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Updated Oct 23, 2023

What Is Value-Based Healthcare?

Value-based healthcare makes for healthier patients, happier practitioners and less spending throughout the medical industry.

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Max Freedman, Business Operations Insider and Senior Analyst
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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Value-based care is a concept that is spreading throughout the healthcare industry. Many believe it could become the industry standard. Although the healthcare industry hasn’t reached that point yet, that day may eventually arrive. In preparation, use this guide to learn all about value-based care.

Editor’s note: Looking for the right medical billing service for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What is value-based care?

Value-based care is a medical services model in which practitioners and providers are paid based on the quality of their care. The concept is the work of the Centers for Medicare & Medicaid Services (CMS). In fact, the Department of Health & Human Services had previously aimed to convert 30% of fee-for-service Medicare claims to the value-based system. However, as of 2018, only 25.1% of all claims (Medicare or otherwise) were value-based.

Did You Know?Did you know
As of 2018, roughly 1 in every 4 claims was value-based.

Payers reimburse physicians operating on a value-based care model different amounts of money depending on how their services encourage patient health. In this system, high-value care is defined as enabling patients to live comfortable lives and avoid chronic conditions.

Value-based care vs. fee-for-service models

Value-based care models differ substantially from traditional fee-for-service models. The primary differences between the two models are as follows.

  • Quantity vs. quality: In traditional fee-for-service frameworks, payers reimburse practitioners for each exam, test, appointment or other service (for uninsured patients, payers aren’t involved). This model incentivizes doctors to see as many patients (and provide as many services per patient) as possible. Value-based care instead prioritizes the quality of care, which typically improves when doctors see a smaller number of repeat patients for preventive care.
  • Cost determination: Fee-for-service models create a free market for healthcare. Under this model, private insurance companies (and, to an extent, the CMS) set the prices for medical services. Value-based service prices instead vary based on data, such as adverse patient events, population health, hospital readmissions and patient engagement. This pricing structure is often referred to as “evidence-based.”
  • Costlier healthcare: The free-market approach underlying fee-for-service models has led to varied, increased costs for medical services. As a result, practitioners have generally paid more to operate without seeing substantial improvements in patient outcomes. Value-based healthcare avoids this problem by encouraging practices to improve their healthcare IT systems, analyze their data and engage patients. This should result in more coordinated care.

The benefits of value-based care

These are some of the reasons the government and many prominent healthcare organizations have advocated for a gradual shift to value-based care:

  • Increased patient accessibility: Let’s face it, healthcare is expensive. Often, the people most in need of healthcare can’t afford regular doctor Since value-based prioritizes preventive care, long-term provider relationships and chronic condition avoidance, it inherently lowers healthcare costs. Healthier patients visit doctors less frequently, so they don’t spend as much money.
  • Increased patient satisfaction: The healthier patients that theoretically result from value-based care will also be happier. This benefit speaks for itself, though it’s worth keeping one more thing in mind – happier patients mean happier practitioners.
  • More efficient practitioner operations: Fee-for-service models don’t always address chronic conditions adequately. As a result, practitioners often spend too much time on chronic condition management. Value-based care prioritizes approaches that minimize chronic disease. In turn, practitioners get more time back for other tasks so they can be more efficient in every other realm.
  • Easier payer reimbursement: Value-based care leads to healthier populations, which means payers will receive fewer medical claims. As the number of claims they receive decreases, payers’ resources become less thinly spread, so they can more easily reimburse practitioners. Plus, in value-based models, practitioners can bundle similar charges spanning periods of as long as a year (or more) for easier claim filing.
  • Overall healthier patients: Value-based care leads to overall healthier patients. With more positive outcomes that cost less money to achieve, patients will feel better from day to day and will have more money to spend if they feel unwell in the future. Both these factors lead to a healthier population.

Value-based healthcare models

Value-based healthcare is more than a theoretical concept. Many effective value-based models already exist. These models are explained below.

