Over the last 60 years, healthcare spending has soared as a share of gross domestic product (GDP) – from 5.0% of GDP in 1960 to 19.7% of GDP in 2020. The most significant increase in spending coincides with the implementation of Medicare in 1966, leading to a yearly average increase of almost 13.0% between 1966 to 1982.
Much of the increase was attributed to the rise of the third-party payer system – which separated the financial burden of healthcare between payers, providers, and care recipients – and the dominant fee-for-service (FFS) payment structure that paid providers based on the volume of services billed.
Today, key to controlling spending is a radical change in how the Center for Medicare & Medicaid Services (CMS) payment programs are structured. This means moving away from FFS to a payment model contingent on the value of care – as defined by the quality and outcomes of that care.
Rising healthcare costs for consumers have driven decades of Congressional activity, but none of these efforts have been entirely successful. Groundbreaking legislation came in the form of the Affordable Care Act (ACA) of 2010, which mandated payment and delivery system reforms and sought to transform the US healthcare system from one that incentivizes volume of care to one that rewards value-based care (VBC). ACA initiatives for value-based care include:
- Creation of the Centers for Medicare & Medicaid Innovation Center (CMMI) – a dedicated division for the development and testing of payment models to improve quality of care and reduce costs
- Support for Accountable Care Organizations (ACO) – voluntary partnerships of healthcare providers that agree to take responsibility for the quality and costs of care for a population of patients
- The addition of Bundled Payments for Care Improvement – a single prospective payment for treatment of a surgical or medical condition, initially focused on acute inpatient stays and expanded to include both acute episodes of care and outpatient services
While the ACA established the foundation for value-based care, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) was instrumental in connecting quality of care with payment. MACRA’s Quality Payment Program (QPP) put financial incentives in place to reward physicians for delivering high-quality care.
It also established Alternative Payment Models (APMs) to cover clinicians and healthcare organizations who voluntarily form a group to provide care. APMs are not based on FFS reimbursement. Instead, they incorporate the quality and total cost of care into payment models focused on a specific clinical condition, a care episode, or a population.
In short, value-based care came about for a host of reasons, a major one of which was the desire to decrease skyrocketing healthcare costs and the third-party payer system. But addressing a topic as overarching as healthcare spending is a complex task involving many different stakeholders.