Top 5 ways value-based pricing impacts healthcare

Consumerization, the Affordable Care Act (ACA), and the entrance of Silicon Valley into healthcare are just some of the forces that are revolutionizing the way healthcare is delivered. These forces have increased awareness, attracted significant investments, and continue to drive technology innovations. More importantly, they are helping solidify and elevate the interest in value-based pricing.

With value-based fee structures, the financial risks shift away from payers to other stakeholders such as providers in accountable care organizations (ACOs), integrated delivery networks (IDNs), and managed care organizations (MCOs), as well as consumers who have purchased high-deductible plans. However, it’s healthcare providers who are increasingly on the hook to improve the overall health of patients- or face significant financial penalties.

By 2018, the Centers for Medicare & Medicaid Services (CMS) will require 50% of payments to be value-based, meaning providers are compensated for healthy outcomes rather than the predominant form of payment-fee for service-where providers are compensated based on the number of services rendered. Yet 43% of healthcare providers and payers in Xerox’s healthcare survey say value-based contracts make up less than 10% of their current portfolio, leaving much ground to make up.

So how can we best get there? That depends on who you ask.

Eighty-three percent of payers and providers in Xerox’s survey believe consumers need to take more control under a value-based model. Consumers, who are becoming more empowered and savvy in healthcare decision making, want to be more proactive in managing their health (91%), but they also say they need help getting there.

The good news is that there is some encouraging common ground across the spectrum of stakeholders to improve the way care is delivered today-and we’ve already started to feel some of the effects. Here are five ways this shift to value-based pricing is impacting the healthcare industry:

Next: Five biggest impacts

1. Optimization of resources
Providers (e.g. ACOs and population health managers) will move from volume of care to quality of care and will be forced to optimize their resources as they will be paid based on their patients’ health outcomes. If the providers are able to influence consumer behaviors resulting in healthy outcomes, they will benefit in the savings.

2. A focus on health outcomes

There is a general belief and agreement that fee-for-service does not incent the right behaviors to improve health. Payers, who have been ultra-focused on driving costs down (often by cutting benefits) will move away from a transactional focus to a focus on health outcomes instead with cost reductions being implicit in having healthier members.

3. Appropriate utilization of care

The Xerox research shows that 50% of millennials, 45% of Gen Xers, and 39% of baby boomers have delayed treatment due to cost. Under a value-based model, consumers, who often ineffectively consume healthcare in the traditional system, will be more likely to utilize care appropriately-without fear of unexpected costs-and incorporate behaviors that can sustain healthier outcomes.

4. Realignment of the BPO services paradigms

Business process outsourcing (BPO) vendors, who typically provide single solutions or transactional services, will be forced to change how they develop new products and solutions and rethink how they go to market as traditional BPO services paradigms will shift to align more to the value-based pricing.

5. Population health management

As payment mechanisms shift, population health management (PHM) will likely be the way forward as a vehicle to optimize risks across the stakeholders and PHM based institutions will continue to be created as will the transition of traditional hospital systems. PHM growth will continue to accelerate as adoption ramps up with increased consumerization and improved technologies.

Payers and providers are optimistic about the potential for value-based care: large majorities agree it can provide mutual benefits to payers, patients, and providers-but it will be critical for these various stakeholders to work together in order to create a healthier future for all.

Rohan Kulkarni is vice president, strategy and portfolio,Xerox Healthcare Business Group.