Value-Based Care: The Quest for Better Outcomes at Lower Costs

Beyond Fee-for-Service: New Payment Models

After decades of paying providers for quantity rather than quality, American healthcare is slowly shifting toward “value-based care”—payment models that reward health outcomes over service volume. Value equals outcomes that matter to patients divided by total cost of care (risk-adjusted). In 2023, Medicare ACOs in the Shared Savings Program generated >$2.1B in net savings while meeting high quality scores; across 2012–2022, gross savings totaled $23–$31B—though some research finds net losses depending on methodology.¹²³

Accountable Care Organizations (ACOs)

ACOs represent one of the most significant shifts in healthcare payment models. These organizations bring together groups of doctors, hospitals, and other healthcare providers to deliver coordinated, high-quality care to Medicare patients. The goal is to ensure that patients get the right care at the right time while avoiding unnecessary duplication of services and preventing medical errors.

Savings have been larger and more consistent among physician-led ACOs, with hospital-led results more variable.⁴ However, the fiscal impact varies significantly based on methodology and timeframe analyzed.

Bundled Payments and Episode-Based Care

Evidence is strongest in well-defined surgical episodes: CJR cut costs without degrading quality, and BPCI-A participants saw lower per-episode Medicare payments, especially in surgical bundles.⁵⁶ These bundled payment models provide a single payment for all services related to a treatment or condition, encouraging providers to work together to improve quality and reduce costs.

CMS now finalized the TEAM model (starts Jan 2026), mandating episode-based payment for five surgical procedures in selected markets—representing a major expansion of the bundled payment approach.⁷

Pay-for-Performance Programs

P4P has delivered mixed results. Large-scale evaluations (e.g., HVBP) show limited incremental improvement vs. controls; design and equity concerns persist.⁸ These programs adjust physician compensation based on quality metrics, but penalty-heavy designs can disproportionately impact safety-net hospitals that serve more vulnerable populations.

International Best Practices in Value

International experiences provide nuanced lessons for value-based care implementation, though results vary significantly by context and design.

Netherlands’ Managed Competition Success

Netherlands pairs managed competition with increasingly outcomes-linked contracts, and ranks at or near the top internationally.⁹¹⁰ This system involves selective contracting between insurers and providers, with contracting increasingly incorporating quality and outcomes measures. While not yet universal, the trend moves consistently toward value-based arrangements.

Australia’s Primary Healthcare Networks

Australia’s PHNs are designed to coordinate primary care across fragmented services; national evaluations show progress but limited causal evidence to date on reducing ED use.¹¹ These networks focus on improving care coordination, but robust outcome evidence remains developing.

Germany’s Disease Management Programs

Germany’s DMPs improve quality and sometimes mortality for chronic disease, with mixed cost impacts.¹²¹³ These programs involve coordinated care plans and regular monitoring for conditions like diabetes, showing consistent process improvements but variable financial returns.

Measuring and Incentivizing Quality

Effective value-based care requires sophisticated measurement systems that capture meaningful outcomes while avoiding unintended consequences like patient selection or gaming behaviors.

Patient-Reported Outcome Measures (PROMs)

Use PROMs systematically (e.g., align with OECD PaRIS and ICHOM sets) and pair with robust risk adjustment (clinical + social risk) to safeguard equity—while monitoring for coding incentives that can distort payments.¹⁴¹⁵ Patient-Reported Outcome Measures capture patients’ perspectives on their health status and treatment effectiveness, providing valuable insights beyond clinical metrics.

Risk Adjustment and Population Health

Risk adjustment methodologies are essential for creating fair payment systems. The CMS HCC framework and NASEM guidelines on accounting for social risk help avoid penalizing providers who treat sicker or more socioeconomically disadvantaged patients.¹⁶¹⁷ However, gaming/upcoding risks from over-reliance on diagnoses (as seen in MA examples via OIG and MedPAC) require robust guardrails.¹⁸¹⁹

Unintended Consequences & Guardrails

Value-based care requires careful design to prevent harmful unintended effects:

• Selection & upcoding risks: Providers may avoid sicker patients or inflate diagnoses to improve apparent performance
• Equity concerns: Adjust for social risk factors and monitor for disparities in care access and quality

Preventive Care Investment Returns

Investing in preventive care is often cost-effective, and sometimes cost-saving (e.g., vaccines, tobacco treatment).²⁰²¹ While not all prevention saves money in the short term, many interventions provide strong value propositions when considering long-term health outcomes and societal benefits.

The Path Forward

Value-based care represents a fundamental shift from volume to outcomes, but implementation requires careful attention to measurement design, equity safeguards, and unintended consequences. Early results demonstrate both promise and challenges—successful programs show meaningful cost savings and quality improvements, while poorly designed initiatives can worsen inequities or invite gaming.

The trajectory toward value-based payment is clear, with mandatory models like TEAM expanding successful approaches. However, realizing the full potential requires continued refinement of risk adjustment methods, broader adoption of patient-reported outcomes, and vigilant monitoring for equity impacts across diverse patient populations.

