Value-based healthcare: Of Value to Whom?

by Maria K Todd, MHA PhD

CEO & Founder
Mercury Healthcare International

Value-based pricing arrangements have become a euphemism for risk transfer agreements that transfer the costs associated with healthcare delivery to providers while the payers that contract with providers apply measures that limit their financial risk. That's not surprising; they aren't in the business of healthcare. They are in the business of insurance - a practice or arrangement by which a company or government agency provides a guarantee of financial protection against specified losses, in return for payment of a premium.

By transferring that risk to the providers, drug manufacturers, and other ancillary providers, the value basis is not measured against what outcomes are experienced by the providers or the patients; instead it is measured by how well the financial outcomes fare at the insurance company or health plan.  That's not managed care either. That's value-based purchasing of healthcare services from providers and manufacturers.

Value-based reimbursement

Over the past 35 years, I've been involved in managed care contracting as a practice and hospital administrator, a diagnostic imaging firm with 40 locations, several ambulatory surgery centers, and as a consultant to more than 4000 clients in the USA and abroad, helping medical, dental and pharmacy providers navigate the risks of third-party payer contract analysis and negotiations. I've participated in hundreds of capitated and fee for service value-based pricing contract negotiations in the USA, Colombia, Thailand, Malaysia, and other countries.  As a world renowned consultant specialized in healthcare reimbursement and process improvement, I oversee market research and situation analyses to identify opportunities for value-based reimbursement for providers of all types. I don't always recommend that the provider accept what is offered by payers if the deal is not equitable to all concerned. This has saved many of my clients from financial demise and bad decisions But in the right situation, under an appropriate deal I've helped my clients make millions of dollars, save third-party payers money and take good care of patients without anyone being taken advantage of or treated unfairly.

Lots of payers come to or call providers on the phone and "announce" that they are transitioning to value-based purchasing. Often what they deliver as the first draft of a new contract is a template document from the law firm "Dewey, Cheatum and Howe". The title of the document should not be "Participating Provider Agreement". Instead it should be "Agreement to be Taken Advantage Of". No, that's not me being polemical. It's just that these value-based purchasing agreements neither provide value for the providers or for the policy-holders. 

Paying less for treatments - ineffective or effective is a different issue entirely

one doesn't need to be an economist or an actuary to see that the benefits for payers are obvious: The party line is that providers or manufacturers get paid pay less for treatments. The benefit for providers is blatantly obvious on paper, but life doesn't always work out as tidy as it does on paper. Medicine is not an exact science so as providers are assigned more of the financial risk associated with care the likelihood that they're going to suffer financial risk rises.

In pharmacy deals, if a payer can sell the manufacturers and PBMs on the argument that payments will increase with outcomes, drug makers are able to "cost-fix" their financial risk exposure for costs associated with claims - regardless of whether the treatment is effective or ineffective.  The system only has to work as long as the policyholder represents financial risk exposure to the plan...not a moment longer. The minute the policy holder changes plans, dies, or no longer has that condition the risk is now placed with someone other than the insurer. Problem solved.

The wiser providers (and their consultants) become, the higher the health plan incentives must be to capture interest in making value-based deals. That too is a slippery slope. Value-based drug pricing challenges drug makers, primary care physicians, surgeons, dentists, physiotherapists, psychiatrists, and other suppliers to prove the value of their products if they want to be paid full price.  How long will it take to prove efficacy and who will pay for that research and development cost?  

For years, insurers have denied payment for experimental or investigational drugs and procedures. 

Is this neologism of value-based blah blah blah just a different way of saying and doing the same thing?  Many states enacted patient protection acts to ensure access to medications and off-label use of drugs for certain conditions. This is merely circumvention.  Those state laws were not applicable to ERISA employers and labor unions sponsoring self-funded health benefit programs, because they often enjoy preemption of certain state laws that protect "insured" patients covered by commercial insurers. Employers and labor unions who are self-funded cannot contract with providers in a capitated or risk transfer basis. They can create performance incentives and shared-risk programs but to transfer the risk of the cost of care is constrained under the ERISA and Taft Hartley Acts.

While on paper, these deals can make sense in words, executing a successful arrangement is far more difficult. It isn't impossible if:

  • one has the right number of lives to spread the risk
  • the rate cells are loaded for appropriate care costs
  • the benefit plan is designed properly
  • one has a backup or "reinsurance" plan in place to cover excess losses during a measurement or premium interval
  • the right providers and ancillary providers and suppliers have also been contracted with the network.

