Value Based Healthcare Is Here and Will Improve Outcomes at Lower CostRobert M. Goldman, CFA
Behind the scenes and out of the limelight, things are happening that will lower the cost of healthcare while, at the same time, improving quality. This note focuses on one of these things, which actually results from a marriage of the Affordable Care Act (ACA, or “Obamacare”) and technology.
I’m speaking of value based healthcare – essentially insurance companies and the government (Medicare) paying for healthcare services based on outcomes (greater payments for better patient outcomes at lower costs), not simply based on fee-for-service (fixed payments) as is typical now.
Value based healthcare payments have existed for many years, but was a niche within the private insurance industry. This changed in 2015 (fully effective in 2017) when the Centers for Medicare and Medicaid Services published, in the Federal Register, its final rules (155 pages) for Accountable Care Organizations (hospitals and outpatient centers – Medicare A and B), which was allowed for under the ACA.
Payments directly to physicians are also moving towards value based healthcare – in fact that’s mandated for payments from Medicare and Medicaid under regulations effective January 1, 2017. These regulations, published October 14, 2016 in the Federal Register are named the Medicare Access and CHIP Reauthorization Act (MACRA). For those clicking on the link – be patient – the Federal Register copy of this Act is 824 pages.
We view the movement to value based healthcare as epic for the U.S. healthcare system. Seems logical that greater payments for better outcomes (meaning better patient care results at lower cost) will improve care and lower prices compared to a fixed payment for any patient outcome. Establishing proper benchmarks for the care and payments are the tricks, but that’s where the technology (and, frankly, the investment opportunities) comes in.