Healthcare Education

Value-Based Reimbursement and Improving Quality of Care

June 16, 2017

Value-Based Reimbursement and Improving Quality of Care

Making an effective transition to value-based care, and to a corresponding reimbursement model that works for medical providers, insurers and patients alike, is a longstanding goal for much of the U.S. healthcare system. There are many compelling reasons for adopting value-based reimbursement (VBR) as a replacement for traditional fee-for-service (FFS), with two of the most notable being improved care and economic efficiency.

Better Quality of Care

Under FFS, the quantity and dollar amount of payments for a given treatment may be out of sync with the value that a patient actually gets from it. Shifting to VBR could address this issue, which is widespread:

  • A 2016 study published in Health Affairs revealed that FFS was still the dominant paradigm for all U.S. physician visits, with 95 percent of surveyed practices following it [1], up slightly since 2010.
  • Against this backdrop, the Department of Health and Human Services set a goal of moving Medicare to 50 percent VBR methods by 2018, after Medicare made more than $360 billion in FFS payments [2] in 2014, according to CNBC.
  • That same year, only 20 percent of Medicare expenditures were tied to quality measures, via specific alternatives to FFS such as bundled payments, accountable care organizations and patient-centered medical homes.

Implementing VBR could reorient care delivery toward proven and cost-effective remedies. At the same time, it could curb overuse of medical care and, by doing so, reduce the potential harm to patients from excessive treatment via CT scans, X-rays and antibiotics.

The aims of using VBR as a payment model also align closely with those of Utilization Review (UR). Megan Kaufman, General Manager of Advanced Medical Reviews, an Independent Review Organization and Utilization Review provider, explains “Value-based care and UR both strive to reimburse for the highest quality care for patients. Assessing utilization for appropriateness and necessity, as we do in our Physician-Level Peer Reviews, not only can improve care, but it can also improve your bottom line.”

Cost Reduction Throughout the Economy

Healthcare accounts for approximately one-sixth of U.S. GDP; Per capita medical spending was nearly $10,000 in 2016 [3], according to the Centers for Medicare and Medicaid. Moreover, medical costs have remained high over the years, despite relatively robust competition across the nation’s uniquely complex health sector.

This counterintuitive result suggests that such competition is not fundamentally aligned with value for patients. VBR is a logical solution to these issues. It is founded on excellent coordination and communication so that the best care for each patient – whether preventive or for acute or chronic conditions – is consistently delivered at the right location. Implemented correctly, it can provide superior value for each dollar spent on healthcare and reduce events such as readmissions and follow-up treatments, leading to less cost growth.

Challenges in the Transition to Value-Based Care: Managing Data

Despite the hype about the benefits of a value-oriented health system, faulty implementation has made the transition to VBR move slowly. One of the most significant hurdles is establishing interoperability between the numerous types of electronic medical records that enable value-based care models.

Everyone in the typical healthcare environment, from physicians and nurses to billing clerks and CEOs, is affected when essential data like medical records, clinical outcomes and reimbursements is not readily available. These assets help answer questions such as:

  • How has this patient’s health evolved over time, across disparate care settings and through different treatments? More structured data (e.g., searchable medical notes) and electronic health records are especially useful herein establishing context.
  • What qualifies as a “valuable” treatment? Clinical outcomes posted to standardized disease registries could provide helpful guidance on the medications and procedures that perform well.
  • Are there operating expenses I could trim to ease the switch to VBR? Clinical, financial and operational data offers the insights essential for flagging unnecessary and non-standard orders, which are not only costly but also common causes of patient injury.

However, IT research firm Gartner estimated that through 2017, 60 percent of big-data initiatives, which in theory would help corral all this data into usable, scalable systems, would fail to progress past the pilot stage. So what can hospitals, clinics, etc. do to upgrade their data-intensive processes? There is a mix of technical and procedural solutions on this front.

On the technical side, more extensive use of enterprise data warehousing, cloud computing and EHRs (which were only at 67 percent adoption nationwide in 2016 [4], per data from Practice Fusion) can shore up the IT systems that store and retrieve data. Finance departments also can benefit from access to more advanced IT infrastructure. For specific populations, they gain the ability to granularly compare financial and clinical performance to the terms set down in contracts with value-minded institutions, such as accountable care organizations.

On the procedural side, strategies such as population health management (PHM) can be effective. For example, a PHM initiative might identify individual patients for sustained monitoring to refine and improve outcomes, perhaps through avenues such as patient-centered medical homes that facilitate highly coordinated care. The precise clinical tracking of a PHM is similar to the technical sophistication that medical billing systems must have to keep pace with VBR accounts.

Encouraging Physician and Patient Engagement for Value-based Care

For VBR to succeed, both doctors and patients must buy into the concept. This may prove challenging, given that 65 percent of patients in a CDW survey expressed some frustration in engaging with their various health providers [5], and physicians themselves may be wary of the financial risks associated with value-based care.

Healthcare organizations will need to strike a balance between easier engagement for patients and suitable incentives for providers. Some of the possibilities include pay for performance (P4P), bundled payments, a bigger role for physicians in designing and assessing quality improvement initiatives, deeper collaboration with patients and utilization review.


P4P is akin to an on-ramp from FFS to VBR, since it is technically still FFS but puts a small portion of payments at stake for improving performance. Quality standards are clearly defined and agreed-upon by doctors, hospitals and insurers. The input from physicians can also prove useful for quality improvement.

Quality improvement initiatives

Using up-to-date clinical data, doctors can spearhead efforts to discover and review average length of stay for patients or perform analysis on common, expensive procedures such as hip replacements. These efforts can help align medical practices with the efficiency expected by bundled payments models, which combine all payments for episodes-of-care into one to encourage quality.

Patient collaboration and utilization review

Providers can also offer input on projects such as patient portals and shared decision-making (with patients) on end-of-life care and risky treatments, to foster greater engagement on both sides. Utilization review (UR), conducted by nurses and physicians, is an invaluable resource throughout this process.

UR helps multiple stakeholders hone in on the most useful and cost-effective treatments so that every patient gets the highest quality care he or she needs, whether the system in question is FFS or VBR. The transition to value-based care models has been incremental so far, but through the combination of technical, procedural and cultural changes discussed here, the healthcare system may see value-based care take over.

Value-Based Reimbursement and Improving Quality of Care