Value-based payment has produced little value. It needs a time-out
By Kip Sullivan, Ana Malinow and Kay Tillow July 26, 2022
The value-based payment crusade is now two decades old. But despite the tens of billions of dollars — perhaps hundreds of billions — spent on these programs, they have done little to improve Americans’ health or lower health care costs. It is time for proponents of value-based care to call a halt to these programs until they have an answer to this question: “Why have the vast majority of value-based payment experiments failed to improve value?”
Advocates of value-based care are not about to do that. Although some of the leading lights of the movement are willing to admit they have little to show for all the money and time sunk into accountable care organizations and kindred value-based entities, none has been willing to call for an end to continued experimentation with schemes that have clearly failed.
The concept of value-based payment became widespread among U.S. health policymakers and analysts during the 2000s. It collectively refers to interventions that offer doctors and hospitals financial incentives that, in theory, induce them to improve both components of health-care value — cost and quality — without generating the hostility provoked by managed care insurance companies during the HMO backlash of the late 1990s.
The most prominent and frequently discussed value-based payment methods — the accountable care organization and the medical home — focus on primary care doctors. An ACO is a group of doctors and hospitals that is “held accountable” by a public insurance program (such as Medicare) or an insurance company for the cost and quality of medical services provided to a defined population. The medical home is similar, but it consists only of primary care doctors. Medicare beneficiaries and policy-holders do not enroll in ACOs and medical homes. Instead, they are assigned to them based on which primary care doctor they saw the most often over a “look-back” period that is typically two years long.
The pages of the nation’s medical and health policy journals and health care blogs are filled with calls to double down on ACOs, which are by far the largest and most comprehensive of the various iterations of value-based payment reforms. The Centers for Medicare & Medicaid Services, the nation’s most influential and aggressive proponent of these programs, announced in 2021 it will redouble its efforts to push Medicare beneficiaries into accountable care organizations.
The agenda for the National Primary Care Transformation Summit, a four-day conference underway this week featuring the nation’s best known value-based care evangelists, suggests it will be a celebration of accountable care organizations, not an examination of why they have failed.
Experimentation with value-based methods, especially ACOs, accelerated rapidly after 2010, when the Affordable Care Act was enacted. This act authorized CMS to insert all manner of value-based payment schemes into the traditional Medicare program (the non-Medicare-Advantage part of Medicare). It also created an agency within CMS, the Center for Medicare and Medicaid Innovation, to run experiments testing the assumptions of value-based payment advocates. The Affordable Care Act also authorized the Department of Health and Human Services, which oversees Medicare and Medicaid, to “certify” — meaning expand and make permanent — any of these experiments that lowered costs without harming quality or raised quality without raising costs.
The Center for Medicare and Medicaid Innovation has conducted experiments with more than 50 models of value-based payment. Brad Smith, a former CMMI director, reported last year in the New England Journal of Medicine that only five of 54 models had cut Medicare costs. “[T]he vast majority of the Center’s models have not saved money,” Smith wrote, “with several on pace to lose billions of dollars. Similarly, the majority of models do not show significant improvements in quality….”
Smith’s successor, Elizabeth Fowler, confirmed Smith’s assessment in a January 2021 interview. “Now, ten years later, … there is no silver bullet. We have four models that were certified to be expanded…. I wouldn’t say they’re the most transformational: … home value-based purchasing, Pioneer ACO, but then also the recurrent non-emergent ambulance and diabetes programs.”
Fowler’s characterization of these four certified programs as not the most transformational is the understatement of the year.
- The Home Health Value-based Purchasing Model demonstrationcut Medicare spending by 1% with mixed effects on quality.
- The Pioneer ACO program, which saved no more than a few tenths of a percent net, suffered an astonishing attrition rate: the number of participating ACOs fell from 32 at the beginning of the program in 2012 to nine when the program ended in 2016. CMS rushed to certify the programbased on data gathered in just the first two years using a questionable methodology.
- The non-emergent ambulance prior authorization demonstration and diabetes prevention programs are not value-based programs. The ambulance program merely tested the use of prior authorization for ambulance service. The diabetes prevention program simply confirmed what previous research had shown: for individuals at high risk for developing type 2 diabetes, lifestyle changes can prevent or delay disease.
The largest of CMS’s accountable care organization programs, the Medicare Shared Savings Program, is permanent and does not need to be certified because it was created by Congress via the Affordable Care Act. It has also performed poorly, raising or lowering Medicare net spending by a few tenths of a percent depending on which year one examines and how control groups are constructed. It has also had mixed and trivial effects on quality.
