Value-Based Purchasing: 7 Calls to Action for the Health Care Industry and Employers to Accelerate Adoption

Employer-led value-based purchasing approaches have made strides in driving improvements in health care delivery, but there is much more work to be done across multiple stakeholders.

October 03, 2022

Employer-led value-based purchasing approaches have made strides in driving improvements in health care delivery, but there is much more work to be done across multiple stakeholders.

Now more than ever, it is time for the health care industry to shift to value-based and alternative payment models. With health care costs continuing to rise, patient experience and life expectancy on the decline and outcomes subpar, employers and other stakeholders are eager to see more rapid progress toward full industry deployment of value-based payment models. These models, which tie provider reimbursements to improved patient experience, cost mitigation and improved outcomes, are necessary to transform the industry and finally break away from the legacy fee-for-service (FFS) payments that encourage a greater volume of services with little relation to their appropriateness.

It has been over a decade since the passage of the Affordable Care Act, which jump-started the move toward value-based arrangements in U.S. health care, but progress has been uneven at best. Many bright spots of successful partnerships between employers, providers, health plans and other companies that advance value-based purchasing arrangements to enable delivery system improvements exist across the country. They are proof positive that value-based payment can work well in service of patients and providers. That said, the progress has been slow, and many stakeholders remain resistant to widespread adoption.

Value-Based Payment and Care Successes

Several payment and delivery reform partnerships have increased value in the health care delivery system for years, including:

Despite evidence that providers taking on value-based care payments weathered the pandemic and delivered better continuity of care than those focused on fee-for-service payment – which plummeted during lockdowns – there remains an undercurrent of skepticism about whether value-based payments work.1, 2 Many organizations have perverse incentives and continue to benefit greatly from fee-for-service medicine, which incentivizes more care rather than effective care and prevention. Patients, employees and their employers, on the other hand, often end up paying more and for less value. It is time for things to change.

We recognize that changing the way that health care is paid for and delivered is hard. Even those organizations that are conceptually aligned and have deployed value-based models cite challenges. Yet, the cause should not be abandoned. Business Group on Health, guided by significant employer input on value-based care through our annual Large Employers’ Health Care Strategy and Plan Design Survey and input from leading experts on its Executive Committee on Value Purchasing, calls on the health care industry to heed the following as they move forward.

1 | Health plans must use their leverage in geographical markets to move away more aggressively from fee-for-service.

Most employers are largely depending on their health plans, third-party administrators (TPAs) and other network contract administrators to negotiate with providers in markets across the U.S. Few employers have the bandwidth, resources, and market concentration to pursue direct provider contracts. With rare exceptions, the percentage of an entire geographic health care market employed by one company is minimal. Employees of General Motors, a pillar in Michigan and a sizable employer, account for approximately half a percent of the state’s population and 1 percent of the Detroit metro area. Boeing, also widely considered a leader in value-based care with direct contracts in several markets, has employees that account for 1 percent of Seattle metro population – the company’s largest market.

While a geographic market may have hundreds or thousands of employers, only 10 insurers account for 70% of the U.S. health insurance market. In 46% of health care MSAs (metropolitan statistical areas), just one health plan has captured over half of the insurance market.3 The purchasing power of health plans is massive in most markets, making them a key player in driving reforms in how health care is paid for. But they must move more aggressively to require network providers to take on value-based payments, like bundles, capitation, shared-savings and -risk. Health plans are also well equipped to identify both providers who are performing well on quality and cost metrics, as well as those who are poor performers who perhaps should not have been included in their networks in the first place.

In many markets, this is already happening, with insurers partnering with and requiring their network providers to utilize value-based payments to improve care, ultimately benefitting them (and their patients) financially. We applaud these efforts and encourage more aggressive pursuit of similar arrangements so that they become the majority, rather than the current minority, of provider contracting. Health plans, TPAs and other network administrators must leverage their significant presence in most markets, pool their plan member population (funded through employers, Medicare Advantage, Medicaid managed care, etc.) and increase utilization of value-based payments in their network contracting. This will benefit all of their plan members, including the commercially insured and their employers.

2 | Provider groups must embrace value-based delivery models or expect employers to increasingly partner with health care organizations that are innovating in value-based care.

Over the past 21 years, inflation for medical services has outpaced general inflation in all but 5 years, and only barely in those years.4 To curb rising costs, large employers have been seeking from their partners a faster move toward value-based care that mitigates increases in the cost of medical services. Recently, several factors, including the COVID-19 pandemic, increases in general inflation and the tightened labor market, which has led to higher labor costs for both provider organizations and employers in general, have exacerbated cost concerns. Health systems are already asking for up to 15% rate bumps heading into 2023, creating an untenable cost equation for employers.4

In recent years, accountable care organizations (ACOs) led by primary care groups have generally been successful in impacting costs and improving quality. They “win” financially when they’re able to keep patients healthy and out of expensive settings of care, which are likely to get even more expensive in 2023. Therefore, in the coming years, health systems unable to pivot their care delivery and reimbursement models toward value will find that their customers will increasingly look for ways – in partnership with their health plans, TPAs, and other vendors – to partner with providers who are innovating.

