Most Americans get their care in markets where one or two health systems control the majority of hospital beds, physician practices, and outpatient services. The biggest insurers now own pharmacy chains, primary care clinics, and home health agencies. This happened over 40 years of mergers, acquisitions, and vertical integration, much of it justified by the argument that larger organizations could do value-based care better than smaller ones.
Prices went up. Quality didn't follow. What does this say about the value of Value-Based Care?
The Hopkins Business of Health Initiative brought together three people who have spent their careers inside this problem for its March Conversations on the Business of Health webinar, “Value-Based Care and Health Care Consolidation.” The panelists were Liz Fowler, PhD, JD, a distinguished scholar at the Johns Hopkins Bloomberg School of Public Health and former Deputy Administrator and Director of the CMS Innovation Center; Martin Gaynor, PhD, the Lester A. Hamburg University Professor of Economics and Public Policy Emeritus at Carnegie Mellon University and former Director of the Bureau of Economics at the Federal Trade Commission; and Andrew Ryan, PhD, professor and founding director of the Center for Advancing the Study of Health Policy Through Research at Brown University.
What is value-based care?
“It isn't a single model, it is a spectrum of strategies and approaches that are designed to move the fee-for-service payment system that rewards volume, more billing, more services, more charges, and toward a system that rewards better outcomes or value. We describe it as paying for better care rather than more care.”
- Liz Fowler
Fowler broke it into three parts: care delivery redesign grounded in - and integrated with - primary care; accountability, where providers take responsibility for quality and total cost; and data to identify high-risk patients and track outcomes.
Consolidation has not produced integration.
“There's a very widely held belief, I actually would call it a faith among many, many people in health care, both practitioners and policy people, that we need more integration. And what a lot of people don't see or perhaps miss is something fundamental. Consolidation does not equal integration.”
- Martin Gaynor
Gaynor traced the trend to the 1980s. Hospitals merged with hospitals. Health systems absorbed physician practices. Insurers bought everything they could. “There are lots of things that Medicare has done and still does that inadvertently have encouraged consolidation as a response to the way that payment systems are structured, not because consolidation is better in any way, shape, or form,” he said. “It's because these entities opportunistically take advantage of that.” “The vast majority of urban areas in the U.S. are dominated by a single large health system.” But none of the expected benefits followed. “We have not seen an improvement in the quality of care. We have not seen costs dropping. What we have seen are much higher prices, much higher costs, and in some cases, actually compromised quality.”
Care can be coordinated without being consolidated.
“The policy challenge is how do we enable the capabilities required for value-based care without allowing market power to drive prices up?”
- Liz Fowler
Fowler named several models that coordinate care without merging ownership: clinically integrated networks, convener arrangements, virtual integration through contracts. She also noted that the CMS Innovation Center explored whether the agency could supply data and analytics directly to smaller practices. “Could CMS play a role in supplying the data and the analytics that help primary care practices be successful, identify the highest need patients, high-value specialists, and not need to go out and buy or build those capabilities?”
Her bottom line: “I think the goal of value-based care is really the integration of the care, not the consolidation of ownership.”
Value-based payment justified anti-competitive mergers.
“The proponents of those arrangements, how did they justify those? They said, well, we need to coordinate care, we need to better manage care, we need to share information. We need to be able to take financial risk. We need to be able to do value-based care. That was very much the rationale for those vertical arrangements, and I think that that logic was successful in overcoming some of the skepticism of regulators and policymakers about the anti-competitive effects of vertical integration.”
- Andrew Ryan
On the insurer side, Ryan pointed to one example above all. “The Optum-United relationship is the clearest example. The main motivation of this kind of integration is to capture patients, convert them to be United members, and then to upcode risk, both of which have negative consequences for the U.S. health care system.”
ACO savings are not what they appear to be.
“This notion that CMS is generating shared savings by virtue of ACOs beating benchmarks ... this is not real savings. All it means is that ACOs are spending less than the benchmarks, and there's this whole idea that these benchmarks are not true counterfactuals for what would have happened in the absence of the program.”
- Andrew Ryan
Ryan's own research attributes much of what CMS reports as savings to selection and upcoding. As he noted, “so many of the benefits remain theoretical, and the individual program evaluations have been so underwhelming that I think a lot of proponents have turned to the spillover theory.” He described how third-party conveners have built businesses around this: “Basically saying, look, you just do what you're going to do, we're going to help build portfolios of ACOs that beat benchmarks, maybe help you with some coding on the margin.”
Has something changed? Fowler thinks so.
“If you look at what actually happened, health spending is about 17% lower, and specifically in Medicare, than it was when it was projected 10 years earlier. So, something is happening in the system.”
