Value-based Purchasing Employer Guide: Introduction

An introduction to how employers are partnering with the health care system to move away from fee-for-service payment and enable care delivery transformation.

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November 29, 2022

This guide details multiple value-based purchasing strategies, along with considerations for employers as they consider implementation.

A value-based health care system that aligns incentives for health care providers with the best health outcomes for patients has the potential to improve the care experience and outcomes, and mitigate costs for everyone – providers, health plans, patients and the employers who cover them. Employers have demonstrated strong interest in and pursuit of value-based payment strategies that reward better quality and affordability.

Value-based purchasing is rooted in the simple principle that a health care system should succeed when care is delivered in the most appropriate, comprehensive manner that results in improved outcomes and quality. This is not a new concept, nor is it easy to achieve, which has been evident from uneven outcomes from past efforts. Still, there are worthwhile efforts that can succeed when they are focused, aligned across stakeholders and supported over time.

This guide contains several parts on value-based purchasing strategies and considerations for employers as they look to first implement or take their efforts to the next level. Each part stands alone but share a common thread of focusing on how employers can use their purchasing power to align incentives for providers with strong patient outcomes.

You will find descriptions of value-based arrangements and payment models, considerations for what approach may be best for your company, questions to ask your health plans and provider partners, data and measures to review for performance, and how to engage employees in value-based models to support effective implementation.

Currently, in the U.S. health care system, most medical services are paid for using a set fee with no regard to necessity, outcomes or patient experience. There are, of course, safeguards to prevent fraudulent or egregiously poor-quality providers from practicing medicine, mostly rooted in licensing standards, but otherwise, most services are reimbursed for the same negotiated fee. This “fee-for-service” (FFS) reimbursement system incentivizes providers to do more, inflating costs of care, while also hampering them from doing things that could improve patient care but aren’t considered reimbursable services, such as answering patient e-mails or consulting expert specialists.

While eliminating fee-for-service may seem like an arduous effort, the momentum to make both the quality measurements of provider services and the cost better tied to outcomes and value has increased as inflation-related cost increases impact several stakeholders in health care, not the least of whom are employers, employees and their families. FFS may be appropriate in certain circumstances, but it should not be the predominant way that care is reimbursed.

Existing value-based purchasing arrangements come in many forms, including but not limited to Centers of Excellence, Accountable Care Organizations, Direct Primary Care, and High-Performance Networks. Providers operating in these types of arrangements are reimbursed through a variety of models that better align total cost to the value and necessity of that service. These include:

  • Bundled payments;
  • Capitation;
  • Shared savings;
  • Shared risk; and
  • Fee-for-service payments tied to quality.

According to Business Group on Health’s 2023 Large Employers’ Health Care Strategy and Plan Design Survey, 79% of large employer respondents use Centers of Excellence (COEs) for transplants and 69% use them for bariatric surgery. Furthermore, a majority expect to have COEs for six other conditions; many of these COEs are reimbursed through value-based arrangements. Additionally, 43% offer high-performance networks and 30% offer accountable care organizations to their employees. Understanding these arrangements and other areas of opportunity to drive improved results is key for large employers.

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