Medicaid/Medicare P4P

Value-based payment flaws

While CMS has a target of getting 100% of Medicare beneficiaries into value-based payment (VBP) programs–such as accountable care organizations–by the end of the decade, implementing VBP in practice will be challenging. An editorial by Navathe et al. (2024) in Health Affairs provides some key considerations.

  • Providers forego certain revenue for uncertain ‘bonus’ payments. “One flaw is built into many VBP incentive designs: They require participants to forgo revenue for the opportunity to earn just a fraction of it back as shared savings. The math doesn’t work. These VBP contracts ask participating organizations to relinquish $1 for the uncertain opportunity to receive 50 cents in the future. For instance, hospital-led ACOs participating in the MSSP forgo revenue from hospitalizations in the hope of realizing a fraction of that revenue in the shared savings.” Additionally, the amount of ‘savings’ typically grows over time so provider face a continuously rising bar.
  • Ghost savings. CMS evaluates VBP success based largely on risk-adjusted cost savings. The goal of risk adjustment is to make sure providers are not penalized for treating a sicker patient population. However, there are 2 ways improve your risk-adjusted cost savings: (i) reduce cost or (ii) improve documentation of patient disease severity to make they appear riskier. As the authors write: “Because documenting diagnoses is easier than changing care practices, providers have more incentive to modify documentation than improve health care delivery.”
  • Voluntary participation. Typically, only large health systems have the financial resources to participate in VBP. “…care innovations that work for large systems with access to capital may be difficult to implement for smaller, less well-resourced systems, or turn out to be less cost-effective in those settings. For many smaller systems and independent practices, the financial investment required to navigate the first three or four years of the VBP learning curve are beyond reach.”

The authors propose solutions to these problems, but these issues are likely to remain problematic in VBP for the foreseeable future.