July 10, 2016 HCMatColumbia

New on the Health Affairs Blog: Bruce Fried and Jeremy Sherer on Value Based Reimbursement

Editor’s note: This post is part of a series based on the 5th Forum: Learning from each other – Scaling ideas up to the next level. The forum was held in Berlin, Germany on June 9 and 10, 2016 and organized by the Center for Healthcare Management.

Value Based Reimbursement: The Rock Thrown Into The Health Care Pond
By Bruce Merlin Fried and Jeremy David Sherer


Value-based reimbursement (VBR), it seems to be everywhere. Launched by the Patient Protection and Affordable Care Act (ACA), a multitude of new payment models and organizations are rapidly reshaping the health care system in ways that are known and, as the ripples of change radiate out from the ACA, in ways that are yet to be understood.

For too many years, the traditional fee-for-service (FFS) payment mechanism created incentives to over treat, over prescribe, and over spend. Providers and clinicians who wanted to earn more simply had to do more. The result was an economically unsustainable health care delivery and financing system. And, to make matters worse, these expenditures, despite growing at twice the rate of inflation, did not provide a commensurate quality of care. Efforts to “bend the cost curve,” including the move from pure FFS to the prospective payment system to Medicare’s early managed care program, may have been directionally right, but they failed to constrain cost growth and paid scant attention to improving quality.

But lessons were learned, information technologies were refined and applied, and the successful models of highly integrated delivery systems were studied and emulated. Remarkably, when the ACA was enacted, its provisions included critical VBR initiatives, including the Medicare Shared Savings Program, value based payments to hospitals, and others. The Obama Administration has grabbed the authority provided to it by the ACA and moved ahead on multiple VBR fronts, testing innovations including bundled payments, variations of accountable care organizations (ACOs), medical home models, and special payments to physicians for care coordination. Most recently, Congress doubled down on the value-based reimbursement bet by enacting the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), creating a new payment methodology for physicians, the Merit-Based Incentive Payment System (MIPS) and Advanced Payment Models (APMs). Now, state and federal health benefit exchanges are incorporating VBR into their expenditure models, and commercial insurers are doing the same.

The current direction of reimbursement policy is clear and we can see its ripples spreading across the health care pond. In 2014, 20 percent of Medicare beneficiaries’ care was financed through value-based payments. In 2016, the Department of Health and Human Services (HHS) announced that the number had grown to 30 percent. By the end of 2016, HHS wants 85 percent of FFS payments to be value-based.

Together, government and the private sector are signaling to providers and clinicians that they will no longer pay for standard, piecemeal work. Instead, providers and clinicians seeking economic success will have to deliver value through high-quality services delivered in a manner that is economically efficient.

How Far Do the Ripples Reach?

The transition to VBR has far-reaching implications for how health care is delivered, how providers and clinicians are organized, and how the storms of demographics, economics, and disease are weathered. Yet, the impact of this transition is neither tangible nor visible to much of the American public, or even to most of the health care community.

How will the changes that are rippling across the health care pond impact community hospitals and independent physicians? What new professions will emerge? What technologies will be created to optimize the realization of value? Will patients and their caregivers be meaningfully engaged in their care?


Part of the transition from the traditional FFS system to VBR has been the convergence of the goals and strategies of payers and providers. The historic conflict between insurers and providers is antithetical to delivering value. Instead, we now see insurers acquiring physician groups, offering practice support services and technologies to their provider networks, and creating ACOs and similar joint ventures. Similarly, large health systems are organizing their own insurance entities, seeking to use both clinical and financial tools to reach their value goals.

Moving ahead, we should expect insurers to extend the value proposition to their beneficiaries through value-based insurance design (VBID) benefits, which promote necessary services whose clinical benefits exceed their cost, and discourage the use of services whose benefits fail to justify their costs. Importantly, VBID may encourage meaningful patient engagement, which may contribute to the underlying policy objectives of VBR. Through careful plan design, payers can play a pivotal role in guiding the American health care industry to the new VBR reality.


Providers will enjoy success from VBR by creating efficiencies while delivering high-quality health care. But how exactly is this achieved?

Perhaps the path of least resistance is to improve communication between, and coordination among, all providers to ensure patients receive the most clinically appropriate and efficient care. An increasing body of evidence shows that care coordination helps to prevent unnecessary, duplicative, and even harmful treatment.

In preparing for the transition to VBR, improving communication channels and systems is an essential starting point that will yield real results. Providing new support to clinical decision makers will be critical. At all levels, providers and clinicians will benefit from dedicated care coordinators. Even small practices can be expected to reengineer office workflow and architecture to optimize their value.


The FFS system encouraged physicians to increase the volume of patients served and services provided. The mantra was: ‘To make more, do more.’

In a VBR system, volume is still part of the equation, but without improved efficiency and quality, volume alone will not allow optimal reimbursement. This payment policy transition presents an opportunity, indeed, an imperative, for physicians to engage patients in their care management, particularly with regard to chronic illnesses.

Patients are the most underutilized resource to help reach positive medical outcomes. Collaboration between providers and their patients will make providers more aware of their patients’ needs and help patients better understand how to make informed decisions that will improve their health. Better informed and more highly engaged patients can amplify the delivery of more efficient, higher-quality care, and satisfy the objectives of VBR.

Looking Ahead

The transition from volume to value will challenge major health care industry stakeholders to provide higher quality care while simultaneously increasing their clinical and administrative efficiency. A cornerstone of the American health care system is its creativity and innovation. As the VBR takes hold, expect that innovation and creativity to be on full display.

Precisely what is coming isn’t clear, but the health care community should be ready to adjust swiftly in what promises to be an extremely dynamic period in the ongoing evolution of the American health care system.

For a detailed overview of topics and speakers please see the agenda.