FAQs

Value-based care (VBC) is a holistic approach to healthcare that focuses on health outcomes. In value-based care, providers are compensated on how effectively they treat their patients and help them stay healthy, rather than on the quantity of medical services they provide. Taking a value-based approach involves delivering care in a patient-centered way, which often entails care coordination and collaboration among various healthcare professionals. 

A value-based approach to healthcare is distinct from the fee-for-service model that is still prevalent across many organizations. It’s important to understand the main differences between the two approaches, the reasons for these differences, and their implications. Whereas a fee-for-service model often incentivizes healthcare providers and other medical professionals to maximize the amount of care that a patient receives, a value-based model is designed to incentivize them to help their patients be healthy. This way, value-based care helps align objectives between patients and their healthcare providers.

Because value-based healthcare stresses health outcomes, it puts a greater emphasis on patient education, engagement, and preventive care than is typical in a fee-for-service model. This gives providers an extra incentive to ensure that regular check-ups and essential screenings happen as necessary, reducing the likelihood of serious medical conditions going undiagnosed and continuing to progress for long periods. It also encourages healthcare organizations to create incentives for patients to make healthy lifestyle choices. 

Risk adjustment plays a critical role within value-based care by compensating providers for the extra costs they are likely to incur when covering patients with various medical conditions and other characteristics. Risk adjustment helps ensure that providers are adequately compensated in those circumstances, and that they have enough funds to cover each patient’s healthcare needs. Risk adjustment also helps ensure that providers are not penalized for treating patients with higher levels of risk, supporting the goal of creating equity across various populations of patients.

As awareness of the benefits of a value-based approach to healthcare grows, this model is increasingly being adopted. To understand the shift towards value-based care, it is helpful to consider the main advantages that it offers patients. 

Most fundamentally, value-based care incentivizes medical professionals and healthcare providers to prioritize patients’ overall health above other considerations. This is distinct from the conventional fee-for-service model of healthcare, which tends to incentivize providers to deliver as many services (especially relatively expensive services) as patients are willing to pay for. The alignment of objectives and priorities between patients and healthcare providers is a major benefit with powerful implications.

Because value-based care compensates providers holistically and based on patients’ health outcomes, it helps ensure that patients receive high-quality care while keeping costs down. In part, this occurs because value-based care takes a more proactive approach to healthcare – encouraging check-ups, screenings, and preventive care in order to reduce the likelihood that a patient will face a serious medical issue. It also helps facilitate a more patient-centered approach to healthcare, with an emphasis on patient engagement and care coordination. 

In addition, value-based care can help improve population health management. While the high costs associated with a fee-for-service model tend to contribute to unequal health outcomes across different demographic groups, value-based care helps increase access to high-quality healthcare among underserved populations. As a result, it can have a positive impact on equity in healthcare.

In contrast to the traditional fee-for-service model of healthcare, value-based care can help lower costs by improving efficiency and prioritizing the quality over the quantity of healthcare services. There are several ways that healthcare providers can help both themselves and their patients realize the full benefits of a value-based approach to healthcare.

Because value-based care emphasizes health outcomes rather than rewarding providers for delivering a large quantity of services, preventive care plays a critical role in making this model work effectively. It is critical for providers to encourage patients to get regular check-ups and essential screenings as needed, in order to minimize the likelihood of a serious medical condition going undiagnosed for an extended period. Vaccinations and lifestyle interventions – such as urging patients to maintain a healthy diet and exercise routine – are also important aspects of preventive care that can ultimately reduce healthcare costs significantly.

In addition, care coordination is an important way for healthcare providers to keep costs down within a value-based model. By taking a patient-centered approach and facilitating effective communication and collaboration among various professionals, a healthcare organization can help ensure that a patient’s medical, lifestyle, and psychological needs are addressed comprehensively – without resulting in duplicate services. This also helps ensure that the healthcare is not delivered in a fragmented way, thus improving patient experience and potentially preventing medical errors.

Healthcare providers can also help maximize their efficiency and keep costs down by utilizing data effectively. By using information sources including patients’ electronic health records (EHRs) to make data-driven decisions, they can help improve their decision-making processes. In addition to improving patient outcomes, this use of data can help prevent the recommendation of unnecessary medical tests and procedures.

The transition to value-based care is a major shift, requiring significant work on the part of healthcare organizations and medical professionals. To encourage healthcare providers to align with the principles of value-based care, it is important to ensure that they understand why making this move is in their best interest. One key way to make that happen is to offer them meaningful, performance-based incentives. 