If value-based pricing deals have the potential to introduce more value to healthcare - whether for medications or surgeries or use of technologies, why aren’t these payment models more prominent?

Value, per se, is not some intrinsic number. The value varies depending on the context and stakeholder. What my clients fear most is giving up too much or not having adequate data to make good decisions. Often payer representatives come to the provider clinic or hospital with an attitude that the deal must be completed and signed, "three weeks from next Friday."  These arbitrary and capricious deadlines arise because they want to be able to state in a shareholder report or some other document that the deal is in place. Or, they want to cancel a contract with the providers' competitors - so they promise steerage and volume.

Payers come to providers hoping that the negotiator or analyst still hasn't been trained in how to negotiate these deals. They play up familiar concerns novices care about while downplaying the fact that in capitation and cost-fixed reimbursement, service equals expense instead of revenue.

In capitation, or assigned risk, the health status and level of education is more critical than in fee for service. The higher the education level, the more patients insist on use of high-tech costly interventions. In the lower educated population, healthcare simply "happens to them", and maybe if the provider is lucky, compliance with medical instructions, dosing, and other prescribed actions "happens."  Deals that are structured properly result in "triple win" outcomes instead of triple aim. To aim doesn't always imply that you hit your targets.

Regulators are concerned with many of the deals in the marketplace

Implementing a value-based reimbursement arrangement means additional patient monitoring and exchange of health information between provider, payer and regulators. This is costly and many regulators cannot keep up.  They must protect consumers who purchase insurance policies from illusory coverage, illusory access, and denials from claims that should have been paid.  This bumps up against RICO (racketeering and income corruption) violations.  The costs to do things right, often outweigh the benefits over the long haul.  Increased monitoring, interoperability issues, and potential for patient privacy breaches can also outweigh the potential improvements to be made in a value-based drug pricing arrangement. For that reason, most value-based deals for primary care or for generic and well-established treatments and medications simply waste time and resources.

Many rules throughout the USA and other countries prohibit the corporate practice of medicine, so the people with the training to manage financial risks are not permitted to own clinics in those jurisdictions. These rules are out of sync with the current marketplace. Other rules give Medicaid and Medicare best price deals (most favored nations). But then commercial payers push template contract offers in front of providers that avail themselves of equal to or less than Medicare and Medicaid, with the math buried in contract ambiguity. Then there's the anti-kickback and several self-referral acts that give rise to problems for which there is a solution, but the solution is illegal to implement because the laws are out of sync with the new ways of doing business in healthcare.

Who wins? Who loses?

What I've seen in American healthcare is that providers aren't interested or are frightened about taking financial risk for treatment decisions and the cost of care. They've been educated in how to make treatment decisions, but nobody trained them to be financial risk managers similar to their insurance counterparts. Some decide to group together in IPAs, PHOs, MSOs and ACOs. Others jump ship completely and transition their practice to concierge medicine or direct primary care models.  Pharmaceutical and technology manufacturers are taking their time to study this risk-sharing business. They take clinical and product liability risk for what they produce. They take risk to bring the item to market and train the market how to use it, when to use it, when not to use it. If they don't get contracts with the payers, the service can end up being non-covered and 100% out of pocket for the patient who may not have the means to pay, or the technology or service may not be available where they live, meaning that they must consider traveling to where the care is available - covered or not.


Photo of Maria K Todd

Maria Todd is a trusted adviser and expert specialist to hospitals, clinics, governments, healthcare business owners, investors, and independent professionals. Clients call on her to help them do a better job of marketing, branding, or contracting with insurers and employers, and to grow their business.

Maria is the CEO of Mercury Healthcare International, in Denver, Colorado and the founder of Mercury Health Travel, the leader of the Health Tourism Practice Group of Mercury Advisory Group, the Executive Director of the Center for Health Tourism Strategy, its research and education resource center, and a Board Member and Advisor at Higowell, the world's first health tourism operations platform. She has been recognized as an Academician with the Ukrainian Academy of Rehabilitation and Human Health and is a member of the Scientific Committee of Termatalia in Spain. She is also a mcc2-bookBoard Member at Global Health Connections, a nonprofit organization associated with the University of Colorado MBA-HA program. She is the author of 15 internationally-published business improvement books in healthcare administration and health tourism. 

Invite Dr Todd to speak at your next event.  She presents a compelling workshop of interest to tourism and economic development officials, foreign investors, healthcare strategists, and suppliers on Opportunities for Economic Development through Inbound Medical Tourism Sector Development.