According to the 2023 Large Employers’ Health Care Strategy and Plan Design Survey, adoption of virtual primary care (32% of large employers implementing in 2023 and up to 69% in 2025) and on-site primary care (36% in 2023 and up to 49% in 2025) are the fastest growing employer strategies for steering employees to advanced primary care. Both of these approaches afford employers more influence over how care is directed in the primary care realm and how it is referred downstream for specialty services.

Likewise, this survey data shows that employer adoption of centers of excellence (COEs) that often take on risk has increased significantly in the past year across nine specialties/procedures and are poised to rapidly grow in the coming years.

3 | Consultants, brokers and other organizations that advise employers must move to assessments of value on total cost of care rather than fee-for-service network discounts.

Effective large employer health care strategy is built on actionable data. Some employers have large teams that do analytics internally as they assess strategy and vendor partners, but most rely on consultants, brokers, data warehouses and other companies to help them make sense of huge amounts of data and strategic opportunities.

A common and long-standing way that assessments of health plans and their provider networks have been done is on the percentage “discount” off of billed charges the health plans are able to negotiate. This way of comparing health plans’ relative strength in their ability to control costs has been standardized across the industry but misses the bigger picture: Networks built around providers in value-based payment contracts can deliver higher quality of care at a lower total cost when impacts on prevention and downstream referral management are considered. When employers are making decisions on which vendors to partner with and networks to select, they need to have total cost of care, paired with quality data, to pick the best approach. Unfortunately, they often do not have this information available.

Moving to measurements of total cost of care (TCOC) and incorporating quality into assessments is difficult. It requires new forms of data to be combined and interpreted, complicated calculations of how to attribute outcomes to particular providers, and assumptions about future performance. It is hard, but a worthwhile exercise if employers are to make informed decisions about value-based purchasing opportunities available to them within and across vendor partners. Health plans, providers, consultants and other partners should make data available so that employers can perform TCOC measurements and make decisions based on them without letting the perfect become the enemy of the good.

4 | Where value-based care is successfully controlling costs and improving health outcomes, employers should reduce cost sharing for members using those providers.

Value-based payments are intended to align the financial interests of providers with effective care and prevention for their patients. As employers push for the health care industry to realign financial incentives, they need to look internally at how they use their own financial strategy to encourage their employees to access high-quality health care with providers embracing value-based care models.

When providers are willing to take on financial risk and are succeeding in leveraging value-based payments to deliver high-quality care with great outcomes, employers should be exploring opportunities to dramatically reduce out-of-pocket costs for receiving care from those providers.

We see some of this shift already happening in our annual survey. Many employers provide accommodation and travel coverage for using a COE, as well as reduced or zero-dollar coverage for those that provide extremely high-quality care while taking on financial risk for the cost of care. Others have begun to pull back on their consumer-directed health plan (CDHP) strategy to embrace plan designs that allow them to eliminate cost-sharing for high-value primary care, telehealth and COEs prior to the deductible being met, as well as from other kinds of care from high-performing providers. And this isn’t just about “traditional” brick-and-mortar providers, this is about all who provide health and well-being care to patients, including virtual and other third-party care providers that have proliferated in recent years, as well as employee assistance providers. When these providers are delivering high-quality, effective care, employers have addressed cost barriers to accessing those services.

5 | All stakeholders (health plans, pharmacy benefit managers, providers, third-party vendors, employers, etc.) must be willing to meaningfully share data to enable effective implementation of value-based care delivery.

The question of who owns health care data has been a point of contention for decades. Sharing that data across health care stakeholders, even when organizations are working together, can be extremely difficult, given platforms that don’t “talk” to each other and differences in how data is measured and collected. Additionally, unlocking the potential of health care data to improve health interventions requires the ability to operationalize it, which is not often easy.

With new regulations requiring health care cost data to be made public, there are new opportunities to use this data to guide value-based care contracting and health care delivery strategy. But cost data without related quality information has limited ability to inform meaningful increases in value, and inconsistencies in data reporting make comparisons difficult. More needs to be done, and having more data available is a good start.

There are many ways that facilitating access to health care data – claims, clinical, outcomes – across stakeholders could benefit patients. What if your primary care provider had quality and cost data for your network of specialists when making a referral? Or if care managers had real time access to claims data and could cross-reference it alongside other programs offered by the employer to navigate patients to the most appropriate resource(s) and eliminate redundant services and points of friction? Or if employers could quickly target health care communications toward people who could benefit from them in the moment, rather than 3 months after the fact once they receive detailed utilization information? The performance of the health care delivery system and patient outcomes could benefit greatly from these types of capabilities, but they require meaningful data sharing. Therefore, the health care industry needs to step up to do so.

