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Pharma Insights

Where Incentives Align (or Don’t) Among Health Care Stakeholders and How They Are Evolving

Authored by

Avi Mamidi, PharmD1; Elizabeth Oyekan, PharmD, FCSHP, CPHQ2; Jeremy Schafer, PharmD, MBA3; Larry Blandford, PharmD4—Column Editor


1Senior Director, Access Experience Team, Precision for Value & Health

2Vice President, Access Experience Team, Precision for Value & Health

3Senior Vice President-Access Experience Team, Precision for Value  & Health

4Executive Vice President, Managing Partner, Precision Value & Health


Precision Value & Health is part of Precision Medicine Group, which supports the development and commercialization of gene therapies as well as companion diagnostics.


J Clin Pathways. 2020;6(2):23-26. doi:10.25270/jcp.2020.3.00003

The goal of all health care stakeholders—payers, providers, and health systems—is to lower health care costs and improve patient health outcomes, yet the path to getting to this goal remains questionable, partially due to incentive misalignments and competing stakeholder priorities. Value-based care cannot be implemented via a top-down approach; to make value-based care the new normal in health care will require health systems, hospitals, and payers to change behaviors, overcome previous bias and challenges, become more engaged and contribute to the development of new payment models, and see the benefits of taking on additional financial risks. We explore the current incentives at play in the market, their impact on the system, and how these incentives are evolving (or will need to evolve). 

Over the last decade, there has been an increased focus on transforming the US health care system from a system that rewards providers and health systems based on quantity of care provided to a system that is focused on the value of services provided to patients. More attention is also being paid to new payment models to reduce costs and improve patient health care outcomes.1

This shift is primarily the result of the unsustainable health care spending in the US healthcare system, which is projected to reach $6 trillion, or 19.7% of our gross domestic product (GDP), by 2027.2 However, this shift to deliver higher value care has been hampered and overshadowed by the lack of alignment and competing priorities between payers and providers, especially in the fee-for-service (FFS) environment.3

While the goal of payers, providers, and health systems is to lower health care costs and improve patient health outcomes, the path to getting to this goal remains questionable, in part due to incentive misalignments and competing stakeholder priorities. In a survey conducted in July 2018 from the NEJM Catalyst Insights Council, more than 75% of the clinicians, clinical leaders, and executives mentioned misalignments between payers and providers as a barrier to realizing improved value and reducing the trajectory costs associated with health care spending.3 These misalignments include:

  • Utilization management strategies used by payers to keep costs down for members and customers while also remaining competitive, which are sometimes seen by providers as a detriment to patient care;
  • A focus by payers on reducing variation in processes and sometimes care, which can be perceived by providers as cookbook medicine vs provider autonomy;
  • Misaligned payment structure incentives where the bulk of payment for services focus on the volume of services provided vs the quality and outcomes of care provided;
  • Misalignments between health plan executives and physicians at the point of care delivery for the included plan recipients. This includes electronic health record (EHR) functionality, optimizing EHR reporting, and patient identification. In one survey, this misalignment was particularly clear: 75% of health care executives stated that current EHRs had everything needed for physicians to deliver value-based care and measure patient outcomes. In contrast, only 54% of physicians agreed in response to the same question.4

In the quality arena, health systems and providers struggle to manage the varying quality measures, with differing specifications and reporting requirements required by private and public sector payers. The misalignment of health care quality measures is further made more challenging by the variation in data collection and reporting systems, the costs to provider practices and health systems to collect these measures, as well as a perceived lack of an adequate amount of meaningful health care quality measures.5

Trends and Drivers Toward Value-Based Care

The increased drive toward value-based care has been further augmented by the involvement of the largest payers of health care—the government and employers—as well as the increased market and public pressure to make care safer and more coordinated, promote healthier communities, and leverage tools and technology to make quality care more affordable for all. The Centers for Medicare & Medicaid Services (CMS) has legislated incentives to promote value-based care through acts such as the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and is working with payers and health systems to implement new payment models, including bundled payments, shared savings, capitation, and other alternative payment models tying reimbursement to patient outcomes, total cost of care, and other measures (Figure 1) that will incentivize providers to improve patient care and reduce the trajectory of health care costs.6


However, value-based care cannot just be legislated or be a top-down approach; to make value-based care the new normal in health care will require health systems, hospitals, and payers to change behaviors, overcome previous bias and challenges, become more engaged and contribute to the development of new payment models, and see the benefits of taking on additional financial risks.7 There will also need to be alignment of provider and payer incentives, increased payer-provider partnerships and collaboration, a focus on coordinated and holistic health care that addresses prevention and wellness in addition to taking care of the sick, integrating social determinants of health (SDOH) into care delivery, and an investment in effective innovative health technology tools to augment clinical and economic health care. 

Fortunately, we are now seeing a concerted effort toward value-based care, mainly driven by large public payers and CMS through innovative value-based programs and models designed to encourage risk-sharing and collaboration. Some examples of successful collaborations among stakeholders are at Box 1.