There are various approaches healthcare organizations can take to incentivize providers to excel in value-based care. The incentives can be financial (such as bonuses), but can also include non-financial benefits (such as paid time off). These incentives may be provided either to individuals based on their own performance, or to teams of medical professionals based on their collective performance as a group. 

One important question for healthcare organizations at the start of their value-based journey is when to start providing incentives to its medical professionals. The organization might opt to wait until it starts reaping the financial benefits of this shift before delivering performance-based rewards, so that the benefits it earns can cover the costs of the incentives it offers. But by starting to provide incentives in the early stages of the shift to value-based care, a healthcare organization can give its providers some extra motivation to embrace the value-based model – helping make the shift smoother and more successful.

Perhaps most importantly, when healthcare organizations use performance-based incentives to support their adoption of value-based care, they need to determine the metrics they’ll use to grant the incentives. They may set specific minimum thresholds that providers must reach in order to get a certain reward – or they may calculate rewards using a mathematical formula, so that providers who deliver the strongest results get the largest rewards.

Given value-based healthcare’s emphasis on quality rather than quantity of care, the question of how to measure quality plays a critical role in value-based models. The National Academy of Medicine (then called the Institute of Medicine) created a list of six essential goals for healthcare systems in 2001, which have since become widely accepted as a basis for evaluating care. CMS relies on these six objectives in developing healthcare quality metrics. 

This six-domain framework specifies that healthcare should be:

• Effective
• Safe
• Timely
• Patient-centered
• Equitable. 
• Efficient

Importantly, all six of these domains align closely with the principles of value-based care. Effective, safe, and timely care helps achieve the positive health outcomes emphasized within a value-based model. A patient-centered approach is also a fundamental aspect of value-based care. And the value-based vision of healthcare is built largely to address the inequalities and inefficiencies that often result from a fee-for-service model. 

By evaluating care on the basis of how well it achieves each of these six objectives and rewarding providers accordingly, healthcare organizations can incentivize providers to align with the principles of value-based care.

Although value-based care offers significant benefits to patients, the transition from a fee-for-service model presents some major challenges for healthcare providers. Some of the biggest challenges include dealing with time-consuming (and potentially burnout-inducing) administrative work, navigating large volumes of disorganized patient data, and being understaffed.

There are some important steps that healthcare organizations can take in order to navigate these challenges successfully. For example, it can be very helpful to ensure that an organization’s leadership includes physicians. By having some physicians split their time between clinical and leadership work, organizations will gain a first-hand understanding of the day-to-day realities of treating patients. This input can be especially valuable when it comes to negotiating contracts, designing internal workflows, and evaluating possible organizational changes.

It is also crucial to ensure that healthcare providers have the tools they need to thrive within the context of value-based care. For example, HCC (Hierarchical Condition Category) coding is critical to risk adjustment, but the coding process can be very time-consuming. Providing physicians with a robust solution for streamlining the coding process can make a powerful difference. Artificial intelligence (AI)-powered tools can be particularly useful – helping ensure physicians do not miss any relevant HCCs, while also saving valuable work time and enabling them to focus more on providing high-quality care to patients. 

In addition, healthcare organizations can help physicians improve their performance by providing them with analytics tools enabling them to track performance in real time.

Risk adjustment is the process of determining the level of risk inherent in providing care for a given patient, in order to ensure that their healthcare provider has enough funds to cover the cost of their care in a value-based healthcare model. Relying on information including the patient's demographics and health conditions, risk adjustment involves using a mathematical formula to estimate the cost of meeting the patient’s medical needs in a given year. 

Risk adjustment plays a critical role in making the value-based model of healthcare work effectively. In this model, healthcare services are paid for holistically and based on patient outcomes, rather than on the quantity of healthcare services provided. By factoring the severity of a patient’s medical conditions into the amount of money to be paid to their healthcare provider, risk adjustment helps ensure that that provider is able to provide for the patient’s care, and isn’t unfairly penalized for providing care to patients with a greater level of risk. 

As a result, risk adjustment has a major impact on revenue for healthcare providers, while also giving them useful insights to help improve the quality and efficiency of care. By ensuring that each patient’s file includes a complete list of medical conditions, providers can help make sure they are compensated adequately for the care they deliver. On the other hand, when a list of a patient’s conditions is incomplete, the provider risks losing out on revenue to which it is entitled, making it more difficult to deliver the care the patient needs.

