CareTalk Podcast – What’s Value of Value-Based Care?

John and David discuss value-based care and how it can impact healthcare in the United States.

John Driscoll:

John, I love my American healthcare, but it’s just too darn expensive.

David Williams:

Well, I’ve got the solution. You should try value-based healthcare.

John Driscoll:

What the heck is that?

David Williams:

Let me explain. Welcome to CareTalk, your weekly home for incisive debate about healthcare, business and policy. I’m David Williams, President of Health Business Group.

John Driscoll:

And I’m John Driscoll, the CEO at CareCentrix.

David Williams:

John, I got a question for you, a provocative question. Is value-based care dead?

John Driscoll:

Wow, I can’t imagine anything more exciting, value-based care. Well, first of all, what exactly do you mean there, David? Don’t just throw around big phrases to make it seem like you’re the smarty pants consultant.

David Williams:

Oh, John, you got me there. So the idea mainly is that it’s pay for the outcome versus pay for the activity. So the usual mechanism of paying for care here is fee-for-service. Do a service, get paid for it. But that could just mean that people are doing more and more stuff that the patient doesn’t need. The idea is if you’re paying a physician or a hospital or drug company for the patient getting better, then everybody’s in alignment. That’s what value-based care is supposed to be.

John Driscoll:

But why are they talking about value? How does this play a role in healthcare reimbursement philosophy?

David Williams:

Well, John, it’s value-based and that’s a hyphen, not an S. I know you probably don’t have vision benefits at your company. But it’s value-based. It’s not moralizing about everything.

John Driscoll:

Can I help you? The whole premise here, David, is that the United States pays too much and gets too little. We are the most expensive country in the world to get healthcare. We are 50%, I think, or 30% or 40% more expensive than Norway, which is number two. We are not in the top 20 of any of the industrialized countries of the world, the OECD nations in health outcomes, which is to say what happens after healthcare has done its thing, whether it’s in terms of low birth weight, children, or heart disease.

John Driscoll:

You pick the major categories of illness and we are not top 20 in anything other than cancer, where our massive investment in scanning and technology allows us to identify cancer early. We are twice as expensive as the average OECD country and only a third more expensive than Norway. We’re even losing to the Norwegians, David, on issues of value for money. The healthcare costs consume increasingly the majority of state costs for Medicaid. And they’re tapping on that door with the feds in terms of Medicare and Medicaid. Commercially, all of the increases in costs for health insurance to pay for the exorbitant prices we pay as individual private pay folks are not turning into better outcomes and it costs more. And that’s a value problem, David, not a values problem.

David Williams:

Okay, John, well, listen, my next question was going to be, why should I care? But I guess you’ve just now explained it pretty well. So let’s just say we care-

John Driscoll:

You are not going to be able to afford healthcare for your lovely kids.

David Williams:

All right. So here’s the thing. So we’ve been talking about value-based care for a long time, but it’s still been a lot of fee-for-service. I remember a long time ago, let’s say 25 years ago, California was going to full capitation. And there was all these articles about how it’s going to be inevitable that that’s going to move across the country. Hasn’t happened. And instead what happened is you still have… Now they say that half of payments are made under value-based arrangements, but it’s actually mostly done within a fee-for-service infrastructure. And it turns out that you just get the bonuses.

John Driscoll:

What value-based payment means is basically paying on a budget. That could be a budget for a total cost of a knee replacement. It could be a budget for all of the primary care that your internist or specialist might pay for. It could be an episode related to your psychiatric interventions, or it could be related to a particular disease state. But value-based payment is always some form of payment on a budget. That’s sometimes referred to as capitation, which would be one payment for one thing. And you’re right, California started there. And I would argue that actually value-based payment, capitation, paying on a budget has actually spread across the country. I mean I think that 60% of all of the payments in the US are in some ways tied to a budgeted number.

David Williams:

Yeah, well, in some ways. But I think what happens is they don’t really, they find ways for it to go up. Well, what we’ve learned over the past decade or so, because the Affordable Care Act brought in a lot of these programs like accountable care organizations, the Center for Medicare & Medicaid Innovation is working on. And reviewing them, what you see is something like a global budget works. Now, I don’t mean including Norway in the budget, John, that’s not what I mean by global budget. I mean including all the expenses, all the activities for a given patient. And when you do that, like Maryland’s total cost of care model, you end up generating savings, you meet the quality metrics and you reduce the hospitalization. What doesn’t work so well is some of these bundled payments where you’re just being paid a case rate, just like say for an episode of care.

John Driscoll:

David, David, David. Again, you’re just running around using these big phrases. What about Maryland? Explain what you’re talking about there. I mean I think I know what you’re talking about is the fact that in Maryland, they actually have a total budget for the state. And it’s an all-payer system, which is to say whether it’s Medicare, Medicaid, or commercial, the providers, the docs or the hospitals, are paid the same rate for a procedure, but it’s tied to a global budget for the state. Is that what you’re talking about?