References

1. Centers for Medicare & Medicaid Services. “Medicare Shared Savings Program Continues to Deliver Meaningful Savings and High Quality Health Care.” Press Release, Oct 29, 2024. https://www.cms.gov/newsroom/press-releases/medicare-shared-savings-program-continues-deliver-meaningful-savings-and-high-quality-health-care ↩
2. ASPE/HHS. “The Impact of Alternative Payment Models on Medicare 2012–2022.” January 2025. https://aspe.hhs.gov/sites/default/files/documents/331ef819085bf78627bfd59e3bcdbce0/The-Impact-of-Alternative-Payment-Models-2012-2022.pdf ↩
3. Bleser WK, et al. “Estimated Savings From the Medicare Shared Savings Program.” JAMA Health Forum. 2023. https://pmc.ncbi.nlm.nih.gov/articles/PMC10724775/ ↩
4. McWilliams JM, et al. “Medicare Spending after 3 Years of the Medicare Shared Savings Program.” New England Journal of Medicine. 2018. https://pmc.ncbi.nlm.nih.gov/articles/PMC6269647/ ↩
5. Centers for Medicare & Medicaid Services. “CMS Comprehensive Care for Joint Replacement Model PY6 Evaluation Executive Summary.” December 2024. https://www.cms.gov/priorities/innovation/data-and-reports/2024/cjr-py6-ar-exec-sum ↩
6. Richter KP, et al. “Medical and Surgical Episodes Among Hospital Participants in BPCI Advanced.” JAMA Network Open. 2024. https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2828395 ↩
7. Centers for Medicare & Medicaid Services. “Transforming Episode Accountability Model (TEAM).” https://www.cms.gov/priorities/innovation/innovation-models/team-model ↩
8. Ryan AM, et al. “Changes in Hospital Quality Associated with Hospital Value-Based Purchasing.” New England Journal of Medicine. 2017. https://www.nejm.org/doi/full/10.1056/NEJMsa1613412 ↩
9. Maarse H, et al. “Barriers and Enablers of Value-Based Procurement in Healthcare.” International Journal of Health Policy and Management. https://www.ijhpm.com/article_4732_b966a6dd1c65ed8cfef6cb229372f3b8.pdf ↩
10. Douven R, et al. “Challenging selective contracting: reforms for enhancing insurer-provider cooperation in the Netherlands.” BMC Health Services Research. 2024. https://pmc.ncbi.nlm.nih.gov/articles/PMC11887300/ ↩
11. Australian Government Department of Health. “Evaluation of the Primary Health Networks Program.” June 2021. https://www.health.gov.au/sites/default/files/documents/2021/06/evaluation-of-the-primary-health-networks-program.pdf ↩
12. Drabik A, et al. “Evaluation of disease management programs for diabetes mellitus type 2 in Germany.” European Journal of Health Economics. 2022. https://link.springer.com/article/10.1007/s10198-022-01486-2 ↩
13. Fuchs S, et al. “Costs and outcomes of the German disease management programmes for type 2 diabetes mellitus.” Health Policy. 2017. https://www.sciencedirect.com/science/article/abs/pii/S0168851016302056 ↩
14. OECD. “Does Healthcare Deliver? Results from the Patient Reported Indicator Surveys (PaRIS).” 2023-24. https://www.oecd.org/en/publications/does-healthcare-deliver-results-from-the-patient-reported-indicator-surveys-paris_748c8b9a-en/ ↩
15. Bae JM, et al. “The Role of Patient-Reported Outcome Measures in Value-Based Healthcare.” Clinics in Orthopedic Surgery. 2017. https://pmc.ncbi.nlm.nih.gov/articles/PMC5735998/ ↩
16. Centers for Medicare & Medicaid Services. “Risk Adjustment.” https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/risk-adjustment ↩
17. National Academies of Sciences, Engineering, and Medicine. “Accounting for Social Risk Factors in Medicare Payment.” 2017. https://nap.nationalacademies.org/catalog/23635/accounting-for-social-risk-factors-in-medicare-payment ↩
18. Office of Inspector General. “Medicare Advantage: Questionable Use of Health Risk Assessments and Chart Reviews.” October 2024. https://www.aapc.com/codes/webroot/upload/general_pages_docs/document/OEI-03-23-00380.pdf ↩
19. Medicare Payment Advisory Commission. “The Medicare Advantage program: Status report.” March 2025. https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_Ch11_MedPAC_Report_To_Congress_SEC.pdf ↩
20. Li K, et al. “The Role of Prevention in Health Care Reform.” NCBI. 2020. https://pmc.ncbi.nlm.nih.gov/articles/PMC7525101/ ↩
21. OECD. “OECD Reviews of Health Systems.” https://www.oecd.org/en/publications/serials/oecd-reviews-of-health-systems_g1gha319.html ↩