Risk adjustment factor (RAF) scores – also called risk scores – are calculated to reflect the relative risk that a healthcare provider takes on by providing care to a given patient in a value-based model of healthcare. They are determined based on various factors including the patient’s demographics and health conditions, and calculated using a mathematical formula intended to reflect differences in the cost of providing care to different patients during a particular year.

One of the key factors in determining a patient’s RAF score is a list of Hierarchical Condition Categories (HCCs) reflecting their medical conditions. In addition, the RAF score should consider other key characteristics expected to have an impact on the estimated cost of providing care to the patient.

RAF scores play a central role in determining a provider’s revenue in a value-based healthcare model. Because care is paid for holistically in this model (rather than per service provided), RAF scores help ensure that healthcare providers have enough funds to cover the cost of each patient’s healthcare needs, and aren’t penalized for covering patients presenting a greater level of risk. 

To ensure that each healthcare provider receives the funds that they need, it is critical to make sure that each patient’s RAF score accurately reflects all of their medical conditions in a particular year. An incomplete list of conditions can result in a RAF score lower than it should be – needlessly reducing the provider’s revenue and making it more difficult to meet each patient’s medical needs.

HCC coding is a way of managing risk adjustment by estimating the future costs of healthcare for a given patient. It relies on Hierarchical Condition Categories (HCCs) –  medical codes representing specific groups of medical conditions, which have been used by the Centers for Medicare & Medicaid Services (CMS) since 2004. The shift toward value-based healthcare has seen HCC coding take on an increasingly central role in healthcare. 

HCC coding relies on the International Classification of Diseases, Tenth Revision (ICD-10) – an updated version of which is released each year. Using this guide, a given patient’s HCCs are determined based on medical conditions the patient has in a specific year, with each condition having a weight reflecting the impact it is expected to have on a patient’s healthcare costs. 

A given patient’s RAF score depends heavily on the list of the patient’s HCC diagnoses. Since the RAF score affects the amount that the healthcare provider will be paid, it is important to have a full list of relevant HCCs for any given patient. Incomplete lists of HCCs for patients can result in a needless loss of revenue for their providers, creating a financial hurdle that can prevent a value-based system of healthcare from working as it should.

In 2023, the Centers for Medicare and Medicaid (CMS) began a transition from the HCC V24 to V28 risk adjustment model. This transition has significant implications for healthcare providers and patients. Not only does it impact the funds providers receive for patient care, but it affects the way they handle HCC coding.

Importantly, this shift is taking place gradually, with risk adjustment relying on a blend of V24 and V28 until the transition is complete. As a result, healthcare providers now need to navigate both standards for HCC coding. That complicates the process of coding in the interim, especially because there are substantive differences between V24 and V28. 

Among other changes, V28 reduces the number of ICD-10 codes that map to HCC codes from roughly 10,000 to roughly 8,000, while increasing the number of HCC groups from 86 to 115. The shift also removes approximately 3,000 diagnosis codes, adds over 250 new HCC codes, and changes the weighting assigned to various codes.

Because healthcare providers now need to apply both V24 and V28 models simultaneously, they need to make sure that each patient has two complete lists of relevant HCC codes (one for V24 and one for V28). To make that happen both reliably and efficiently, they should empower their medical professionals with helpful digital solutions, including AI-powered software for capturing all relevant diagnoses. They also need to ensure that clinicians, nurses, medical assistants, and coders have access to all the information they need – and that they share information effectively, including through pre- and post-appointment workflows.

For a deeper dive into how to adapt effectively to this shift, please see our whitepaper, The Impact of HCC V28 on Medical Groups: Strategies for a Successful Transition.

HEDIS® is a standardized set of measures for objectively evaluating the performance of health plans, other healthcare organizations, and individual physicians throughout the U.S. Because HEDIS scores are publicly available, they can affect health plans’ future enrollment numbers. Today, more than 90% of health plans in the U.S. participate in HEDIS.

The National Committee for Quality Assurance (NCQA) determines HEDIS scores based on over 90 measures across these six domains:

• Effectiveness of Care
• Access/Availability of Care
• Experience of Care
• Utilization and Risk Adjusted Utilization
• Health Plan Descriptive Information
• Measures Reported Using Electronic Clinical Data Systems

Although it was created in order to provide evidence-based information comparing the quality of health plans, the implications of HEDIS now go far beyond this purpose. HEDIS scores play a significant role in determining the Medicare Star Ratings of Medicare Advantage and Part D plans, which can have a significant financial impact on these plans. In part, that’s because high Star Ratings can result in financial bonuses. On the other hand, low Star Ratings can result in penalties, including the closure of low-performing health plans.