- Liz Fowler
Fowler pointed to research comparing Congressional Budget Office spending projections made during the ACA debate with what actually materialized a decade later. The gap is large. She acknowledged that isolating the cause is difficult (“you could say, well, it's COVID, it's this, it's that”), but she pushed back on the idea that value-based care has produced nothing. “I do think there is a positive impact, and I have seen it in my time at the Innovation Center, really delivering that patient-centered care that we would want to see in our health system.”
Ryan was unconvinced. He cited research showing that U.S. spending declines tracked similar reductions across OECD countries during the same period, and that spending growth began to slow before any of the ACA's value-based payment programs took effect. “The evidence that something unique happened in the United States that was related to value-based payment is just quite poor,” he said.
Providers are bearing risk that belongs with insurers.
“We're now shifting risk from organizations that are built and designed to bear risk, insurance companies, to those that are not, health care providers. That strikes me as potentially inefficient.”
- Martin Gaynor
Gaynor's concern is practical. “The more risk you shift to physician practices, the harder it is for them to diversify that risk on their own without doing something, either buying, potentially, effectively an insurance policy, which could be very expensive, or increasing scale.” Small practices that can't absorb financial volatility end up joining larger systems. The payment models designed to reward value end up feeding the consolidation that works against it.
Ryan saw the same thing in primary care. “These models are asking primary care physicians to do all kinds of stuff that are quasi-insurance functions. I think it's one of the reasons why panel sizes have fallen over time, that physicians are just seeing fewer patients because they don't have the bandwidth.”
Fowler disagreed with the framing. “Value-based care is not about insurance risk, it's about performance risk, and I think that's very different,” she said. “I don't think that an ACO is a mini-insurance company.”
The fee schedule matters more than new payment models
“We haven't gotten some of the basic building blocks of payment right, but then we're trying to do third-order things with it.”
- Andrew Ryan
Ryan laid out three priorities. Reform the Medicare fee schedule: “The AMA controls the CPT system. There are way too many codes. The specialty societies control the RUC and the valuation of services. That really needs to change.” Give CMS real authority on coverage: “It's absolutely insane that CMS doesn't have clear authority to not cover a drug on the basis of its cost.” And regulate prices in commercial markets where consolidation has eliminated competition.
Community health centers are cheap and effective.
“Here's something very simple and not that expensive we could do, and we don't do enough of. We could fund more community health centers. Locate them in disadvantaged areas, either in rural areas, and it doesn't have to be a gigantic thing. It can be a small clinic. You can have a visiting nurse. But we know community health centers are effective, and they're not very high cost.”
- Martin Gaynor
Gaynor was skeptical of the whole approach to treat payment reform as the primary lever for health system improvement. “I'm a little cynical about payment reform,” he admitted, “because anybody who's been around a while has heard acronym after acronym of payment reform, and people act like it's the new thing, the bright shiny object, and after a few years, it doesn't do anything, it's forgotten, and we move on.” While the field has spent years chasing reform complexity, practical investments in access have been undervalued.
The case for continuing.
“We should not stop experimenting just because we think something hasn't worked. I remain optimistic about value-based care, I still believe that there's a way to have better incentives and a better way of paying providers.”
- Liz Fowler
Fowler pointed to the ACA's 15 years of experimentation as a foundation to build on, and to models that have worked within specific domains, including kidney care, oncology, and social needs screening. “I think you can't work at the Innovation Center unless you're an optimistic person and you believe there's a path forward,” she said. “And I do believe there's a path forward.”
What happens now?
Fowler, Ryan, and Gaynor see different paths forward. Ryan was direct: “Another 10 years of experimentation isn't going to get us to a fundamentally different recognition about where we are.” Gaynor wants CMS, the FTC, and the DOJ in the same room, talking to each other regularly. His long-term answer: universal national health insurance. Fowler wants better-designed incentives and less administrative burden, built on what the field has already learned.
All three agreed on where the problem starts.
“It really is all about the incentives in the system. You get the system that you have designed. And I think there's a better way to do things.”
- Liz Fowler
Moderators
Dan Polsky, PhD, Bloomberg Distinguished Professor of Health Economics and Policy at the Johns Hopkins Bloomberg School of Public Health and the Carey Business School and director of the Hopkins Business of Health Initiative, and Amit Jain, MD, MBA, associate professor at the Johns Hopkins School of Medicine and the Carey Business School and vice president of care transformation for the Johns Hopkins Health System.
“Conversations on the Business of Health” is a series of one-hour webinars hosted by HBHI that engages leaders from business and academia on the cutting edge of improving American health care.
Moderated by faculty members and jointly hosted by the Johns Hopkins Bloomberg School of Public Health, the Carey Business School, the School of Nursing, and the School of Medicine, the series is open to all. Learn more here.