Value-Based Contracting: What Success Looks Like

In the realm of value-based contracting, there are many different models that have been successfully implemented at a variety of payers and health systems. The shift away from the traditional FFS model has given way to more innovative archetypes. To date, there have been more than 40 different alternative payment models (APMs).8 Examples include CMS’ Comprehensive Primary Care Plus; CMS’ Home Health Value-Based Purchasing; CMS’ Integrated Care for Kids; oncology care 2-sided risk arrangements; and patient-centered medical homes. At the core of these different models is the move to rewarding value over volume, which had been the traditional goal and aim of most health care providers in years past. 

Now, the newer APMs focus on the new CMS definition of value-based care and the incentivizing of providers, payer, health systems, and integrated delivery networks (IDNs) around the Quadruple Aim: improved population health, improved patient care, reduced health care expenditure, and increased provider satisfaction.9 At the heart of these value-based arrangements are four overarching model types or buckets that most of the aforementioned APMs fall into. These are:

  • Pay coordination
  • Pay-for-performance
  • Bundled payment (episodic care payment)
  • Shared savings programs (upside and downside risk)

For each one of these arrangements, there is a tremendous amount of administrative burden on the provider and health system, and because of this, provider satisfaction is becoming a more focused component in the value-based landscape.8 With so many variables and discussion around what constitutes a successful value-based contract, it can be difficult to nail down the main components. With the differences in models, there seem to be 3 key features of a successful value-based model: (1) financial risk, (2) care coordination, and (3) quality measures. 

Financial Risk

With the shift away from FFS models, the biggest question revolves around which entity holds the financial risk and how the risk is shared, if at all. Focusing on the vantage point of the provider or health system, there can be an upside risk, downside risk, or 2-sided risk model that can be implemented with a payer or pharmaceutical manufacturer. 

In upside-risk-only APMs, providers are eligible to earn all or a percentage of any health care savings their care incurs. Payers typically set a financial benchmark for how much care delivery should cost for a care episode or patient.8 If providers perform services at costs below the benchmark, then they share in the savings. 

In a downside risk model, providers must refund the payer for the incurred losses if they exceed financial benchmarks. CMS’ bundled payment model for acute myocardial infarction episodes is a prime example. This care model is a retrospective episode-based payment, so the care costs are examined after care for an acute myocardial infarction. If costs exceed the quality-adjusted targeted price, providers must repay the losses to CMS.8

Finally, the 2-sided risk model combines both the upside and downside risk models. While upside risk structures are more popular for providers, CMS has begun implementing limitations on several of their value-based programs to encourage more downside risk. Commercial payers are also following suit.

Care Coordination

A large area of focus in value-based/outcomes-based contracting centers around the coordination of patient care between providers and ancillary services within an accountable care organization (ACO) or larger health system. The patient journey, or navigation through the health care continuum, can be daunting for many patients and caregivers. With the increased utilization and implementation of EHRs, there is a greater emphasis on health data exchange and technology. Within an ACO, for example, providers must partner together to deliver coordinated care to all the patients within the ACO network. This focus on coordination of care has also led to more resource dedication around social determinants of health, population health management initiatives, and overall improvement in the health of the community as a whole.8

Quality Measures Metrics

The final and most important aspect of a value-based arrangement is the emphasis and agreed-upon quality outcomes or metrics. These quality metrics are directly tied to criteria for reimbursement or financial risk. Whether it is a direct pharmaceutical manufacturer contract with an IDN or health system or a physician group (IPA) contract with a commercial payer, the quality outcome metrics are at the heart of every successful value-based agreement. This focus on metrics ensures quality outcomes will always be the centerpiece for these arrangements. Many of these metrics focus on preventive care and patient-reported outcomes.8 An example of this can be seen in the case of a large health system entering into a value-based contract with a commercial payer and a key quality outcome being how many patients within that plan received preventive services or care (eg, the percentage of Medicare patients who received pneumococcal or influenza immunizations as preventive care).

Many times the metrics cause the unsuccessful implementation of the value-based contract. Both payer or pharmaceutical manufacturer and health system or provider group must be in agreement on the established metrics that will drive the value-based contract. Both parties must have mutually aligned benefits around the metrics that are chosen, and this is often where there can be a breakdown finalizing the contract. 

