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Revolutionizing Healthcare: Value-Based Medicine

I had a conversation with a client recently about the rising cost of healthcare.

This CFO, like many, has seen his health plan costs go up every year, and like many, his first instinct was to blame the insurance company.

We discussed how the lion’s share of his costs is actually his plans’ claims, and because of the way we pay providers, costs increase every year with no end in sight. Our current fee-for-service model pays providers for every service they perform, meaning the more they do the more they get paid. And since there are no regulations around what a provider can charge, the fees get higher every year. There is no other product or service we pay for in quite this way. “We have to change the way we pay providers,” I said to the CFO. “What other way is there?” he asked.

Enter value-based medicine.

The concept has been around for years, but very few health plans actually do it. The idea is that the provider is reimbursed not for every service performed, but based on the outcome of the treatment. This method focuses on the health of the patient, and pays the doctor based on the patient’s health improvement.

Suddenly the incentive is on keeping the patient healthy. Sounds great, right? So why aren’t we doing it?

The fee-for-service model has been the way we have paid for healthcare for a very long time. Value-based medicine would completely revolutionize the way we pay for health services. To add to the difficulty, this model would require some general agreement on the definition of ‘value’ in medicine, as well as some consensus on measuring health improvement. Much of our healthcare payment system is currently automated, meaning a computer makes 90% of the payments without a human looking at the claim. If we decrease this automation by introducing a subjective ‘value’ element into the claim process, administrative costs could rise. So, establishing some standardized measures of value would need to come first—no easy task.

By far the biggest barrier to implementing value-based medicine is that currently, most healthcare providers are opposed to it. It would mean providers—especially hospitals—would no longer control what gets charged and how much the charge is.

The healthcare lobby is incredibly powerful in this country, and so far they have managed to keep this concept largely under wraps.

But there is hope. Pilot projects across the country are testing the viability of a value-based medicine system. Here in Vermont, we are in the middle of a pilot with 30,000 Medicaid recipients, where their providers are being reimbursed according to the health outcomes of their patients. The providers volunteered to participate in the pilot and hopes are high that this will contain costs for this Medicaid population. Centers for Medicare & Medicaid Services (CMS) is conducting similar pilots with select programs and populations in other states.

Results to come … stay tuned to learn whether this model could spell a new era in paying for healthcare.

To learn more about value-based medicine and how this might impact your organization, connect with a OneDigital representative today.


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  1. not exactly correct.
    "And since there are no regulations around what a provider can charge, the fees get higher every year." - most providers are in network. There fees are already capped by there contract with the healthplan. These contracts do NOT go up each year. In many cases they have gone DOWN.

    "Value-based medicine would completely" - The first step of value based medicine is to pay specialists LESS for the services they do supply.

    The real culprit of Insurance premium increase are in Pharmaceuticals!

    Most physician groups do not raise rates each year as it really does not matter as most payors are on a contract. If I raise rates, I still get paid same as last year ( and year before) yet insurance premiums rise almost every year 10 - 20%.

    1. Thank you for your comment. You're absolutely correct that doctors who participate in insurance networks often see their reimbursements staying flat or even decreasing, depending on the negotiated contract with the carrier. I was primarily referring to hospital procedures, where the negotiated discount is often on an amount that may not reflect the true cost of the service. By way of example, I had an outpatient surgery in 2007 with a cost of about $15,000; in 2009 I had the exact same procedure at the exact same hospital and the cost this time was $25,000. In both cases, my insurance company negotiated a 'discount,' but the fact that the underlying cost had almost doubled in two years was not ever questioned. There are numerous examples of escalating hospital costs which are largely unchecked - a recent New York Times article gives a good overview:

      You're also correct that pharmaceuticals are a major culprit here as well. Just this morning CBS was reporting on the so-called "pay to delay" phenomenon (also known as reverse payments) where drug companies provide incentives to competitors to delay release of generics. This is just one of the tactics helping to drive up our healthcare costs.

      Thanks for reading -


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