Value-Based Health Care Payment Models (2024)

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When value based care is discussed, health care providers are often thought of as the primary stakeholders. This is largely due to the fact that providers are ultimately responsible for making the care delivery changes necessary to enable value based contracting. Providers are motivated to implement value based care models to enable preventative care delivery models, improve the patient and clinician experience, align financial incentives around the quadruple aim, and reclaim revenue lost to FFS rate pressures. Adoption of value based contracts has steadily increased over the past several years and is expected to continue accelerating.

Successfully implementing a completely new delivery model requires balancing the competing business models of FFS and value based care, developing a clear implementation strategy among internal stakeholders, and ensuring a robust provider network that properly aligns contract incentives. When it comes to implementation, developing a strong strategic plan is the most critical step for organizations. For many providers, transitioning to a value based care model involves a significant shift. To do so, providers must engage in strategic planning around which business units and service lines should switch to value based care and when they should transition. Without careful strategic planning, providers risk short-term revenue losses and organizational misalignment. In addition to creating a clear strategy for implementing value based care, organizations must develop specific capabilities.

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Although the relationship between plans and providers is often seen as adversarial, value based reimbursem*nt arrangements offer an opportunity to better align incentives between the parties. Plans that successfully enter into value-based contracts are able to drive better outcomes for their members and enhance their experience, as well as reduce overall health care costs, grow network relationships, and elevate market share, by offering a differentiated product. These factors lead to more satisfied members, reduced premiums, and a stronger provider network—and national health plans are taking note.

It’s important to note the challenges health plans face in moving toward a large-scale implementation of value based contracts. First, it can be difficult to articulate the benefits of value based contracts given the costs involved with switching. Additionally, variances in payment models, quality measures, and other parameters can make value based contracts difficult to administer. Finally, a lack of access to clinical data can compromise a health plan’s ability to understand the full health picture of its members. While claims data may exist, clinical data can be difficult or impossible to capture.

For a plan to successfully implement value based care contracts, key capabilities are required. Download the full report to view our assessment framework for developing and enhancing the capabilities required to successfully transition to value based care.

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As one of the largest providers of health care services, state and federal governments have a clear incentive in implementing value based care to deliver health care to citizens at a lower cost, resulting in better health outcomes. Additionally, value based care systems can provide increased access to care, especially for vulnerable populations. Both federal and state governments are increasingly requiring that payments reflect quality and cost.

While changing care delivery structures can be challenging in the private sector, there are additional headwinds in the public sector that further complicate a transition to value based care. First, health care has been politicized in a way that makes any change challenging. Additionally, the financial viability of the current FFS system is so fragile that locating any funding for a transition, regardless of long-term benefit, is difficult and can stymie action. Finally, with patient populations stratified not just across states, but cities and neighborhoods as well, developing programs and payment models that effectively serve divergent populations is a tall order. There is no one-size-fits-all solution at the state and federal level. In order to deliver effective value based care at all governmental levels, specific capabilities are required. Although there are challenges to delivering value based care at the state level, these specific capabilities, when built, can lead to great financial and health results for communities.

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An emerging set of players in value based care model conversations, life sciences firms are increasingly engaged in developing ways to tie payment for pharmaceuticals, medical devices, and therapeutics to patient outcomes. To succeed, they first develop specific capabilities that encourage transition to value based care, as developing evidence showing treatments have differentiated outcomes is challenging and costly.

Life sciences firms need to develop specific capabilities that encourage the transition to value based payment models, just as health plans and providers must do. For life sciences firms, these capabilities more often align to a need to demonstrate market value to their customers. This is a positive shift, as a firm’s ability to match reimbursem*nt rates to consumer value improves the market as a whole and reduces monopolistic practices. More specifically, life sciences firms should define their value drivers and the way they plan to capture that value, provide evidence that supports their claims, and monitor performance. Doing so will allow them to manage the capture of value while providing differentiated, complementary services and solutions.

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Employers are looking for ways to reduce the total cost of health care services without compromising quality and well-being for their employees. Partnering with health plans and/or providers to implement value based care models can reduce overall health care spend while increasing satisfaction, health, and access to care for employees and their families.

The practice of employers contracting directly with plans or providers is not widespread, but the trend is increasing, as a large percentage are considering making the move to value based care models. And while there is momentum in employers shifting toward engaging in value based care contracting, challenges remain.

Employers are often hindered in their desire to adopt value based health care pricing by the reality that navigating the ins and outs of a health care contract is not a core competency for most organizations. Unless there is sufficient scale that warrants either building out such expertise or hiring a third party to manage contract administration, engaging in traditional insurance models can be more efficient. Many large employers span multiple states, which further complicates contracting agreements. Despite these challenges, the benefits for employers who engage in value based care contracts are clear.

In order to effectively implement value based health care pricing , it is critical that employers identify community partners, provider systems, and health plans that can act on value based arrangements.

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