1. Accountable care organizations (ACOs)

CMS developed ACOs to increase the quality of services paid for via Medicare. The idea underlying ACOs is that primary care doctors should work with outside practitioners and hospitals to coordinate high-quality, low-cost patient care at every step of the way.

The ACO arrangement incentivizes each group involved in a patient’s care to work toward a common goal: the patient’s well-being. By comparison, in fee-for-service models, each group might instead prioritize providing as many services to the patient as possible, ordering excessive tests to earn more money.

The link that connects all the disparate entities in an ACO is the patient. As such, the patient is as involved in their care as their providers are.

Data sharing is also key in ensuring the members of an ACO remain focused on the same goal. Although most data points pertain solely to one patient, they can depict a bird’s-eye view of how an entire population is faring. ACO members also share their data with payers as the evidence for claim values.

2. Hospital value-based purchasing (VBP)

VBP, another CMS program, introduces a value-based model for acute care hospitals. VBP is perhaps the most concrete value-based model: Payers adjust their reimbursements based on the quality of care provided. This approach incentivizes acute care hospitals to avoid adverse events and act more transparently. It also encourages hospitals to prioritize patient satisfaction and engagement at all levels, resulting in better patient outcomes.

3. Patient-centered medical home (PCMH)

Medical homes aren’t necessarily physical structures. Instead, they’re teams of practitioners spread among several facilities who all play a role in a patient’s care. The patient’s primary care doctor will oversee all practitioners’ involvement and communicate closely with the patient. This results in a unified experience as the patient moves from doctor to doctor.

Key TakeawayKey takeaway
The term "medical home" is a misnomer. It represents a figurative structure within which a patient's many providers are housed.

Medical home models are predicated on the interoperability features that come with the best medical software. These features ensure that disparate facilities can share clear, fully comprehensible patient data in HIPAA-compliant ways. They allow all of a patient’s practitioners to see key lab results or other data at a moment’s notice, preventing dips in the quality or consistency of care.

The PCMH and ACO models overlap in the way they involve the patient and provider on equal levels. The PCMH model’s heavy emphasis on data sharing resembles the ACO model as well. Both models can eliminate care redundancies and the extra money lost to them.

4. Bundled payments

In some ways, bundled payments are part of all the above value-based models. However, they merit discussion on their own, since their structure may best explain value-based care’s potential to disrupt the medical industry.

Practitioners working in bundled payment models file one claim for all services provided to a patient in a given period. This bundling is the opposite of standard medical billing and coding, in which each service provider gets its own ICD-10 or CPT code. This model both introduces substantial potential for error (though claim scrubbers can help on that front) and incentivizes providers to prioritize quantity over quality. Bundled payments solve these problems.

Don't want to handle medical billing and coding by yourself? Consider outsourcing to one of these top medical billing services.

In bundled payments, only one number matters: the value of the patient’s care experience. The number of tests, exams, diagnoses and appointments that comprise the patient’s care cycle is insignificant compared to the signifier of an excellent patient outcome. This means that an extensive set of tests and encounters that barely improves the patient’s health is less valuable than a smaller set with a highly positive outcome.

How medical billing services can help with value-based care

Value-based care presents a potentially radical shift in how medical services are provided and paid for. As steps toward this model proceed, medical billing experts will notice how they affect longtime billing procedures. That’s why outsourcing your medical billing to a third-party company is a good idea. Consider our review of AdvancedMD, which is best for large practices, or our review of DrChrono, which is better for small practices.

With medical billing companies in your corner, you’ll never fall behind as the medical industry transitions from fee-for-service models to value-based models.

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Max Freedman, Business Operations Insider and Senior Analyst
Max Freedman has spent nearly a decade providing entrepreneurs and business operators with actionable advice they can use to launch and grow their businesses. Max has direct experience helping run a small business, performs hands-on reviews and has real-world experience with the categories he covers, such as accounting software and digital payroll solutions, as well as leading small business lenders and employee retirement providers. Max has written hundreds of articles for Business News Daily on a range of valuable topics, including small business funding, time and attendance, marketing and human resources.
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