Value-based reimbursement coming on strong while the fall of FFS medicine accelerates

A shift toward value-based reimbursement, which only a couple of years ago seemed very slow in the making, may unseat the entrenched fee-for-service (FFS) payment model in five years, according to experts.

Health care usually moves glacially, but that’s not what’s happening here.

Managed Care reported in 2013 (/archives/2013/8/twilight-fee-service) about FFS medicine’s inertia. The use of CPT codes have enmeshed FFS payment into the delivery of American health care. Many health plans lack the information systems needed to sustain whatever might replace FFS payment. A move away from FFS payment will mean that contracts with thousands of provider groups will have to be rewritten.

In its first scorecard on payment reform, released in March 2013, the Catalyst for Payment Reform (CPR), a not-for-profit organization that advises large employers and insurers about quality improvement, reported that just 11% of payment to providers is not under a FFS model.

Well, guess what? CPR’s second report card last year found that 40% of commercial health plan payments were made through payment methods designed to improve quality and reduce waste. CPR cautions, however, that more study is needed to determine whether value-based reimbursement actually leads to better and more cost-effective care.

Projected mix of payment models within payer organizations*

*Among payers that are not 100% FFS.

Source: McKesson Health Solutions, “The State of Value-Based Reimbursement and the Transition from Volume to Value in 2014,” 2014.

That’s quite a jump—but not a complete surprise, considering the clues. Top executives at UnitedHealthcare, Anthem Blue Cross, and Aetna have all been quoted in recent months about the concerted value-based efforts their companies are making. CMS is throwing its weight behind the trend by mandating that 30% of Medicare outlays by 2016, and half by 2018, be routed through alternative payment models such as ACOs and bundled payments.

McKesson Health Solutions has no doubts about which way the wind is blowing. After surveying top-level managers at 114 payers and 350 hospitals, the consulting company said that “there can be no question as to health care’s embrace of value-based models” and reported that the payment landscape is changing so fast that value-based payment will overtake FFS by 2020. In fact, according to McKesson’s findings, the future has already arrived, with 90% of payers and 81% of providers using some mix value-based reimbursement and FFS.

One note of caution: Value-based payment is in vogue, and the term is deployed loosely. In some hands, it’s being used to describe almost any kind of payment that has a quality or performance metric attached.