In this session, Erin Ney and Jason Slocum of Bain & Company provided data-driven insights on the current state of the value-based care industry. The session provided a look at the factors influencing provider adoption of risk-based adoption, the most promising investment opportunities in value-based care, and how likely the value-based care industry is to weather an economic downturn.

Top takeaways included:

1. Nearly 60% of healthcare payments in 2021 had at least some element tied to quality and value. However, the majority of these payments were upside risk, with less than 20% incorporating downside risk. At the same time, nearly 40% of healthcare payments are not in value-based care models.

2. Around 80% of physicians surveyed are interested in participating in value-based care arrangements. However, that interest significantly decreases as the level of risk to the provider increases.

3. Providers continue to face financial, operational, and administrative hurdles to adopting value-based care. Providers’ sense of preparedness across the financial, operational, and administrative dimensions have decreased since 2017, with providers surveyed feeling less equipped to adopt and succeed in value-based care models.

4. To make providers more inclined to adopt value-based care, providers stated that they needed more sufficient financial resources, more effective coding and billing processes, and investments in additional staff to manage data, reporting, and outreach. Similarly, providers reported they needed three key groups of enablers in order to transition from fee-for-service to risk-based models: (1) clinical care model enablers, (2) data and technology enablers, and (3) payor contracting enablers.

5. There are a variety of investment opportunities in the value-based care space, including payor-centric options, provider-centric options (traditionally in primary care, but there has been recent growth in single- and multi-specialty models), and enablers in the value-based care ecosystem, e.g., enabling tools and technologies such as healthcare IT, platforms and services.

6. Over the last five years, the volume and value of deals related to value-based care increased. While there was a decline in deals related to value-based care in 2021–2022, the momentum around value-based care investments remains strong. This momentum may be blunted in the short term by current macroeconomic forces, as value-based care adoption requires capital and risk; however, the long-term investment outlook remains strong.

A Deeper Dive

Where are we today and where have we been?

As of 2021, nearly 60% of healthcare payments had at least some element tied to quality or value. However, the majority of these payments were upside-only models, with less than 20% incorporating down-side risk (with capitated models under 8% of spending). However, in the last five years, risk-based models have continued to gain traction. These are full-risk models, with full and partial capitation, as well as shared-risk models, with upside and downside risk. As providers have dipped their toes in the pool of value-based care, have gotten used to taking risk with pay-for-performance, and have started to build capabilities for risk-based models, we see movement over the last five years to full-risk models. While adoption of risk-based models has grown, nearly 40% of healthcare payments are not in value-based care models. Thus, a key question is what it will take to move the needle for this group to adopt value-based care.

While the adoption of risk-based models has grown across all lines of business, the growth has been greatest in Medicare Advantage (MA). There have also been a number of innovative care models in primary care around fully capitated care delivery. There are advantages when providers are taking care of a narrow patient population that allows the provider to hone capabilities in care models, care delivery, data analytics, and payor contracting, all of which allow these providers to succeed in value-based care.

Where are we headed?

Looking forward, more than 80% of payers are confident that the prevalence of shared-risk and full-risk models will continue to increase. This is on the tailwinds of rising costs of acute care, increases in chronic conditions, regulatory initiatives, provider consolidation, and the proliferation of data analytics. At the same time, around 80% of physicians surveyed in Bain’s recent “Frontline of Healthcare” survey stated that they are interested in participating in value-based care arrangements. However, that interest declines as the level of risk to the provider increases. For example, while 50% of physicians surveyed stated they were interested in pay-for-performance or quality payment initiatives, only 13% were interested in full-capitation models.

Provider adoption of value-based care is not monolithic. The models that specialties adopt and the speed of adoption will vary. Factors influencing this adoption include whether there is a clear standard of care to measure against; whether there is an ability to manage the full cost of care or steer care to other specialties; whether there are clearly defined conditions with clear start and end dates; whether there is a potential for cost reduction in prescriptions; and whether there is a potential for cost reduction through site-of-care shifts or technology. Whether these factors are addressable ranges across specialties.

What will it take to increase adoption in the future?

According to Bain’s “Frontline of Healthcare” survey, providers recognize that value-based care has positive impacts on the quality of care, can be more efficient for patient care and presents an increased financial upside. However, providers have concerns about complexity and financial risk, as well as questions as to whether value-based care models are actually succeeding today. Bain research shows that physicians continue to face financial, operational, and administrative hurdles to adopting value-based care. Providers’ sense of preparedness to adopt value-based care across the financial, operational, and administrative dimensions have actually decreased since 2017, with providers feeling considerably less equipped to adopt value-based care models.

Two possible explanations for this decreased sense of preparedness include the increased capabilities required to succeed in greater-risk models compared to upside-only models, and changes in care models, resources, and goals following the COVID-19 pandemic.

The top three items providers cited as making them more interested or willing to adopt value-based care models were: (1) more sufficient financial resources, (2) more effective coding and billing processes, and (3) investments in additional staff to manage reporting and outreach requirements. Similarly, physicians reported that they needed three key groups of enablers in order to transition from fee-for-service models to risk-based models: (1) clinical care model enablers, (2) data and technology enablers, and (3) payor contracting enablers.

What are the current market dynamics and the path forward?

Over the last five years, the volume and value of deals related to value-based care increased. While there was a decline in deals related to value-based care in 2021–2022, the momentum around value-based care investments remains strong. There is a range of potential ways to play in the value-based care space, including payor-centric options, provider-centric options, and options focused on enablers in the value-based care ecosystem, including healthcare IT, services, and platforms that help providers take on risk. While most investment has traditionally flowed into risk-bearing primary care provider models, we are starting to see more interest in risk-bearing single- and multi-specialty models. We are also seeing funds dedicated to value-based care, as well as funds putting together pools to go after earlier-stage value-based care companies.

We are currently in a more difficult economic cycle. Value-based care adoption requires capital and has risk. Forces around inflation, labor inflation, and a general economic downturn could slow provider adoption of risk-based models in the short term if providers cannot afford the required investments to succeed in these models. These macroeconomic forces may also slow private investment in the short term. However, there is a long-term investment theme for value-based care.