6 | Value-based care should incorporate an equity lens, which requires capturing demographic data and measuring disparate impact.

Major stakeholders in the health care industry – employers included – are keenly focused on health equity. This includes a focus on issues related to race, ethnicity, gender identity, geography, affordability, spoken language, social determinants, disability and others. Value-based care and payment are well positioned to address disparities, as providers are rewarded for taking care of their entire patient populations, rather than treating only those who show up and can pay. Value-based payment aligns providers’ financial interests with patient outcomes, which means that providers will succeed by engaging patients fully, by considering the context from which they arrive at the doctor’s office.

Providers, telehealth vendors and others who take care of patients should take it upon themselves to collect demographic data and work with health plans to measure the impact of their value-based payment and care efforts across different populations. We know that measurement of variables such as race, gender identity, spoken language and others listed above is difficult, but in many cases, it’s not done or captured in the first place. To make a meaningful impact and target efforts in the future, this process of data collection and measurement needs to be more comprehensive.

Value-based care is absolutely not a panacea for addressing disparities; we know that most of what impacts a person’s health happens outside the medical context. But leveraging value-based care arrangements, which empower providers to offer services not usually delivered in the traditional medical visit (e.g. hiring social workers and interpreters, proactive outreach to increase adherence to preventive services, integrated behavioral health, etc.) is one tool we have to make a difference when armed with the necessary data.

7 | All parties must continue to incorporate virtual care into their value-based care strategies.

The marketplace witnessed an explosion in the use of virtual care during the pandemic. Employers quickly pivoted to make virtual care options available to their employees and their families when it became clear that accessing traditional care in person wasn’t feasible. However, virtual care delivered in a fee-for-service manner, which may in part be redundant to downstream in-person services, can be a step in the wrong direction. Virtual care is health care delivery via another modality. All of the points raised previously in this document also apply to virtual health services, though assessment of value is made more difficult given the possibility of duplication of services virtually and in person (a concern raised by employers in the Business Group’s 2023 annual survey.)

Providers leveraging virtual services and virtual platforms themselves should be held accountable for outcomes and overall costs. Value-based payment eliminates concerns about double payment for virtual visits that necessitate in-person visits because the former didn’t resolve the patient’s issue. It shifts the discretion – and accountability – to the provider, who is in the best position to determine when a virtual visit, text message, email or phone call might be appropriate compared to an in-person visit. And when patient experience metrics are included in contracted goals, it behooves providers to provide widely popular virtual care options. Similarly, virtual health platforms, including many of the companies that have proliferated in recent years, should also be contracted using value-based payment.

Employers are continually exploring avenues to increase access to care, improve the patient experience and mitigate costs. These goals have driven them to take a closer look at, and often contract with, virtual care networks alongside traditional brick-and-mortar providers. Each plays an important role in providing optimal patient care in the future – yet must evolve to be integrated and work in concert with one another for a holistic and coordinated patient care journey. Importantly, both in-person and virtual providers should be reimbursed for delivering value to patients and their employers.

Conclusion: Effective Value-Based Payment to Enable Delivery Improvements Needs to be Easier to Implement.

If effective value-based payment and care were easy, they would have taken over U.S. health care already. For it to work, every stakeholder – including employers, health systems, health plans and others – must think differently about their business and accounting models, methods of delivering care, approaches to coverage and assessments of value. In some cases, organizations continuing to operate the way they do under the fee-for-service reimbursement model will lose out financially in a value-based payment arrangement that requires meeting quality and cost targets difficult to achieve when revenue is only available through in-person medical visits. In one sense, that is the point of changing the way care is covered and paid for – to change the way care is accessed and delivered. We recognize that change is hard, and none of the calls to action above are intended to lay blame on any specific group but rather highlight areas where all collectively need to do more, and to do it more swiftly.

Value-based payment and care can be successful, as evidenced by several partnerships between combinations of providers, employers, health plans and other value-based care delivery systems, which have achieved significant improvements in markets across the country. We envision a not-too-distant future where we can point to many examples across the country – in large and small markets, with sizable health systems and provider practices, spanning both in-person and virtual care – in which value-based care is the prevalent model.

As outlined in these calls for action, the time is now to accelerate the shift toward value-based care models. The current payment model has driven up cost through mechanisms that reward increased frequency of increasingly complex care. We need a new model of care delivery and payment structure rooted in quality, outcomes and cost improvements. For too long, we’ve seen a slow uptake, with skeptics creating doubt about its viability or citing overwhelming challenges with implementation as reasons not to proceed. Patients deserve better and employers are increasingly seeking and demanding that their partners and others do more to support efforts in the movement toward value. Ultimately, this work is in service of patients, who deserve high-quality care at affordable costs, and that’s why working toward this goal is a worthwhile endeavor.

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