Why paying for value matters—especially in healthcare

In almost every industry, being paid for performance is the norm. Do a great job, get paid more; do a poor job, get paid less. Incentive-based performance is a decades-old, foundational concept for running a business. Yet when it comes to healthcare—an industry which accounts for nearly 20% of GDP—it was largely an academic concept until the Affordable Care Act passed in 2010. Naysayers have been debating it ever since, but the results are indisputable. Value-based care (VBC) works, and while it should continue to evolve, it is here to stay.

Empowering physicians and care providers through VBC payment arrangements improves both the health of people and our healthcare system—and it does so the right way: increasing the importance of preventive care and reducing costly invasive care, which in turn improves whole health and lowers what we all spend on cost of care. Given the country’s constantly increasing healthcare costs, affordability must remain a priority. Here’s the how and why VBC is a win-win-win proposition.

Value-based care 101

In a nutshell, VBC represents a pivot from volume to value. Instead of paying healthcare providers for the quantity of tests administered or procedures performed (as with traditional fee-for-service models), VBC models reimburse them based on the quality of patient care delivered. And as patient health outcomes improve, so does care provider compensation.

There are of course many nuances—and adjusting the payment model alone is not a panacea. While different care provider types are at different maturity stages in their readiness to adopt VBC models, momentum is building nationwide. And insurers are more committed than ever before to supporting them in this transition to achieve meaningful system-wide change.

For patients: Enhanced experience, quality, and affordability

Patients are truly at the heart of VBC—even if they don’t understand the acronym behind it. A growing body of evidence shows that patients benefit from VBC arrangements and enjoy more preventive care, better chronic disease management, and improved health outcomes, with lower healthcare costs overall.

For example, our data shows Medicare members seeing a doctor who participates in VBC had 13.6% more annual visits than those not involved in VBC. We also found that for health metrics, such as controlling blood pressure and diabetes, our members experienced more than a 20% improvement when receiving care from practices involved in VBC, versus those that were not. These positive results are not isolated to Medicare, though, as there has been similar outcomes in the Medicaid and commercially-insured populations as well.

For care providers: Improved care delivery and thriving financially

Most people have personally experienced the feeling of their physician seeming rushed during an office visit; it’s unsettling—for the patient, yes, but also for the provider! Under the FFS model, care providers have long faced ongoing pressures to increase service volume to meet bottom line demands, which can inadvertently affect the quality of patient care.

But when payment is performance-based and tied to health outcomes, rather than individual procedures or services, the opposite happens: Care providers have a financial incentive to emphasize preventive healthcare, recommended screenings, and taking extra time to explain medications to a patient. VBC arrangements allow them to focus more on practicing the type of medicine they aspired to upon earning their white coat, and less on the pressures of running a business.

In our network alone, care providers earned an estimated $1 billion in additional payments in 2023, above and beyond their base fee schedule payments, for participating in and earning high performance marks in VBC arrangements. In doing a great job, they improved their bottom line.

The payer perspective

A mountain of evidence has shown that traditional FFS models inflate healthcare costs without necessarily improving patient outcomes. At this point, saying change is needed is trite. While enabling consumers to achieve good health has always been—and will always be—job one, being a bastion for healthcare affordability is key role for all insurers.

By emphasizing preventive care and effective management of chronic conditions, payers can help reduce expensive interventions and hospital readmissions, leading to reduced overall costs for health plans, employers, and consumers. And when we incentivize care provider partners through appropriate value-based care arrangements, we’re able to reduce financial risks and manage costs for our employer clients more effectively.

VBC models also require payers to build infrastructure around payment, showing it incentivizes what we and care providers value most—better and more equitable health outcomes, increased patient and care provider satisfaction, increased access, and more affordable care. It’s why 63% of our total medical spend in 2023 was in VBC agreements, and why going forward, we’re all in.

And the winner is . . .

Everyone! While the transition from FFS payment models to value-based care may pose some challenges, it’s important to view this as an investment towards a healthier population and a more sustainable healthcare industry. It’s a win for patients who get better care experiences and improved quality; a win for care providers who can better meet their patients’ needs while thriving financially; and a win for payers who can better manage risk and ensure their customers get maximum value for their premium dollar.

Turns out that applying incentive-based performance to healthcare can be a win-win-win for all. Who knew?

Bryony Winn is president of Carelon Health, an Elevance Health company