Clinical Variation Reduction: A Winning Strategy in Value-Based Care… and Fee-for-Service

It would be an understatement to say that healthcare leaders have faced a lot of uncertainty and ambiguous market signals over the last few years. Efforts to formally repeal and replace the Accountable Care Act have waxed and waned, ultimately leading to rule changes that weaken the ACA marketplace but leave it largely in place. Amazon, JP Morgan and Berkshire Hathaway announced intentions to create a health care delivery entity for employees, but have been short on specifics. Former HHS Secretary Price delayed and scaled back a number of Medicare bundled payment programs only to have the new Secretary, Alex Azar, assume a much more aggressive stance in support of an active federal government role in reshaping health care delivery towards greater value.

Despite the ambiguous short-term signals, many health care leaders remain fully committed to organizing care around value-based episodes and away from individual fee-for-service (FFS) payment activities. Participation in ACOs, bundled payments and capitated payment arrangements have continued to grow each year since starting in 2011 (Heath Affairs, 2017) as the macro trends strongly point to an unescapable need to deliver high quality care at a lower cost. While there will undoubtedly be more fits and starts, the move away from paying for volume towards paying for quality and value continues with bipartisan support.

 Often, the focus on value-based care and reimbursement emphasizes the imperative to reduce overutilization of procedures and health care services. And rightfully so. Too many artery-opening stents in the cath lab, too many head CTs in the ED, and too many antibiotics in the primary care office lead not only to significantly inflated costs, but also to sub-optimal care. The ACO or capitated payment environment aligns financial incentives for health systems to standardize care and take these unneeded costs out of the system.


However, for organizations still largely living in FFS, reducing overutilization can represent lost revenue and a perverse threat to the bottom line: fewer stents lead directly to less revenue in a FFS world. Narrowly focusing on generating volume under FFS, however, runs the risk of ignoring unwarranted clinical variation and not engaging physicians in care standardization efforts. Physician behavior change is hard and putting off these difficult conversations can make some sense in the very immediate term, but it is shortsighted and risky for two main reasons, outlined below.

First, like a large oil tanker, one cannot expect to turn a physician enterprise on a dime when value-based payment becomes unescapable. Once organizations hit a threshold for dollars at-risk in value-based payment, business as usual practice patterns in FFS become a significant liability. The transition to value-based care takes time and requires the whole team (physicians, administrators and support staff) be organized around the “right care” for patients. MACRA and MIPS, while setting a relatively low bar requiring providers to report and improve on quality and cost measures, are forcing that conversation at some organizations just now beginning the journey.


Second, unwarranted clinical variation is as much about underuse of care as it is about overuse. In FFS, targeting underutilization of key services as a first foray into care standardization can make sense from a quality, reputational and financial perspective. A seminal NEJM paper, which included nearly 20,000 participants and 439 quality of care indicators across 30 conditions, found that Americans only received about 55% of recommended care. Care items included inexpensive but often overlooked services, such as smoking cessation and diet counseling, but also services that identify high- risk patients in need of more intensive interventions, such as cancer screenings and heart failure imaging. Somewhat surprisingly, under-provision of recommended care was equally common among preventive (55% of recommended care), acute (54%) and chronic care (56%). Across service types, only 62% of recommended laboratory or imaging testing were conducted, only 69% of recommended medications prescribed and only 73% of encounters or other interventions performed. The lowest identified levels of recommended care were in hip fracture and atrial fibrillation, two conditions highly relevant to both FFS and value-based payment models. These data suggest that, even for groups still struggling to fully commit to value-based care, there is a significant opportunity to standardize care without sabotaging your bottom line. In the process, organizations can gain valuable experience in care transformation to prepare for the (not too distant) future.

While we have no doubt that the seismic move towards value-based payment is real and unstoppable (because the math of crushing health care costs is not going away), the prolonged shift from FFS to value-based payment is a challenge. For any organization, whether primarily in FFS or actively entering multiple at-risk arrangements, ignoring clinical variation today will end up costing more in the long-term.



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Irene Papanicolas I, et al. Health Care Spending in the United States and Other High-Income Countries. JAMA. 2018;319(10):1024-1039. doi:10.1001/jama.2018.1150

Morgan DJ, Dhruva SS, Coon ER, Wright SM, Korenstein D. 2017 Update on Medical OveruseA Systematic Review. JAMA Intern Med. 2018;178(1):110–115. doi:10.1001/jamainternmed.2017.4361

Muhlestein et al. ,Growth Of ACOs And Alternative Payment Models In 2017, Health Affairs Blog, June 28, 2017.