David Williams:

John, in Maryland the state song is Maryland, My Maryland. So they’re very, I don’t want to say that it’s very provincial. So they have their own way of doing things in Maryland. And actually, it is pointed to not for many things. I think Spiro Agnew was also from Maryland. So it has it’s-

John Driscoll:

Milk Cheater Agnew. Yes.

David Williams:

Yeah. So it has its ups and downs. But Maryland has actually done something where instead of having different prices paid for all different kinds of payers, they actually have more of a rational approach where everybody pays the same. And yeah, they decided to set a limit on the Medicare costs in the state overall. And that seems to be the way it goes. Now, that is actually similar to what you see in these socialized systems like Canada that actually don’t perform that well-

John Driscoll:

Oh, I thought you were going to go to Massachusetts, the people’s Republic.

David Williams:

Oh John, we don’t have, our song isn’t Massachusetts My Massachusetts, put it that way. I don’t know what the state bird is now. I think it could have been the Dodo.

John Driscoll:

Based on the pandemic response. No, but I think that the thing about that you’re really touching on, David, is an important one, but it’s subtle, which is to say most states balanced their Medicaid costs by paying Medicaid, which is the state and federal program for the poor. Those procedures that happen to poor people or people who can’t pay the bills are paid at one rate. Medicare, which is the program we use to pay for care for the elderly is paid at a higher rate. And the difference is cross subsidized by even increased payments for the same charge of whether it’s a basic office visit or whether it’s fixing your shoulder for the commercial payments. And so you’ve got all of this cross subsidization that happens within hospitals and doctor practices. And then you’ve got a fee-for-service system that’s not value or capitation driven.

John Driscoll:

So you have an incentive to do more things because you get paid more. And now you’re on the merry-go-round. Doctors and hospitals are running around trying to get more procedures done because they’re trying to optimize for the highest yield. And they’re worried about being underpaid for care for the elderly and the poor. And that’s given us a system with more inflation and higher costs. It’s unclear to me why it’s also created lousy outcomes or poor outcomes. But we are in the US getting the worst of both worlds. And that’s where the promise of this whole value-based budgeting… I think the scary thing, David, for a lot of people who don’t live inside the spooky, nerdy, complicated world of healthcare politics, policy, and budgeting is well, but if you have a budget, it doesn’t mean that mom will get less care or my kids won’t have access. I mean that’s what people were afraid of when that California model started to roll across the country.

David Williams:

John, I don’t know if you were thinking clearly when you were sputtering, but you actually said something interesting, which I’m going to give you credit for here, which is that the prices paid, the reimbursements paid are very different for a poor patient like Medicaid versus a commercially insured patient. Somebody who’s working for a company versus somebody who’s on Medicare, usually an older person that’s paid for by the government. And I actually think that does mess up the way business is done. If you think about somebody who’s got a regular business, like a bakery or a car rental agency, they might give a 10% senior discount or 5% student discount or something like that. Here, we’re talking about, Medicaid, it could be an 80% discount. And it could be that the prices are so crazy that it really interferes with how you even do business and what you’re thinking about. You want to sell more of these things, but you have to be, who is it to? And what’s your contract? Will you get paid for it?

John Driscoll:

I get the fact that that’s confusing and hard for hospitals and doctors, but why is it so hard? I mean we pay different amounts for different things everywhere else. Why is it more of a problem in healthcare and elsewhere?

David Williams:

Because they’re already dealing with a lot of complex things. And when you’re looking at a patient and you’re trying to look at the data, you want to look at their clinical data so you can take the best care of them. But you have to look at the financial side of it too. Otherwise, you’re going to go bankrupt because certain things are covered by certain payers and certain people are going to pay you a lot less than others. And so it just makes it so confounding, something that’s already complicated and you don’t have access to good enough information to make it work.

John Driscoll:

David, I’m going to make history here and give you credit. Well, at least partial credit. That longitudinal view of the patient is what the promise of value-based budgeting or budgeting a particular episode of care or treatment for a patient. Because what that allows you to do is to invest more upfront, to optimize care over time, and to invest in the follow-up that’s necessary not to get another procedure or a lab test or an x-ray done, but to actually provide the care that people need, whether it’s counseling on diet, for example, with you, David, or whether it’s social support for me. I mean each one of us has individualized needs in order to optimize our care. If I’m home with a sick kid, that may be what actually… I may need telemedicine, as opposed to having to go into a doctor who has to work me up for everything, just to get reimbursement.

John Driscoll:

It’s the divergence between what I need and what they get paid for or what, particularly with chronically ill folks need, that I think creates the jaws of death, if you will, where you end up with more costs and lousy outcomes. It’s that disconnect between the time you need to actually think through and support patient’s needs and how you get paid. I think that’s… You’re exactly right. That’s I think where the promise of value-based budgeting comes from, but also how to get it right is not uncomplicated because you’re talking about changing from a system that is much more about volume, and now you’re trying to pick outcomes. Well, which outcomes? And how do you price it?

