Over the last decade, a new industry has emerged that may eventually contribute as much to administrative waste as the insurance industry does today. This industry has no name. Because the participants in the industry all promote a new scheme known as “value-based payment,” and because they all make money off it, we propose to call the new industry the value-based payment (VBP) industry.
Like the insurance industry, the VBP industry hovers over doctors and patients and seeks to influence (and in some cases, dictate) doctor-patient decision-making, and in the process diverts resources away from medical care. Unlike the insurance industry, the VBP industry is almost invisible to the public. It consists of a heterogeneous mix of corporations that own, contract with, manage, consult with, or sell services to providers (doctors and hospitals). Some, such as “accountable care organizations,” mimic insurance companies. Others are consultants, such as Privia, venture capitalists like General Catalyst, or firms selling management services, such as agilon health. Large pieces of this new industry are being bought out by companies like Walgreens and Amazon.
The economic and political power of this new industry was on display at the National Primary Care Transformation Summit, a virtual five-day event held in late July. As one of the opening speakers noted, the conference was attended by 4,800 people, many of whom paid $1,100 for the privilege. It was sponsored by 30 corporations, all of which participate in the VBP industry. Over 150 speakers, including five former administrators of the Centers for Medicare and Medicaid Services (CMS) as well as representatives of corporations sponsoring the event, promoted value-based payment as the solution to the crisis in primary care. The conference vividly illustrated why the VBP industry poses a serious threat to doctors and patients.
A Brief History of Value-Based Payment
The phrase “value-based payment” emerged in the 2000s as the label for all methods of payment that shift insurance risk from insurance companies and public programs like Medicare onto health care providers. Risk is shifted by paying providers a set fee per patient per year (usually called “capitation”) rather than a fee for each service providers render (known as “fee-for-service”), or by tying provider payment to the profits and losses of organizations they contract with. VBP advocates claim, without evidence, that fee-for-service (FFS) induces doctors to order services patients don’t need and that shifting risk to providers will induce them to improve both components of value — cost and quality.
Although the VBP diagnosis and solution has been promoted since the early 2000s (and since the 1970s, if we trace VBP theology to its predecessor, HMOs and “managed care”), it took a decade for the VBP industry to take root deeply into our health care system. The Affordable Care Act (ACA), enacted in 2010, ignited its growth. The ACA conferred legitimacy on VBP by requiring CMS to insert VBP schemes into traditional Medicare (but not into Medicare Advantage). The “accountable care organization” (ACO), vaguely defined as “a set of physicians and hospitals [which] accept joint responsibility for the quality of care and the cost of care received by the ACO’s panel of patients,” is by far the largest and most prevalent iteration of the VBP programs CMS has inserted into traditional Medicare. Medicare beneficiaries are assigned to ACOs without their consent based on which primary care doctor they see. ACO doctors are given bonuses if the ACO makes money, and they are penalized if the ACO loses money.
CMS has implemented a half-dozen ACO programs since 2012, all of which focus on primary care doctors. Today, roughly 600 ACOs, many of them owned by insurance companies and other investors, enroll more than 11 million Medicare beneficiaries. Another 400 ACOs have been set up in the commercial (non-elderly) market. Most of these are owned or controlled by distant, passive investors — people and companies that do not take care of patients, but which seek to profit off patients by inducing providers either to cut back on the services offered to patients, or to substitute less expensive providers and services. Examples of such ACOs include Iora Health, a subsidiary of One Medical, which Amazon is proposing to purchase; Caravan Health, which was just purchased by Signify, a company that trades on Wall Street; and Village MD, recently purchased by Walgreens.
If the experiment with ACOs and other VBP schemes authorized by the ACA had worked as advertised — if it had lowered costs and improved quality — advocates could at least argue that the harm done to medical care, especially to primary care physicians, was offset by improved “value.” But the research over the last decade clearly shows VBP schemes are not lowering costs, are having mixed and trivial effects on health, and are exacerbating health inequities. We are, in short, suffering the worst possible outcomes of the VBP experiment. And yet, with few exceptions, proponents of VBP refuse to concede VBP has failed. The “primary care transformation summit” illustrated this problem.
The speakers at the “summit,” who included virtually every prominent advocate of VBP from the public and private sectors, studiously avoided discussion of VBP’s underwhelming effect on the cost and quality of health care, and rarely mentioned its worst side effects. A few speakers expressed frustration at how long VBP was taking to prove it can work, but even these speakers refused to discuss the research. Rather than acknowledge failure and use their time together to analyze the reasons for failure, the 150 speakers concentrated instead on repeating VBP folklore (fee-for-service is the problem and VBP schemes are the answer) and reporting cherry-picked anecdotes. A conference that should have been devoted to understanding the sources of the primary care crisis and why VBP has failed was instead devoted to cheerleading and self-congratulation.
