Lifecycle of a Payer's incentive program in value-based care

Introduction

Global health spending consumes 10% of the world's economy.^[1] Yet this substantial expenditure has not always translated into improved patient outcomes. Persistent concerns about preventable medical errors (resulting from bottlenecks in system integration, interoperability, and data handling) contribute to higher readmission rates. As a result, the healthcare industry has moved away from the traditional fee-for-service model and embraced value-based care (VBC). Rising healthcare costs, the need for improved quality of care, and patient demand for minimized readmissions are the primary factors behind VBC's widespread growth (close to as much as $1 trillion in the next two years).^[2] However, it’s not just the market that’s showing these results – the Centers for Medicare & Medicaid Services (CMS) bolsters this growth. Last year, the increase in VBC with new Accountable Care Organizations (ACO) models indicates the importance of outcome-based metrics. These, coupled with several VBC options, are here to stay for a world that moves towards the same. They include:

• Pay-for-performance: Rewards providers for achieving specific quality targets.
• Bundled payment: Instead of paying separately for a hospital, physician, and other services, a plan may choose to bundle payment services linked to a particular condition, procedure, or service.
• Shared savings and risk-based models: A provider organization is paid using the traditional FFS model but at the end of the year, total expenses are compared with the set target.
• Capitation: A provider organization receives a fixed payment intended to pay for an individual’s care, regardless of what services they use.

Value-based care (VBC) is transforming healthcare, and while payment models play a role, strategically designed incentives are the true engine of this change. These incentives move beyond simply "paying for value" to create a system where value itself drives healthcare delivery.

Figure: Impact of value-based incentives

The quids, the pros, the quos: Lifecycle of incentives within VBCs

With CMS initiatives signaling the end of fee-for-service by 2030 and mandating VBC participation,^[3] understanding the incentive lifecycle becomes important.

1. Eligibility requirements and program participation: A successful VBC incentive program is built on shared goals and collaborative execution. Licensure and certifications are a prerequisite. However, the real differentiator lies in embracing advanced measures like certified EHR adoption, adherence to industry best practices, and unwavering regulatory compliance. This is just as crucial as who is eligible is how they enroll. A clear and concise process is a non-negotiable for providers to enroll in the program. This should include major components like enrollment procedures (online portals, application forms) and their timelines, along with the required agreements or certifications.
2. Measurement methodology: Analyzing program performance is key to understanding its impact. This means looking at data, tracking things like cost savings, better quality care, thereby fewer readmissions and patient satisfaction, and using statistical analysis to isolate the program's effects. Besides this, a robust data collection, validation, and data-driven reporting process ensures accuracy and delivers actionable insights.
3. Payment structure: Good incentive models are essential for successful VBC. Why? They reward providers for achieving and surpassing performance targets, using different types of VBCs. Transparent payment calculations, with clear examples, will show providers how performance translates into specific incentive payments. A well-defined payment schedule will ensure they understand the program's financial incentives.
4. Performance monitoring and payouts: Continuous feedback and support are essential for provider success in a VBC program. Providers will receive regular performance reports, with clear communication regarding the frequency and format of these reports. For areas where performance targets are not being met, the program will provide a structured process for developing and implementing PIPs. Finally, to ensure fairness, providers will have a transparent process to appeal performance evaluations and payment calculations.

Beyond the lifecycle: A future of better care and better outcomes

Understanding the lifecycle is just the beginning. VBC's real power lies in its potential to transform healthcare delivery by linking payments to patient outcomes, thus incentivizing providers to focus on preventive, evidence-based, and coordinated care. A prime example is the work being done to move beyond simply managing payments and toward achieving the Triple Aim.

This type of care delivery employs several core strategies (beyond incentive programs) to address the fundamental drivers of improved healthcare and create a future of higher-quality, truly patient-centrism.

Value-based payment models: These models link payments to quality of care and are often combined with incentive programs. Further, these programs encourage providers to provide high-value care, leading to better patient outcomes and healthier populations.

Integration of social determinants of health (SDOH): Considering SDOH such as access to food, housing, and transportation for future VBC incentive programs offers a powerful opportunity to address prescriptive well-being rather than reactive ones (prevention is, in fact, better than cure). By incentivizing providers to screen for SDOH needs, connect patients with community resources, and address social barriers to health, these programs can improve patient outcomes and promote healthier communities.  

Greater interoperability and data sharing: Integrated data exchange is crucial for effective value-based care because this gives the power to providers deliver personalized treatment informed by complete patient data. This strengthens VBC programs by improving outcomes and driving efficiency.

Expansion of VBC beyond traditional healthcare settings: VBC principles and incentive programs when applied to home healthcare, telehealth, and community-based care can expand access and address SDOH. By incentivizing remote monitoring, preventive care, and community partnerships, these expanded programs can deliver more holistic and personalized treatment. To illustrate, increased access to preventive screenings like mammograms has significantly shown a 41% reduction in breast cancer mortality risk within the last 10 years.^[4]

Value-add is the way forward

The future of value-based care (VBC) is a powerful force reshaping healthcare delivery. As payer-provider partnerships strengthen and hospitals evolve, incentives will shift from merely treating illness to actively promoting wellness.

There’s no debate about the importance of data. But the true value lies in how it's harnessed. Robust analytics, enabled by seamless data exchange, will provide the insights needed for predictive, preventive, and personalized care. AI-powered diagnostics, leveraging natural language processing (NLP) and computer vision, will create comprehensive patient profiles, enhancing diagnostic accuracy and treatment recommendations. Advanced transformer models are set to decipher the complexities of medical language, enhancing diagnostic accuracy and treatment recommendations. Large language models will facilitate rapid adaptation to new challenges, reducing reliance on extensive training data.

Looking at a future where interpretability and transparency will build trust in AI-driven decisions, while real-time insights will drive efficiency. This data-driven, AI-enhanced future of VBC is designed to prioritize the Triple Aim: better outcomes, lower costs, and healthier populations—now and for future generations.

References

1. Health spending takes up 10% of the global economy: How can tech help reduce costs and improve lives? (weforum.org)
2. Investing in the new era of value-based care (mckinsey.com)
3. CMS announces new MSSP model aimed at improving primary care (bassberry.com)
4. American Cancer Society recommendations for the early detection of breast cancer (cancer.org)