David Williams:

Well, John, I consider myself to be a big time optimist because you’re always knocking me down, but somehow I always dust myself off and get up and live to see another day. So here’s what I think was going to happen with value-based care, because I think it’s actually going to happen now. So one reason is that if you look at the Medicare population, that’s growing very fast, very big. That’s where most of the money is. You’ve got Medicare Advantage, which because of the way it’s priced, the star ratings, the flexibility they have in benefits and so on, they actually are a value-based kind of approach. And that’s maybe-

John Driscoll:

It’s Medicare members on a budget. That’s true. And we’ve proven with our, at CareCentrix when we can actually get folks into a holistic, whole patient program where we can address not just the specific clinical need, which could be infusion or physical therapy or occupational therapy, but also scan for transportation needs. Whether people understand their diagnosis, whether they need to get their prescriptions reconciled because often there’s a problem of over prescribing for Medicare eligibles that leads to more complicated health outcomes, where we actually intervene. It doesn’t just reduce readmissions. And this is what we typically take risk for at CareCentrix for 90 days, readmissions to a hospital or a [inaudible 00:13:33] for a vulnerable Medicare patient.

John Driscoll:

We actually found that six to 12 months later, you have a 20% to 40% total cost of care reduction that we think is directly tied to two things. One dealing with all of the patient needs and making sure that we’re identifying the five or six things that are likely to go wrong and preventing it, but also teaching people and their caregiving family and who they depend on as well as the patient on how to actually get the most out of the healthcare system and take care of themselves. You do those two things right, deal with people from a whole patient basis and give them a sense of how they can control their health outcomes, you can literally significantly impact healthcare costs. Not just when we’re managing those patients, but well afterwards. And the people we serve are Medicare, Medicaid plans largely that are working on a budget.

David Williams:

Now, John, if it were just you saying that I’d be skeptical, but this is actually research that’s been published by Avalere based on a close look at the data. I encourage people to look at that. So that’s where you’ve got the Medicare Advantage plans and the Medicaid managed care plans that have that incentive to do the right thing for the patients and to save costs. So they work with organizations like CareCentrix. But then you’ve got this mass of Medicare fee-for-service patients, which is traditional Medicare as they call it, which is still the bulk of Medicare. But what’s happening in the Biden administration is they are refining these value-based programs and there’s new talk about making them mandatory. And that way a patient may select into Medicare Advantage, which is going to be value-based, or if they’re in a regular traditional Medicare, they’re also going to have value-based because it’s going to be-

John Driscoll:

Why does it have to be mandatory? walk me through that.

David Williams:

It doesn’t have to be mandatory. I mean the advantage to having it mandatory is that you really force people, you force provider organizations to figure out how are they really going to carry through? Not just, can I go cherry pick a few bonuses that were intended to be like, it’s the introductory offer. You’ve got to keep going when the going gets tough. So it makes it so that there’s systemic savings, as opposed to just those few that figured out how to play the game.

John Driscoll:

I mean, I think, and you saw that with some of the bundled payment or ACO programs, accountable care organization, budget programs, or the bundled payment, where they were paying hospitals a bundled payment per episode. Where if it wasn’t working for the hospital, meaning make money on the new program, they would opt out. When it’s not mandatory, you can pick your winners. Whether it’s picking the patients that fit your particular bundles that are profitable for BCPI or the bundled payment program, or whether it’s dropping out of the program for the pioneer ACO’s or the ACO of the accountable care organizations where the hospitals were taking on budget for patients. Yeah, I do think it’s going to, whatever programs they land on are going to have to be mandatory if they’re truly going to reform the system. Because ultimately it’s not just about whether any particular program works.

John Driscoll:

Our system, we can’t afford the healthcare system we’ve got. And I think that some element of mandatory bundled capitated budget programs need to be enforced. And I think even if you, David, even if you look at the value-based programs on a budget within the MA system, well, 60% to 70% of all providers are on some kind of value-based payment. Very few of them still are on full downside or even partial downside risk. And what happens, what happened initially is when they put that budget together and the providers didn’t just win on the upside, but could potentially lose a little bit on the downside, folks opted out. So I think whether it’s not the public sector through CMMI, the Center for Medicare & Medicaid Innovation, or the private sector through those health plans, I think you’re going to have to make these programs requirement or have the components of a mandate if they’re actually going to reform the system. And that’s what we all really need.

David Williams:

So John, let’s end on a high note here. I think that between Medicare Advantage and then mandatory programs under traditional Medicare may start to get costs under control, value, and values for Medicare. And then there was talk early on in the last couple of years ago about Medicare for All. I don’t think you’re going to have Medicare for All, but I think there’s going to be Medicare available to those with younger age groups or Medicare buy-in. And that may be a way that we have a distinctly American approach that preserves what we like about the healthcare system and makes it affordable.

John Driscoll:

Well, let’s just make sure that distinctly American solution doesn’t come with a typically American high cost. But on that note-

David Williams:

Amen, brother. In any case, that’s it for yet another edition of CareTalk. I’m David Williams, President of Health Business Group.

John Driscoll:

And I’m John Driscoll, the CEO of CareCentrix. If you like what you heard or you don’t, please subscribe.