The opening speakers set the tone for the entire conference. They repeated the myths that must be true if the VBP industry is to survive: namely, that fee-for-service (FFS) is the root cause of the never-ending U.S. health care crisis, and ACOs and other VBP schemes are the answer. The first speaker, Susan Dentzer, president of America’s Physician Groups (APG), one of the nation’s most aggressive proponents of ACOs, asserted, incorrectly, “We … know that value-based care is valuable for the nation. Value-based care models such as accountable care organizations have demonstrably saved money for the federal government and for taxpayers and have improved the quality of care overall.” Soumi Saha, vice president of Premier, a health care consulting company, blamed our nation’s exorbitant health care costs on “overuse” of medical care allegedly caused by the FFS method. “Our legacy fee-for-service system creates perverse incentives. It’s reactive. It wants people to get sick,” she declared, and VBP is the answer. Neither Dentzer nor Saha offered evidence for their assertions. This was because there is robust evidence that overuse in the U.S. is limited to a small number of services and could not explain high health care costs, and there is no consistent evidence that any system of care in the U.S. is more or less effective to minimize the overuse of health care services.
The final speaker, Don Crane, Dentzer’s predecessor at APG, offered the feel-good wrap-up one might expect at an Amway convention. He repeated the basic elements of VBP ideology, noted approvingly that “investors see profit in risk-based primary care,” and then exhorted his listeners to have faith. “Over recent years I’ve been concerned about the slow pace of the value movement,” he said. But he assured his audience that the conference had lifted his spirits. “The energy from this summit brings an excitement and a tail wind for capitation. The time is now.” Then he asserted, “I don’t know of a better plan [than VBP]…. There is no plan B. So, keep up the good work and be well.” In Crane’s world, apparently, there is no Medicare for All movement.
Between Dentzer’s and Crane’s speeches, presenters told anecdotes and made evidence-free arguments for the takeover of the primary care system by profit-seeking investors. Rushika Fernandopulle, the CEO and co-founder of Iora Health, an ACO, justified ownership of ACOs by distant investors with the argument that “it takes capital to raise these systems.” William Wulf, CEO of Central Ohio Primary Care, an ACO and the largest physician-owned primary care group in the U.S., praised agilon health (one of the summit sponsors) for providing capital to his company. “You have to go to the folks that have the money,” Wulf explained. Tom Scully, former CMS administrator, and current general partner at the private equity firm Welsh, Carson, Anderson and Stowe, asserted that selling to a private equity firm “is the rational choice” for doctors.
Amazon’s recent $3.9 billion acquisition of One Medical was no cause for alarm because it would provide more capital to move primary care into VBP. In 2021, One Medical acquired Iora Health for $2.1 billion. Iora participates in CMS’s ACO REACH program, first developed under the Trump administration as Direct Contracting to “manage” the care of seniors on traditional Medicare. The program was rebranded as ACO REACH by the Biden administration, but still maintains all the problematic aspects of Direct Contracting, including for-profit middlemen, assigning beneficiaries without their knowledge, and no congressional oversight. Fernandopulle and Amir Rubin, CEO and president of One Medical, both spoke at the summit. Wulf declared Amazon’s purchase of One Medical “will improve access for patients to primary care physicians, [and] is good for America.”
The premise of the “transformation summit” was that primary care is under stress, which no one denies. Almost half of the U.S.’s primary care physicians report burnout, only about 20 percent of graduating medical students enter primary care, and consequently, a shortfall in primary care physicians of 21,400 to 55,200 is predicted by 2033. Millions of Americans have little or no access to primary care. There are several reasons for this crisis, including the massive consolidation of the health care system provoked by the spread of managed-care tactics in the 1990s and of VBP schemes in the 2010s, and excessive administrative burdens inflicted on primary care doctors by the insurance and VBP industries.
VBP is not the solution. It will not “transform” primary care or any sector of the health care system. It is in fact part of the problem. The VBP industry, despite its lackluster results and toxic side effects, has acquired so much power and wealth over the last decade that getting rid of it will be difficult. The solution will be multi-pronged. The public should support efforts to roll back VBP, notably the campaign against REACH ACOs initiated by Physicians for a National Health Program, National Single Payer, and others last year, as well as legislation to establish a national single-payer health insurance program. The president, CMS and Congress must hear from constituents, not just industry, about a scheme that puts everyone’s health at risk.