Medicare and commercial health insurers are moving from the traditional fee-for service reimbursement model to “value-based payment.”

It’s coming. Both Medicare and commercial health insurers are moving from the traditional fee-for service reimbursement model to “value-based payment.” How will this fundamental change impact reimbursement to physicians, other providers, practice groups, and hospitals?

The answer, I suspect, will depend on how “value” is measured. Take a simple example. When a physician provides diabetic counseling to her patients it may well result in less need for expensive services in the future surrounding diabetes complications. The health insurer, as a result, saves money by not having to pay those claims. But how do we measure the absence of claims? And if we cannot, how can we measure “value” on an individual basis for insurance reimbursement purposes if we are using value-based payment?

The same issue arises if we think of “value” from the point of view of a set of procedures. Under fee-for-service reimbursement, insurers criticize providers for prescribing what they believe are “needless” services, because they are paid by the service. Purportedly “value-based” payment would base reimbursement not on the number of services rendered and on the total value of whatever services are rendered. All well and good, but what exactly is “value” in this context? The patient recovering? Recovering faster than average? Reimbursement to the provider cheaper than previously?

Since patients come in an infinite number of shapes, sizes, ages, medical conditions, and other variables, what possible algorithm can we develop to calculate “value” for reimbursement purposes? And if there is a bad outcome, is that the absence of value?

It seems to me the answer may be to rewrite the contracts between providers and insurers to capture precisely what must be measured by a value-based payment structure. For in-network providers, then, reimbursement levels must be commensurate with the value of the medical services performed. “Value” is a matter of negotiation and contract. Failure to reimburse results in breach of contract.

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