Balancing Risk & Reward: Not All Bundles and Global Payments Qualify as Value-Based Care. Why It’s Important to Move Past Volume Control to True VBC

“Unfortunately, in the U.S., at this point, fee-for-service has become unsustainable.”

This quote is from a regarded national expert on payment reform. It was pulled from a debate on the comparative merits of bundled episodes vs. global payments. The debate took place in September of 2012. That’s right. A decade ago. It’s a reminder of how long fee-for-service has not been serving us well. And how difficult it is has been for the healthcare system to untangle itself from volume-based compensation. Of course, if you go back to the early days of HMOs, this transition is decades in the making. 

This long, winding journey has created a misperception that every stakeholder across the healthcare system is well aware of, and deeply versed in, value-based care. The belief that we have a shared understanding, and shared definitions, of what value-based care is supposed to be and what it looks like in application, is just not true. 

In reality, there is a lot of confusion and misunderstanding surrounding value-based care. We see many models stopping short of true value-based arrangements, settling for the more familiar options of bundled episodes and global payments. But the truth is, if you look at it as a continuum, with fee-for-service being at one extreme and value-based care being at the opposite end, bundles and global payments fall somewhere in the middle. These models are not value-based. They are rooted in either cost or volume control. They incentivize less care, or less expensive care, but not necessarily outcomes-focused care.

Yet, when you survey clinical leaders, many consider bundles and global payments to be synonymous with value-based care. Although a bundle can be part of a value-based model, often a bundle is just a bundle. Understanding this distinction is important for both providers, and payers. 

One of the key characteristics for bundled episodes and global payments is that they focus on how much risk providers will shoulder versus the payer. But neither addresses the sharing of rewards. 

By definition, bundled episodes and global payments are actually not value-based care, at least not standing on their own. In these models, providers take on all risk for controlling the cost of care, while payers receive all the benefits when higher quality leads to dramatically lower total healthcare costs. In these models, if a physician or hospital manages care properly, they might save some money and generate additional revenue, but the payer receives the full benefit of the value created by patients who avoid complications or unnecessary care. 

Let’s look at maternity care as an example. In a typical bundled episode, in the form of a global payment for prenatal care, an OB and their health system receive a set payment amount for each pregnancy. But if that OB does a good job of keeping babies out of the NICU, and preventing other complications such as post-delivery hemorrhaging, they generate significant cost savings for the payer. None of that value is shared on the provider side of the equation. 

In this scenario, the risk is with the provider, while the reward is delivered exclusively to the payer. As it turns out, this is not only a bad deal for the provider, but it also eventually has a negative impact on the payer as well. Here’s why. 

Provider Solvency

While payers made money during the heart of the pandemic, hospitals were laying off staff, experiencing furloughs and teetering on the brink of bankruptcy. This is a clear example of why calibration is needed in how we approach the economics of healthcare. In the end, we need to ensure providers are on solid financial footing. Otherwise, we cannot hope to produce higher-quality, lower-cost care. If we stop short of value-based care, the seesaw of risk and reward is out of balance. You can’t sustain that imbalance without eventually producing negative impacts on the financial health of providers, which in turn makes it impossible for payers to achieve their clinical and financial goals as well.

Alignment to Outcomes

If quality outcomes are the eventual goal, a provider can’t be put in the position where he or she is making a decision of whether to do an extra ultrasound, knowing the practice has reached the spending limit on that patient already. A misalignment of incentives from global payments can put providers in a very tenuous position where they are financially penalized for doing the right thing for patients. Back to our previous example, better prenatal care results in fewer NICU babies. A provider that has no upside for improving outcomes can face the reality of reducing its profitability by preventing complications.  Being ethically driven, doctors are going to ultimately act in the best interest of their patients, but you don’t want hospitals penalized financially for delivering high-quality care. 

The repercussions for marginalized patients, such as those on Medicaid, are even worse, because of lower reimbursement. These global payments demotivate providers to deeply engage in care that avoids high downstream costs, and they even create a disincentive for high-quality providers to take on Medicaid patients in the first place.

Missed Opportunities 

Payers actually save more money in value-based care than they will by stopping short with global payments. If a hospital is trying to stay within the confines of a bundle or global payment, the by product will be a reduction in costs. But it’s far from the outcomes you experience when providers and payers are equally rewarded for maximizing overall healthcare savings. Bottom line, global payments do not produce improved outcomes. Nor do they maximize value creation, or change provider and patient behavior.

Obviously, bundled or global payments are much better than the wild west of fee-for-service. But they won’t solve all that ails our system. What we really need is shared value. 

If you are a provider, you need to have a clear understanding of what constitutes value-based care. You must make sure you are sharing in the reward, not only the risk. If you are a payer, you must look to the long term and ensure you are working collaboratively with providers to design true value-based care models. Stopping short of this is a short-term only strategy. It’s time for us all to move beyond the bundle.