The relatively few studies of private-sector experimentation with accountable care organizations and medical homes, the primary value-based payment methods adopted by the private sector, confirm the Medicare-focused research.
It’s important to note that the spread of accountable care organizations has driven up administrative costs for providers and induced further consolidation of an already highly consolidated health care industry. The final evaluation of the Pioneer ACO program reported, for example: “Approximately three-quarters of Pioneer physicians indicated that participation had required them to increase time spent on administrative, documentation, and reporting tasks ‘somewhat’ or ‘a lot’.” A 2019 report in the journal Health Affairs found “a clear association between physician consolidation and county-level ACO penetration. In counties with the highest ACO penetration, there were large declines in the number of small practices and increases in the number of large practices.”
An honest analysis of why value-based payments have failed should consider at least these four explanations:
- wrong diagnosis
- no definition of what ACOs are expected do
- requiring that ACO “members” be assigned rather than enroll
- no evidence for the assumption that price and quality can be accurately measured
Wrong diagnosis. Proponents of ACOs assume that the cost problem, be it rising costs for Medicare or for the country, is due to the excessive volume of medical services being rendered rather than excessive price (price times volume of services equals total spending), and that the fee-for-service method of paying providers induces overuse. To be sure, there are pockets of overuse in the U.S. health care system and in Medicare, but no evidence that they are caused by the fee-for-service method.
No definition. In its June 2009 report to Congress, the Medicare Payment Advisory Commission (MedPAC), a nonpartisan independent agency of the legislative branch that provides the U.S. Congress with analysis and policy advice on the Medicare program, recommended that Congress insert accountable care organizations into Medicare but “defined” ACOs only in these aspirational terms: “The defining characteristic of ACOs is that a set of physicians and hospitals accept joint responsibility for the quality of care and the cost of care received by the ACO’s panel of patients.”
What does “accepting responsibility” mean? Whatever it means, it conveys no information about what the “set of physicians and hospitals” must do differently. MedPAC has repeated this useless definition in virtually every report to Congress about ACOs since.
The lack of a clear definition makes it extremely difficult for providers to know what they’re supposed to do, and it impedes intelligent discussion about why accountable care organizations fail. At least two evaluations of Medicare’s ACO programs have commented on the vague definition problem. A 2012 evaluation of the Physician Group Practice Demonstration (an early test of the ACO concept that demonstrated it doesn’t work) stated: “The demonstration was not designed to test specific interventions; therefore, participating sites had complete autonomy in determining strategies that would provide higher quality care and expenditure savings. Since these strategies … were not uniformly designed, defined, or implemented across the ten PGPs, evaluations of interventions could not be done.”
Similarly, an evaluation of the Pioneer ACO program, which ran from 2012 through 2016, reported, “The ACO ‘treatment’ under investigation is not a prescribed set of activities or interventions.”
Assignment of ACO “members” rather than enrollment. To avoid a repeat of the backlash over health maintenance organizations, the Affordable Care Act required that Medicare beneficiaries be assigned to ACOs “based on their utilization of primary care services.” CMS measures “utilization of primary care services” by examining claims filed for beneficiaries over a look-back period. This method of populating ACOs results in high rates of leakage — the industry term for people assigned to accountable care organizations who seek care outside of their networks. Leakage rates are typically 30% annually. How are ACO providers supposed to be “accountable” for patients they never see?
Inaccurate measurement of “value.” Proponents of accountable care organizations assume that CMS and other insurers can accurately measure the cost and quality of providers and ACOs, and when financial carrots and sticks are attached to these measurements, only good things will happen.
This assumption is sheer fantasy. Measurement of cost and quality is wildly inaccurate — especially at the level of the individual doctor — and always will be. The bonuses and penalties dished out to ACOs, and to individual providers, more closely resemble white noise than useful feedback. They create incentives to deny care and to game the measurements by upcoding and teaching to the test.
Years ago, a consulting company’s blog post joked that “ACO” stands for “amazing consulting opportunity.” To understand the truth in this wisecrack, just review the list of sponsors and speakers at the National Primary Care Transformation Summit. Many hold positions in firms that supervise, own, or consult with accountable care organizations and other value-based payment entities.
The “amazing” opportunity to make a buck off the tortured U.S. health care system while rarely laying eyes on patients may be the single most important reason why health policy mavens continue to embrace value-based payment despite its miserable track record.