Value Based Care – The Dice Are Often Loaded
Updated: Dec 16, 2024

“Everybody knows that the dice are loaded. Everybody rolls with their fingers crossed”
- Leonard Cohen, Everybody knows
Like “fine wine”
The term “value based care” has been tossed around a lot in recent years. It has almost become a buzzword much like the term “AI” - that many people seem to feel like they have to incorporate into every initiative without really understanding what it means.
Despite the buzzwords, value based care (VBC) simply means paying providers – typically primary care physicians – for outcomes achieved over a defined period of time to a specified population of patients. Because the health insurance business model runs on a 12-month cycle, the outcomes measurement period for VBC outcomes is almost always the concurrent 12-month plan year. During the plan year the physicians are typically compensated via a capitation payment instead of a fee-for-service model. If the agreed upon outcome measures are met or exceeded, the physicians earn financial incentives.
What needs to be true
Three factors are fundamental to a VBC model: A) a specified period over time over which outcomes will be measured; B) a defined attributed population of patients from which those outcomes will be measured; C) reimbursement for care is capitated as opposed to fee-for-service. The VBC model is typically applied to HMO health insurance plans, since HMO plans offer access only to in-network physicians and frequently require a PCP assignment for every enrolled consumer. The limited networks and PCP assignment are key to providing some assurance to physicians they have a reasonable level of control over patient behavior and care plan compliance, increasing the chances of meeting the annual outcomes measures.
Intrinsic to the VBC model are incentive payments to the physician or physician group for meeting or exceeding the agreed upon outcome metrics. These metrics vary across insurance companies and even between specific insurance plans offered by the same insurance company. They often focus on completion of preventative care modalities, patient experience scores, recommended vaccine administration, and limited use of prescription opioids.
In addition to financial incentives, VBC reimbursement for care is capitated as opposed to fee-for-service. Capitation payments are structured as a specified dollar amount paid to the physicians per attributed patient per month. These payments cover the cost of all care delivered within an agreed upon set of claims codes. The physicians receive the monthly payment regardless of visit volume or case complexity of the attributed patient population. Well run practices leverage these payments to deliver care in creative, cost effective ways – such as increased virtual care, group visits, or connecting patients with resources to address social determinates of health. Any tactics that drive down long term claims and practice admin expenses will improve the portion of capitation payments attributable to practice margin.
Winning at the VBC game
There are multiple types of metrics used by insurance companies to incentivize physician practice patterns and outcomes. As you may imagine, the outcomes sought by insurance companies are those that will increase their margins and reduce the cost of care they must pay for. Here are a few typical metric categories.
Medicare Advantage Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures
Measured via the annual CMS CAHPS survey and mid-year vendor provided check-in surveys
Preventative health screening completion documented via EMR coding and insurance claims data
Practice Net Promoter Score (NPS)
Not commonly measured by physician practices using similar tools and techniques to other industries
Target Medical Loss Ratio (MLR)
A target percentage below the forecast total cost of medical care during the plan year by the insurance company
Rolling a “natural”
The financial incentives for a physician group on a VBC contract can be material. A well run practice, with access to good patient demographic and medical history data, can see real year-end financial benefits. On the other hand, a physician group that agrees to a VBC contract and continues to practice as if they were on a fee-for-service contract will be sorely disappointed at year end.

Note: volumes and dollar amounts above are representative but not actual incentive payments by any specific health insurance carrier
The dice are often loaded
If the financial incentives are so good (in theory) why hasn’t VBC taken off like a hot hand at a craps table? There are so many potential points of friction in the primary care landscape. For starters, most consumers only see a primary care physician once per year at most, and about half do not see one at all. And yet the primary care physician has agreed to manage an extensive scope of care under a capitation payment with no real power to require the consumer to see them for any condition within that scope. A consumer may go to an urgent care and pay cash to have a cut sutured. If that cut becomes infected and the consumer goes to the emergency department, the cost of that visit could be negatively attributed by the insurance company to the VBC MLR target calculation – despite the physician having no control over the choices made by the consumer.
Getting consumers to complete the recommended annual preventive care – mammograms, colonoscopies, vaccines – is challenging under the best of circumstances. Physician practices are not typically staffed with outreach workers who will pester consumers to come and get the recommended screenings and vaccines. But at year end a specified percentage of the attributed patients must complete the recommended screenings for the practice to earn a number of VBC incentives.
These are but two examples of the challenges inherent in a VBC practice model. The intent is great, but when the rubber hits the road many physician practices don’t have the resources and data available to maximize the opportunity offered by a VBC model.
Don’t just cross your fingers
The promise of VBC - paying providers for outcomes – is a step in the right direction for primary care. But physician practices jumping into the VBC game need access to real time data and patient outreach support, two needs that place an additional burden on an already challenging business model. The upside financial opportunities are real, but the cost to get in the game with the requisite resources may be beyond the reach of many primary care groups.
This article was written by a human being; no chatbots or AI were used. No permissions are granted for any use of this content to train AI algorithms.
Copyright 2itive 2024
2itive is a Portland based consultancy founded by Erik Goodfriend, offering a unique combination of market intelligence, knowledge of healthcare payment systems and creative business strategy insights. Feel free to contact us at info@2itive.com
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