The Federal Role in Value-Based Care
Over the last two decades, the federal government has invested in testing value-based payment models. In 2010, the Centers for Medicare and Medicaid Services (CMS) Innovation Center was established to develop and test new health care payment and delivery models to improve the quality of care, lower costs and to promote patient-centered practices in the Medicare and Medicaid programs. In the last decade, the CMS Innovation Center has developed and implemented more than 50 value-based care models across seven categories of initiatives that have been rolled out in all 50 states, Washington, D.C., and Puerto Rico. Between 2020 and 2022, more than 300,000 providers and plans and more than 41 million individuals with public and private health insurance participated in CMS Innovation Center initiatives. The majority of CMS Innovation Center models were designed for the Medicare program but are often used by commercial payers and state Medicaid agencies as a reference when designing their own models.
The types of value-based payment models adopted by the CMS Innovation Center and other payers vary widely. The Health Care Payment Learning Action Network categorizes value-based payment models across four categories based on the level of financial risk assumed by health care providers for quality and outcomes, whether payments are tied to value and quality and the duration of time the provider is responsible for the risk. As of 2021, the network estimates that 60% of health care payments are made through FFS models with limited or no connection to quality or value (Categories 1-2) with the remaining 40% of payments made in models where payment is increasingly linked to quality or value through provider assumption of financial risk (Categories 3-4).
In case you missed it, key terms – like alternative payment models, accountable care organizations, bundled payments, global budgets, patient-centered medical homes, two-sided risk and more – are defined in the Key Terms brief in this series.
The State Legislative Role in Value-Based Care
States are also taking action to transition from FFS to value-based care. States legislatures can play a key role in funding, developing, implementing and testing value-based care initiatives to improve the quality of care and health care costs for their constituents.
State legislatures may authorize adoption or participation in models designed and funded in collaboration with the CMS Innovation Center. Pennsylvania established and funded a rural health redesign center to administer the Pennsylvania Rural Health Model, a CMS Innovation Center model specific to the state, which is a first-of-its-kind model designed to provide financial stability to rural hospitals and preserve access to care by helping transition rural hospitals from FFS to global budget payments. Pennsylvania’s rural health redesign center also provides technical assistance to rural hospitals that participate in the model. In Tennessee, the state Medicaid program implemented a program similar to the CMS Innovation Center’s Emergency Triage, Treat and Transport model. Unlike FFS, this model pays ambulance providers for services provided at the scene (rather than just for transportation to the hospital) and allows for and transportation to non-hospital settings like an urgent care or behavioral health clinic, when appropriate, to ensure patients receive the right care at the right time.
State legislatures can also develop value-based payment models of their own that address health care priorities in the state. Maryland established the Behavioral Health Care Coordination Value-Based Purchasing Pilot Program to establish and implement an intensive care coordination model using value–based purchasing. Minnesota and Idaho require accountable care organizations to assume responsibility for the total cost of care for Medicaid patients based on the organization’s performance on certain quality measures, like ensuring child well-visit checks. North Dakota requires the state Medicaid department to participate in current and future value-based purchasing programs for prescription drugs.
States also play a key role in testing and evaluating the outcomes associated with new models adopted in the state. Since 2015, Ohio has launched and tested 43 different episode of care payments in the Medicaid program on a wide range of conditions from asthma to congestive heart failure. Oregon created a Primary Care Payment Reform Collaborative to test primary care value-based payment reforms in Medicaid and commercial payers and make annual progress reports to the legislature.
The Challenges and Opportunities of Value-Based Care
Value-based care presents both challenges and opportunities for states.
States and providers may face upfront costs and barriers to adopting value-based care models. Because value-based care requires providers to change the way they deliver and get paid for the care they provide, adoption of value-based care models may require providers to make significant financial investments to change systems, train personnel, obtain staff buy-in and ensure sustainability. While more providers are participating in value-based care over time, the impact of value-based payment models may be limited when health care providers continue to account for FFS incentives in their business strategies. More advanced models require providers to assume higher levels of financial risk that may require additional oversight or adjustments to model design to ensure that providers can take on the financial risk while remaining financially stable.
Models vary significantly in design and implementation, and new models are frequently introduced to address priorities for specific populations or services like behavioral health. The evidence on quality and spending results for value-based care models is mixed, with outcomes varying depending on the type of model and the design of the model. Value-based care models can be difficult to research because of the challenges in analyzing the differences in costs or outcomes that would have occurred if the value-based care model wasn’t in place. For example, some models are specific to diagnoses or particular episodes of care—like bundled payments for joint replacements—making it difficult to apply those research findings to other models.
But value-based care also comes with some promising results. A survey of payers found that the vast majority of payers strongly agreed that value-based payment models would result in better quality of care (96%), more affordable care (82%) and improved care coordination (96%). CMS Innovation Center accountable care organization models have been associated with modest savings of 1-6% when compared to counterfactuals or benchmarks, depending on model design. Value-based payment models may also give health care providers the financial flexibility to address social drivers of health and health disparities which may improve overall health outcomes and reduce long-term costs of care.
Some evidence indicates that patients receive higher quality care from providers that assume financial risk or provide care through patient-centered medical homes, a type of value-based care model for primary care. One study evaluating capitated payments for California health care providers compared providers that assumed no financial risk with providers that assumed full financial risk for the care they provided. The study found that providers that assumed full financial risk had higher average clinical quality scores and lower total costs of care. Arkansas found that its Medicaid patient-centered medical homes reduced unnecessary hospitalizations and emergency room visits and led to $35 million net cost avoidance.
Two models designed around hospital global budgets have also shown promising results on quality, cost and access. An independent evaluation of the Maryland Total Cost of Care model—which established global budgets for hospitals and holds the state accountable for the total cost and quality of care provided to Medicare beneficiaries—found that the model was associated with a 16% reduction in all-cause acute care hospital admissions, a 16% reduction in potentially preventable hospital admissions and a $781 million reduction in total spending for the Medicare program. In Pennsylvania, all of the rural hospitals that participated in the Pennsylvania Rural Health Model remained open during the COVID-19 pandemic and 23% expanded service lines.
While there is still much to learn about value-based care, these models hold promise for improving quality, costs and patient-centered care. As value-based care evolves over time one thing is clear: States will continue to play a key role in advancing models that improve care for patients and manage costs for state budgets.
NCSL acknowledges Arnold Ventures for their support of this publication.