Life Care Center in Kirkland WA. There are 89 confirmed cases in the U.S. (3/2/20).

CMS Threatens Closer Scrutiny of Hospital Accrediting Agencies

Last week, CMS administrator Seema Verma put hospital accrediting agencies on notice to expect more scrutiny over their surveys and consulting activities. Speaking at the 2020 CMS Quality Conference in Baltimore Tuesday, Verma criticized accreditors for greenlighting hospitals where “serious deficiencies” were later discovered suggesting accreditors also have conflicts of interest in providing consulting services to hospitals they evaluate. Note: CMS’ concern about accrediting agencies dates back to 2018 when it requested additional information from the major players including the Joint Commission, DNV, GL Healthcare, American Osteopathic Association and Accreditation Commission for Health Care and others. A 2018 Harvard study found “US hospital accreditation by independent organizations is not associated with lower mortality, and is only slightly associated with reduced readmission rates for the 15 common medical conditions selected in this study. There was no evidence in this study to indicate that patients choosing a hospital accredited by The Joint Commission confer any healthcare benefits over choosing a hospital accredited by another independent accrediting organization.”

Lam et al “Association between patient outcomes and accreditation in US hospitals: observational study” BMJ February 2018