Jess McAllen , July 25, 2024

Value Judgment

The health care model setting its sights on Medicare Stockvault

When Kip Sullivan received an email from his local doctor group with the subject line “Required Medicare and Medicaid annual notice: no action needed,” it sounded harmless. “There’s no reason to read the letter,” he recalls thinking. Sullivan, a health policy researcher and Medicare beneficiary who lives in Minneapolis, decided to read it anyway, and discovered that he and his wife had been unceremoniously placed into a “value-based care” program called ACO REACH. “I was annoyed by the letter’s attempt at deception,” he says.

While it painted an idyllic picture of better care, there was also that telling phrase: “manage costs.” Sullivan, already personally and professionally familiar with the program, was suspicious. “My mom was tossed into an ACO here in Minnesota two years ago, shortly after she entered a nursing home,” he says. His mother’s new physician told her that her problem was “having too many birthdays” and wouldn’t order tests that the family was demanding. Sullivan never received a clear explanation from the nursing home about whether its participation in the ACO REACH model led to the rude doctor and delayed tests. Although his mother was eventually switched to a different doctor after the family complained, the experience left him wondering: Was she a patient, or a means for profit?

When I first heard the phrase value-based care, I thought, compassion, honesty, integrity—values that are very important in health care. But of course, the “value” in this newer model of health care delivery turns out to be mostly financial in nature. As in: “the original definition of value, which is quality divided by cost,” in the words of the Mayo Clinic. In 2021, the Centers for Medicare and Medicaid Services (CMS) set the bold goal of having all Medicare beneficiaries and almost all Medicaid recipients enrolled in some type of value-based care arrangement by 2030. Almost half of Medicare—the federal health insurance program for people sixty-five and over, as well as younger people with disabilities—has already been privatized through Medicare Advantage, which contracts coverage out to private insurance companies. Now traditional Medicare parts A and B are at risk too, as beneficiaries can be placed into value-based plans without any consultation. “CMS is assigning seniors and people with disabilities without their knowledge or consent into an ACO,” says Ana Malinow, a California physician who advocates for a national health service. “These ACOs are often run by the very insurance companies seniors are trying to avoid.”

Value-based care programs began to flourish after the passing of the Affordable Care Act in 2010. At the time, many people blamed the high cost of Medicare on the status quo fee-for-service billing model, where providers are reimbursed per patient visit, test, or procedure. As part of the ACA, the CMS created their very own Innovation Center to find ways to cut government spending and improve care. “If you think that health care costs are high because of greedy American doctors ordering too many tests, or greedy American patients getting too many procedures, then you’re going to come up with a system to control doctors and control the care that greedy American patients get,” says Malinow. While the United States spends $4.5 trillion dollars every year on health care, as Malinow explains, about 30 percent of that goes to administration costs alone. 

The Innovation Center currently has eighteen active value-based care pilots, according to a spokesperson. Among them are the Enhancing Oncology Model, which aims to improve the experience of cancer patients and sends providers a monthly check per patient; the Maternal Opioid Misuse (MOM) Model, which focuses on maternity care in tandem with opioid use disorder; and the Maryland Total Cost of Care Model, which, in the words of CMS, “sets a per capita limit on Medicare total cost of care in Maryland.”

While there are many versions of value-based care, what they all share is shifting financial risk onto providers. This is frequently accomplished via a gory-sounding model called “capitation,” which involves paying providers a set amount per patient over a certain period. Sometimes this capitation is paid upfront, a sum which the provider can then use as they see fit, to demand CT scans, diagnostic blood panels, or teletherapy galore. In other value-based care arrangements, the usual fee-for-service model is augmented by penalties and bonuses that are calculated at the end of the year, based on health outcomes like post-surgical infections, administrative data, and patient surveys. This might seem like a good thing — if you routinely screen for cancer, you’re more likely to catch it before a patient needs extensive (read: expensive) treatment — but capitation also transforms patients into living, breathing prepaid debit cards.

The pièce de résistance of the CMS’s expansion into value-based care is ACO REACH, a former Trump administration policy, which during his presidency was called Direct Contracting Entities. The new, wordier acronym stands for Accountable Care Organization Realizing Equity, Access, and Community Health. Participating providers are motivated to focus on quantifiable measures like how many hospital stays result in a readmission thirty days after discharge, unplanned hospital admissions among those with chronic conditions, and the results of a patient survey, which asks questions like, “In the last six months, how often did this provider listen carefully to you?” and “How often did this provider spend enough time with you?” Points are awarded for hitting certain percentage targets on specific Medicare measures. You can lose a point for declining performance and gain one for improved performance.