Having a high HEDIS score can have a major impact on a health plan’s long-term profitability and viability.

In large part, that’s because HEDIS scores can influence the numbers of individuals who will sign up for a given plan in the future. And because the performance bonuses that CMS provides annually to plans with high Star Ratings are calculated per member, they can add up to significant amounts of money. In fact, for large health plans, these bonuses can total many millions of dollars per year .

Most importantly, the HEDIS system is designed to measure the quality of healthcare. Achieving a higher HEDIS score typically indicates better healthcare performance, ultimately leading to better health outcomes for a health plan’s members.

In other words, the most crucial aspect of improving your health plan’s HEDIS score is boosting the actual quality of the care you provide.

Given the importance of HEDIS scores, there’s good reason to invest in raising yours. Because preventive care plays a central role in determining HEDIS scores, one essential way to improve scores is by making sure that patients receive critical screenings, regular check-ups, and vaccines as needed. It’s also important to ensure that the documentation submitted for all care provided is complete, accurate, and timely.

One key factor that often contributes to lower HEDIS scores is the problem of care gaps that are created when patients do not receive all of the screenings, check-ups, vaccines, and other types of care that they should. Reminders and patient engagement can help prevent care gaps from being created in the first place, as well as helping to close existing gaps. Once there are care gaps, it’s important to have a system in place to identify them–and  close them.

Similarly, a focus on patient-focused care and patient experience can help raise HEDIS scores. Requesting feedback from patients can be particularly useful by helping identify areas for improvement.

Increasing collaboration and training among medical professionals can also help improve HEDIS scores. Effective communication can help ensure that clinicians understand the importance of HEDIS scores. And when clinicians prioritize collaboration and information sharing, that can help prevent care gaps from being created as a result of a lack of proper communication.

A gap in care is an instance in which a patient has not received a healthcare service or intervention that they should have, based on established guidelines. HEDIS scores can suffer when patients do not consistently receive appropriate screenings, check-ups, treatments, vaccines, and other types of care. Thus, closing care gaps helps not only to improve HEDIS scores, but also to deliver care for patients.

Most importantly, closing care gaps – or preventing them from being created in the first place – can help patients to enjoy better health. For example, a care gap might be the result of a missed screening that could detect a disease early, when it is most treatable – or not receiving a recommended vaccine that could prevent an illness. Not only could closing these kinds of gaps have a positive impact on patient health, but it could save their health plan the costs of treating diseases (which are significantly higher than the costs of screenings and vaccines).

In other cases, closing a care gap can be a matter of effectively managing a chronic condition through monitoring and adherence to a treatment plan – helping prevent complications over time.

For health plans and other healthcare organizations, it’s also critical to close care gaps in order to improve HEDIS scores. When a health plan’s patients do not consistently receive appropriate healthcare interventions and services in line with HEDIS measures, the resulting care gaps can be detrimental to HEDIS scores. By preventing this from happening, a health plan can protect its reputation – helping it to receive a high Medicare Star Rating (if relevant) and performance-based financial bonuses, and to attract more members.

In short, closing care gaps can not only help patients stay safe and healthy, but also help health plans and other healthcare organizations ensure their financial sustainability.

Software can help health plans and other healthcare organizations improve their HEDIS scores – especially when that software has advanced artificial intelligence (AI) capabilities. In addition to saving time for clinicians, AI can help them raise the quality of the care they deliver – resulting in better patient outcomes and improved HEDIS performance.

AI-powered software can help identify care gaps by processing large volumes of data from electronic health records (EHRs), claims, and other sources. It can also examine unstructured data to close apparent care gaps in cases in which the required care has been provided but was not properly documented, as well as cases in which there is a specific reason that a given patient should be excluded from a certain intervention or type of care.

Through its use of automation, advanced software can increase the efficiency of these processes while helping to prevent errors and ensure adherence to specific guidelines. In addition, health plans and other healthcare organizations can use robust analytics to evaluate HEDIS performance among their primary care providers and identify areas for improvement.

At the same time, collaborative tools within software platforms can help clinicians streamline and improve their communication. This way, they can work more smoothly as a team to deliver patient-centered care, helping them improve both patient outcomes and HEDIS scores.