Breaking down aligned incentives in healthcare

It’s always better to be on the same page: It’s how teams get stuff done faster and more effectively and how families ensure everyone is happy and getting along (of course, we know that sounds a lot simpler than it really is).

This is true for healthcare, too: When those involved, from the patient to their doctors to their insurance provider, agree on the plan and goals for treatment, better health outcomes—and often lower costs—follow.

Unfortunately, the current healthcare system doesn’t encourage such behavior—in fact, it tends to pit payers and providers against each other. Thanks to the ingrained fee-for-service model (FFS) that assigns a price to each service or procedure, doctors are more often rewarded for prescribing and treating as much and in as many ways as possible. In turn, individuals might receive the wrong care or too much care for their situation, which can lead to worse results and cause costs for payers and patients to skyrocket.

There’s an alternative path: value-based care that’s driven by aligned incentives. We’ll explain what that means, plus the benefits everyone reaps from this approach.

Value-based care and aligned incentives

Unlike fee-for-service, the volume of services doesn’t drive a value-based model. Rather, it aims to motivate providers to reach the best possible outcomes by prioritizing the quality of care—is it safe? Efficient? Patient-centered? Equitable?—along with whether providers avoided unnecessary or excessive spend.

Value-based care can’t really exist unless the patient, doctor, and insurer (and other stakeholders, such as specialists and pharmacists) are aligned on the most beneficial course of action for the patient and reaching reasonable costs—and are incentivized to actually run with that plan. Hence, aligned incentives being a crucial component of this model.

Risk-sharing: What it is and types of risk-sharing

Within the umbrella of aligned incentives and value-based care is the concept of risk-sharing—where all relevant parties, including the healthcare provider and insurer, split financial responsibility for diagnoses and treatment. (Traditionally, in the fee-for-service world, only the insurer holds financial risk.) By assuming this duty together, they’re incentivized to improve care and collaborate in a way that’s most cost-effective.

The agreement can come in several formats:

• Upside: Upside risk rewards providers for remaining at or below a threshold of costs and for maintaining a certain level and quality of care.
• Downside: Downside risk penalizes providers for surpassing a cost threshold or not meeting quality care standards.
• Two-sided: This format leverages both upside and downside risk by rewarding providers for keeping costs low and quality high, and charging them for exceeding costs or not maintaining high-quality care.

Examples of alternative payment models that include aligned incentives

Alternative payment models, driven by quality of care over quantity, bake aligned incentives into their fees.

For example:

• Pay-for-performance: Even though fee-for-service is the foundation of this model, it embodies two-sided risk by rewarding and penalizing providers based on how they treat patients and how much they spend.

• Shared savings: Shared savings itemizes services like fee-for-service, but leverages two-sided risk much like pay-for-performance by allowing providers to keep net savings they generate or making them owe back losses.

• • Shared risk: Using downside risk, shared risk (a type of shared savings) determines how much a provider owes based on how much they go above expected medical costs pre-determined by the payer, along with the quality of their treatment.

• • Two-sided risk sharing: Like discussed above, providers in a two-sided risk-sharing agreement (another type of shared savings) must agree to share in any savings and cost overruns with the payer and factor in quality of care.

• Capitation/population-based payment: This model also encapsulates two-sided risk by holding the provider responsible for any losses—and allowing them to regain back remaining savings—based on a fixed amount for each patient.

The benefits of aligned incentives

If the benefits of aligned incentives in value-based care aren’t immediately clear, here are three worth noting:

1. Lower costs for everyone

Naturally, if a provider is trying to keep costs low, the patient also benefits because now they don’t have to pay as much for necessary and high-quality care. Reimbursements for quality care also put money back in providers’ pockets. Plus, self-funded employers don’t have to shell out as much to ensure the best and most effective care.

2. Improved patient outcomes

Keeping costs low doesn’t guarantee appropriate care—which is why alternative payment models and other strategies within value-based care prioritize quality of care as well. This has to be in place to prevent incentives for providing cheaper or minimalist care and to instead encourage the most necessary care for the patient.

When everyone is aligned on this approach, you’re going to see a lot more preventative and personalized care—rather than one-size-fits-all solutions—that reduces complications, lowers hospital readmissions, and increases the likelihood of positive health outcomes.

3. Increased patient satisfaction

A doctor who truly listens to you and what you need and tailors their services to your needs and background—what could be better? Aligned incentives make it easier for providers to keep patients satisfied with not just their care but also how much less they need to pay to achieve their desired results.

Advice for employers and health benefits consultants

Finding the right health benefits partner for your business or clientele is no easy feat—but consider how much better off your teams will be with a partner that puts quality front and center.

When assessing vendors for mental health counseling, physical therapy, virtual care, and other services, look at how they do—or don’t—leverage aligned incentives. If they prioritize value-based care, how do they track outcomes? Do they penalize for poor care or high costs, reward for better outcomes and low costs, or both?

Carrum Health might just be your perfect partner for specialty care. We have been driving the shift toward value-based care in the commercial market for more than a decade, meaning we have the institutional know-how and resources to get your staff exactly what they need—and save you plenty of money in the process. Among our aligned incentive offerings are a 30-day warranty for surgical bundles, two-year progression coverage for cancer treatment bundles, and tying physician reimbursement to specific performance and outcome measures.

Aiming for a common goal helps important stuff get done properly. In healthcare, that could be as huge as building a healthier, happier, and more supportive community for all.

Learn more about how employers can partner with Carrum Health here.

The information contained on this page is for informational purposes only. No material is intended to be a substitute for professional medical advice, diagnosis, or treatment.