On the Horizon for Value-Based Contracts and Alternative Payment Models 

So what does the future hold for value-based contracting and APMs? On average, approximately 75% of all clinical revenue in the United States still comes from FFS models.10 Why aren’t more payers, physicians, and health systems engaging in value-based care? In the 2018 NEJM Catalyst Insights Council survey, the 2 largest reported barriers for implementation of value-based care reimbursement models were infrastructure (including information technology) and change management (which included administrative burden and changes in regulation and internal policies)11 For meaningful change to occur, the focus on patient-centered outcomes juxtaposed to the costs it takes to reach those outcomes is always being balanced and in question. Focused initiatives around key drivers such as social determinants of health, population health dynamics, and the Quadruple Aim have definitely moved the needle in value-based care and arrangements, gaining more traction in the US health care system. Provider and clinician engagement and helping these clinicians understand the benefits of value-based care is vitally important. Even today, many clinicians do not fully understand how health care reimbursement works from the lens of a payer or Medicare. The alignment must be made between operational leadership and providers for true value-based care and contracting to thrive and be effective, and this may require a new way of thinking for many clinicians. Even looking back 15 years, no contracts incorporated value-based metrics and care within their framework.11

So where does this leave us? Where will value-based reimbursement models be in the next 5 years? The rising costs of health care in America and the higher focus on quality and safe, effective outcomes continues to create environments ripe for value-based care. Population health management and community health have taken a front seat in the landscape of US health care. In the coming years, health care may witness a widespread adoption of new methods of follow-up procedures, remote monitoring, engaging patients, and delivering care on the go. Telemedicine, wearable technology, and AI-assisted care are revolutionary innovations that have taken the health care world by storm. Technology, combined with the human touch, will transform the traditional way of delivering care, making care accessible on the go.12

Several experts have stated that by 2030, care delivery teams will be very different than they are today. Owing to population health management and the push toward end-to-end value-based care, care teams will assume a multidisciplinary role. Even today, to some extent, care delivery has shifted to a more localized, personalized paradigm, and the shift seems to go only upward. Supposedly, in the coming 5 years, physicians would mainly work with the very sick while nurses and care coordinators focus on reducing readmissions or bounce-back to emergency rooms and—with the support of nutritionists, therapists, behavioral health specialists, and multidisciplinary care teams—can focus on doing what they do best: making people healthy and taking them toward an era of preventive care.12

This would be the future of value-based care at its finest. The continued shift away from the traditional FFS model will continue along the current trend. As one policy paper indicated, as recently as of February 2018, there were over 900 ACOs in the United States alone covering over 32 million lives.13 This trend will only continue, with reduced costs, quality outcomes, and, most importantly, patient care at the center of these value-based arrangements.


1. Centers for Medicare & Medicaid Services (CMS). Value-based programs. CMS website.
. Updated January 6, 2020. Accessed February 27, 2020.

2. Centers for Medicare & Medicaid Services. National Health Expenditure Projections 2018-2027: Forecast Summary. Accessed February 27, 2020.

3. Swensen S, Mohta NS. New marketplace survey: payers and providers remain far apart. NEJM Catalyst. 2018;4(2). doi:10.1056/CAT.18.0244

4. QDiagnostics. New study: physicians lack the right tools to close costly gaps in healthcare. HealthLeaders. August 7, 2017. Accessed February 27, 2020.

5. Gruessner V. Misalignment of healthcare quality measures impacts payers. HealthPayerIntelligence. October 14, 2016. Accessed February 20, 2020.

6. LaPointe J. Healthcare spending slated to increase 5.5% annually until 2027. RevCycleIntelligence. February 20, 2019. Accessed February 27, 2020.

7. Muller RW, Hilferty DJ. Commentary: hospital-insurer collaborations can reduce readmissions, cut costs. Modern Healthcare. January 29, 2019. Accessed February 27, 2020.

8. The defining features of current value-based care models. HealthPayerIntelligence. September 23, 2019. Accessed February 27, 2020.

9. Feeley D. The triple aim or the quadruple aim? Four points to help set your strategy. Institute for Healthcare Improvement website. Published November 28, 2017. Accessed February 27, 2020.

10. Molden M. Leading a team approach to value. Health Care Conversation. March 26, 2019. Accessed February 27, 2020.

11. Feeley TW, Mohta NS. Transitioning payment models: fee-for-service to value-based care. NEJM Catalyst. Published November 2018. Accessed February 27, 2020.

12. Shashank A. The future of value-based care: 5 years from now. Health IT Outcomes. July 31, 2017. Accessed February 27, 2020.

13. Matulis R, Lloyd J. The history, evolution, and future of Medicaid accountable care organizations [brief]. Hamilton Township, NJ: Center for Health Care Strategies, Inc. Published February 2018. Accessed February 27, 2020.

14. LaPointe J. Partners, patients key to achieving value-based care results. RevCycleIntelligence. November 1, 2019. Accessed February 27, 2020.

15. Bresnick J. Blue Cross of NC, major health systems partner for value-based care. HealthPayerIntelligence. January 17, 2019. Accessed February 27, 2020.

16. Anthem Blue Cross accountable care organizations show improved quality, save $70.4 million over 12 months. Press release. Anthem Blue Cross. Published October 31, 2016. Accessed February 27, 2020.

17. Harvard Pilgrim signs second groundbreaking contract with Amgen for Repatha. Press release. Harvard Pilgrim Health Care. Published May 2, 2017. Accessed February 27, 2020.

18. UPMC Health Plan and Biogen announce groundbreaking value-based agreement for multiple sclerosis treatments. News release. UPMC Health Plan. Published November 14, 2019. Accessed February 27, 2020. 

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