Alternative Payment Models’ Role in Reducing Waste and Improving Care Outcomes
One trillion dollars. That’s a lot of money to waste, but it’s estimated that we are throwing nearly that much out the window every year in the U.S. healthcare system. That’s more than 25 cents of every dollar of the nearly four trillion we spent in 2020 on healthcare, more than any other country in the developed world.
While needless administrative overhead and unduly high salaries account for some of that waste, the majority results from failure of care coordination and delivery, pricing failure, overtreatment, and even unnecessary care. What these have in common is the danger they pose to patients; unnecessary tests, treatments, operations and other procedures expose patients to risks to their health and even their lives.
One element that goes a long way to driving waste — and which is also instrumental in combatting it — is how we pay for care. Under the nation’s traditional fee-for-service model, where doctors and health systems are paid for services rendered rather than outcomes, procedures are often ordered whether the patient needs them or not. Often, this is done to insulate hospitals and providers from litigation or because these procedures have become standardized by a health system. More commonly, these care patterns have become standard of care because they are effective at generating income for health systems. These aren’t good enough reasons to saddle patients and society with the attendant billions in waste, especially when these procedures can potentially result in harm.
What’s needed instead is a system that provides value-based care, optimized for each patient’s needs, and which encourages providers to adopt alternative payment models (APMs). This approach is beginning to make inroads and is attractive from both the perspectives of patient outcomes and savings. The Healthcare Payment Learning and Action Network (HCP-LAN) — a group of public and private health care leaders working to accelerate the shift to value-based care in order to achieve better outcomes at lower cost — reports that nearly 36% of health care payments were made in 2019 through value-based models, compared with only 23% in 2015.
That progress is encouraging. Private insurers including Humana and UnitedHealth Group are now pursuing paying for value-based care, and The Centers for Medicare and Medicaid Services (CMS) announced 10 new payment models through their Innovation Center in 2019. They are pursuing the goal of having 100% of traditional Medicare and Medicare Advantage payments flowing through two-sided-risk alternative payment models by 2025.
That goal is ambitious, and it’s worthwhile. We are hopeful that this change will bring better care to communities of color and communities in which people have low incomes. Medical providers cannot do this alone, and APMs must allow provider organizations such as community health centers to address physical health and the social and behavioral health issues that are part of the inequities experienced by our communities.
This requires APMs that allow integration of multidisciplinary teams into care models. These should include community health workers and community-based organizations addressing social determinants of health, and peer supports and recovery coaches working with people with mental health and substance-use disorders. Making this happen demands flexibility in payment models. Medicaid agencies encourage these practices; Medicare also appears to be following suit through advanced APMs.
HCP-LAN’s goals are appropriately ambitious. We must do better to empower providers to deliver optimal care for optimal benefit, especially important in the communities of color and under-resourced communities experiencing entrenched health inequities due to decades of institutional racism and stigma. Value-based care models and population health are essential to improving health and reducing waste, and APMs have great potential to reduce administrative overhead, allowing expanded care teams to focus on preventative medicine and coordinating patient care, resulting in lower costs from better health outcomes for all.
