Has the mo­ment fi­nal­ly ar­rived for val­ue-based health­care?

RBC Cap­i­tal Mar­kets’ Health­care Tech­nol­o­gy An­a­lyst, Sean Dodge, spot­lights a new breed of tech-en­abled providers who are rapid­ly trans­form­ing the way clin­i­cians de­liv­er health­care, and ex­plores the key ques­tion: can this ac­cel­er­at­ing rev­o­lu­tion over­turn the US health­care sys­tem?

Key points

  • Tech-en­abled health­care providers are poised to help the US tran­si­tion to val­ue, not vol­ume, as the ba­sis for re­ward.
  • The move to val­ue-based care has pol­i­cy mo­men­tum, but is risky and com­plex for clin­i­cians.
  • Out­sourced tech spe­cial­ists are emerg­ing to pro­vide the re­quired ex­per­tise, while health­care and tech are al­so con­verg­ing through M&A.
  • Val­ue-based care re­mains in its ear­ly stages, but the tran­si­tion is ac­cel­er­at­ing and rep­re­sents a huge ad­dress­able mar­ket.

Lis­ten to our full podcast to find out how a qui­et rev­o­lu­tion is set to turn US health­care on its head.

Re­ward­ing val­ue, not vol­ume

Health­care IT is at the fore­front of ef­forts to im­prove health­care out­comes and re­duce costs. It cov­ers every­thing from video con­sul­ta­tions to out­sourced sys­tems for health­care billing.

It al­so in­cludes an emerg­ing class of tech-en­abled com­pa­nies that are work­ing on a fun­da­men­tal trans­for­ma­tion of the way clin­i­cians de­liv­er health­care.

The ul­ti­mate aim is to ad­dress the soar­ing costs and rel­a­tive­ly poor out­comes that cur­rent­ly char­ac­ter­ize the US sys­tem. Un­der our fee-for-ser­vice mod­el, providers are com­pen­sat­ed for how much they do, rather than how well they do it, cre­at­ing per­verse in­cen­tives and in­ef­fi­cien­cies.

A val­ue-based health­care sys­tem would over­turn that sys­tem, ex­plains Sean Dodge, health­care tech­nol­o­gy an­a­lyst at RBC Cap­i­tal Mar­kets: “The goal is to re­im­burse providers based on how well they take care of their pa­tients, not how much health­care they de­liv­er.”

“The ad­dress­able mar­ket here is mas­sive.  The US spends near­ly $4 tril­lion an­nu­al­ly on health­care – the vast ma­jor­i­ty of which is go­ing to be af­fect­ed by the shift that we’re see­ing.”– Sean Dodge, Health­care Tech­nol­o­gy An­a­lyst, RBC Cap­i­tal Mar­kets

The tran­si­tion to this new mod­el is a slow one – but it’s pick­ing up speed. Pre­vi­ous bar­ri­ers, no­tably around poor da­ta and IT sys­tems, are be­ing re­moved. And al­ter­na­tive pay­ment mod­els are learn­ing from ex­pe­ri­ence and gain­ing trac­tion, with reg­u­la­to­ry sup­port from Cen­ters for Medicare and Med­ic­aid Ser­vices (CMS).

Com­plex chal­lenge for medics

Val­ue-based care has been a CMS pol­i­cy com­mit­ment for over a decade. The key rea­son for the lag in im­ple­men­ta­tion is the com­plex­i­ty for doc­tors of mak­ing it hap­pen: “It com­plete­ly up­ends their prac­tices. It’s a re­al­ly dif­fi­cult tran­si­tion,” Dodge ex­plains.

Un­der a val­ue-based mod­el, clin­i­cians are paid a fixed fee per pa­tient. If the pa­tient’s an­nu­al health­care costs less than this fee, the provider keeps the dif­fer­ence; if it costs more, the provider must meet that ex­tra sum.

The new mod­el oblig­es providers to have more com­plete da­ta on the health sta­tus of their pa­tients, and to pri­or­i­tize those pa­tients most at risk. “It re­quires them to have much more so­phis­ti­cat­ed and ca­pa­ble sys­tems to be able to track every­thing they need to be able to de­liv­er more proac­tive care,” Dodge says.

“The goal is to re­im­burse providers based on how well they take care of their pa­tients, not how much health­care they de­liv­er.”– Sean Dodge, Health­care Tech­nol­o­gy An­a­lyst, RBC Cap­i­tal Mar­kets

Health­care and tech con­verge

A new class of spe­cial­ist tech com­pa­nies has emerged to help doc­tors achieve this. Most of­fer turnkey pro­grams so that “all the dif­fi­cult stuff is man­aged be­hind the scenes” for doc­tors.

At the same time, con­ver­gence and con­sol­i­da­tion are chang­ing the health­care land­scape. Dodge points to health in­sur­ers cre­at­ing their own clin­ic net­works and em­ploy­ing physi­cians; ma­jor drug re­tail­ers ac­quir­ing wider health­care as­sets; and non-tra­di­tion­al play­ers such as Ama­zon en­ter­ing the field too.

“There’s a re­al­ly in­ter­est­ing con­ver­gence of the health­care providers, health­care pay­ers, and the tech com­pa­nies that are all com­ing to­geth­er and cre­at­ing these more ver­ti­cal­ly in­te­grat­ed mod­els,” he ob­serves. It’s a trend he ex­pects to see ac­cel­er­at­ing in the years ahead.

“The rush of new and in­no­v­a­tive play­ers in the mar­ket is cre­at­ing a com­pet­i­tive land­scape and spawn­ing a va­ri­ety of ap­proach­es,” ex­plains Dodge. “Some play­ers are in­volved in care de­liv­ery, while oth­ers of­fer sup­port­ing ser­vices; some build brick-and-mor­tar fa­cil­i­ties or di­rect­ly em­ploy physi­cians, while oth­ers work in part­ner­ship; and there is a range of ap­proach­es to im­prov­ing out­comes and low­er­ing costs.”

A mas­sive po­ten­tial mar­ket

The move to val­ue-based care has had re­cent pol­i­cy mo­men­tum. CMS re­cent­ly reaf­firmed its com­mit­ment to the shift and pub­lished an analy­sis of the suc­cess of the 50-plus pi­lots tri­aled so far. The com­mit­ment of the Biden ad­min­is­tra­tion to the con­cept – and the ne­ces­si­ty of change to the na­tion­al econ­o­my – make val­ue-based care an in­evitabil­i­ty.

How­ev­er, the tran­si­tion to new mod­els is still in its ear­ly stages. Pay­ments based on a fee-for-ser­vice mod­el still rep­re­sent the vast bulk of re­im­burse­ments be­ing made in the US – for now, few­er than 10% of pay­ments are mean­ing­ful­ly tied to val­ue.

Ac­cord­ing to Dodge, the mod­el is still in its ear­ly stages – but that means lots of growth po­ten­tial for val­ue-based care com­pa­nies. And with val­u­a­tions re­set sig­nif­i­cant­ly over the past year, in­vestors may see the op­por­tu­ni­ty for more at­trac­tive en­try points in this class.

“The ad­dress­able mar­ket here is mas­sive. The US spends near­ly $4 tril­lion an­nu­al­ly on health­care – the vast ma­jor­i­ty of which is go­ing to be af­fect­ed by the shift that we’re see­ing. With adop­tion still in a nascent stage, this is a space we will mon­i­tor close­ly.”

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Sean Dodge

Healthcare Technology Analyst, RBC Capital Markets