The focus on value-based care has been a boon for businesses who view health care as a cash cow. Aetna, famed for denying claims and prior authorization requests, released a white paper in 2019 titled “Better health at lower costs: Why we need Value-Based Care now.” A fresh crop of middleman companies who specialize in helping physician groups transition to a value-based model have sprung up in recent years — like Navvis, whose website features a quote from a primary care physician claiming that value-based care is his “secret sauce.” (They also somewhat jarringly refer to patients as “lives.”) For-profit companies CareAllies, Inc, VBC Care Network, and Vytalize Health, Inc. are all listed as parent organizations of various Medicare value-based programs this year, as are several venture capital firms, like Valeas Capital Partners and Drive Capital. Then there are the physician practices shaping their whole business around value-based care: among them Oak Street Health, which is owned by CVS, and Village MD, which is majority-owned by Walgreens. Value, apparently, is a big business.

There is a certain element of freedom, says retired psychiatrist Dr. Stephen Kemble, of value-based care models that use capitation. “[Physicians] have more flexibility to provide whatever care they think the patient needs because they don’t have to bill for every service. They are already paid,” he explained. The potential benefits of this model could be seen during the early days of Covid, when many patients were only able to receive care over the phone, which is typically reimbursed by insurers at a lower rate. In certain value-based care systems, “The doctor gets the same monthly payment regardless of whether the patient is seen that month or not, or if care is delivered by telephone or telehealth or in person,” Kemble, who is associated with Physicians for a National Health Program, says. Likewise, Minnesota doctor Matt Hoffman points out that doctors are already working with a flawed system in the fee-for-service model: “A patient comes in, and you’re incentivized to do anything you can bill for.” In theory, he says, value-based care could be really good, influencing physicians to manage chronic illness before it gets worse.

But dangling savings, bonuses, and lump sum payments in front of the companies clamoring to run these new models of care can lead to other incentives that do not benefit patient health. “If they spend too much, they lose,” says Kemble. “And if they spend less than the amount they are paid, they get to keep the difference as increased income or profit.” Hoffman agrees, saying of capitation: “The company is incentivized to spend less on the patients. . . they are basically acting as an insurance company.” When asked about Medicare’s embrace of value-based care, a chief medical officer in Tennessee told the Pharmacy Times: “CMS is saying that ‘if you spend less money, we’re going to share some of that money with you.’”

The other half of the value-based care proposition, tying providers’ compensation in part to patient health outcomes, could potentially encourage them to care for whiter, wealthier, more educated patients who don’t face health disparities that co-occur with poverty, racism, and living in isolated locations. This already happens with Medicare Advantage, says Kemble: “They market to healthy people, they give you free perks like gym memberships, which are only helpful if you happen to be pretty healthy. They have restrictions on care that discourage people who have serious illness, and cause them to drop out or not join in the first place.”

And how do you measure value, anyway? “There are ten thousand codes that providers use to bill Medicare,” says Malinow. “You can’t possibly choose all ten thousand services to measure, so you will measure a few . . . those that can be easily measured, not necessarily those that might actually add value to a patient’s health or life.” Despite their emphasis on quality metrics, value-based models can ultimately still motivate organizations to deny care, especially if patients need a treatment that won’t lend itself toward bonus savings, says Kemble: “[It’s] a portal for profiteering for organizations like health insurance companies and private equity, that have no expertise in health care, looking to see how much money they can skew out of health care.” But for some companies, even that is not enough. Late last year, Clover Health announced they were exiting the ACO REACH model because they were not making enough money in traditional Medicare. In a press release, they noted that “we have made far greater and swifter strides on our path to profitability in our Medicare Advantage insurance business.”

With the CMS’s goal of having all Medicare patients on a value-based care plan by 2030, and the current reality, where there’s not much room to opt out, it can feel like there’s little for beneficiaries to do. It can even feel like, as Joe Biden accidentally said during June’s disastrous presidential debate, “we beat Medicare.” But there has been some resistance. The health care system Allina Health was hoping to introduce a value-based care model to its broader clientele, beyond the ACO REACH they already use for Medicare patients, a plan it was forced to ditch after intense pushback from its recently unionized staff. Last September, the state of California went so far as to pass a resolution requesting that Biden stop companies from profiteering from ACO REACH.

Still, it doesn’t seem far-fetched that in as little as six years, the whole of Medicare will have become a massive profit-making machine for Wall Street, not just the parts that were lost when the Bush administration paved the way for Medicare Advantage. CMS sells value-based care as a net positive that will help patients, but it’s also ripe for abuse. If bureaucrats, not trained doctors, are making decisions about what counts as value, then health care becomes nothing but a numbers game — and the house always wins.