July 21, 2020 at 5:00 am ET
Even with a shortage of equipment and resources, U.S. medical professionals have delivered tremendous value to patients in the pandemic. Despite this, health care provider profitability crashed as doctors and nurses started to meet their diminishing patients by video and phone calls instead of office visits. Hospitals in turn suspended elective surgeries.
The pandemic elevated a weakness in America’s largely fee-for-service system: Health care providers need a steady volume of patients to be financially viable. Saving and improving lives alone does not pay.
Whether the medical care provided by a practice is paid by public funds or by private insurance, giving highly beneficial medical care should equal financial security for health care providers. During the pandemic, however, the volume of health care services declined dramatically, and with it profitability. For example, HCA Healthcare Inc. — a hospital system with almost 50,000 beds across the United States — saw profitability decline by about 45 percent year over year in the first quarter.
Even with people going to the doctor less frequently for routine care, health care providers who had shifted to value-based payment (VBP) models continued to remain profitable. VBP’s payment model offers financial incentives to doctors, hospitals and other providers, by aiming for better health outcomes for patients to lower medical costs.
The medical practice gets a financial bonus when health care costs go down because the patient is healthier and goes to the doctor or hospital less frequently. In a fee-for-service model, the practice makes more money when the patient receives more treatment. With VBP, health providers have the financial flexibility to provide the right care, in the right place, at the right time. While results are mixed, measures of the quality of care for patients being treated in a VBP model are generally higher.
Some providers, such as UnitedHealth Group Inc.’s OptumHealth, had already embraced a VBP model prior to the pandemic. When COVID-19 struck, OptumHealth, had two-thirds of their $30 billion-plus annual revenue “at-risk.” The company rapidly adjusted care delivery by shifting to telehealth and digital care clinics, maintained their staffing levels, and continued receiving steady revenues from their at-risk business. In comparison to HCA’s devastating 45 percent profitability decline in the first quarter of 2020, OptumHealth’s earnings from operations increased 14 percent year over year.
More broadly, providers have been slow to embrace VBP. It requires providers to retool their processes and systems and influence a patient’s personal behavior. Providers felt particularly exposed because they have no control over health determinants like exercise and nutrition.
There is another problem with value-based payment: it can exacerbate health disparities. Patients with less money are more challenged to fill prescriptions, change their diet or make it to the doctor. That makes it harder for their health care providers to achieve and maintain better health outcomes and lower health care cost.
Providers working in poorer, often minority, neighborhoods frequently fare worse in a VBP system because it is more of a challenge to reduce their patients total health care costs when so many external factors are fueling poor health. As a result, fewer providers use VBP models in poorer neighborhoods.
In addition to underlying poor health and intervening factors like poverty, VBP is about to experience another challenge. While visits to the doctor and hospital for non-COVID related conditions such as heart disease have been suppressed during the emergency, what will happen to the untreated patients over time remains to be seen.
Heart disease, diabetes and poor mental health continue to take their toll, even if the health system is not seeing it directly because people are staying at home. So VBP providers that fared well during the pandemic when visits and health care costs were low may find themselves inundated in the coming months with patients in poor health from untreated conditions.
Given that VBP models show promise, health administrators are considering emergency adjustments to remove costs from patients with COVID from value-based payment models to ensure the model remains financially viable (the patients themselves would remain). But, for the pandemic and beyond, VBP still has a long way to go.
First, there should be financial incentives in value-based models for providers to share evidence-based best practices, such as funding research to evaluate care approaches. Second, better revised payment models are needed for hospitals and provider groups that deliver care in areas where health disparities are persistent, namely in Black and Hispanic communities and rural areas. Finally, more is needed to integrate social services with health provider organizations.
Embracing the risks of value-based payment is good — the system rewards physicians for delivering effective care, not just for delivering a lot of care, and can be adjusted to reduce health disparities. In an uncertain time, it creates needed incentives to improve the health of our population and the financial health of the companies that adopt it.
Kirsten Axelsen is a visiting fellow with the American Enterprise Institute and a consultant to biopharma and data informatics companies. Jason Grinstead is the CEO of Metasense Analytics.
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