Part 2: What is Value-Based Care?

The book “The American Healthcare Paradox” uses a simple question to explain a problem in US healthcare. Who pays for a shoe? Imagine a homeless person gets a foot infection that leads to an amputation. The hospital and insurance company handle the expensive surgery, but the person is now disabled and still homeless. This outcome is bad for everyone.

Value-based care aims to fix this by focusing on prevention. The idea is to "pay for the shoe" to avoid the much higher cost of an amputation later. I saw how this works at firsthand and Cityblock Health. Investing in social and behavioral support helped people in underserved communities avoid preventable health problems and take more control of their lives.

Why is Value-Based Care important to me?

My mom's experience as a physical therapist inspired my interest in value-based care. Growing up, she built incredible relationships with her patients, who were often nearing the end of their lives. My two brothers and I were given at least 3 cats and 5 dogs from her patients, entirely due to the deep relationships she built with her patients who were no longer able to care for their pets.

Now, her work is different. She spends nights and early mornings on documentation. Her patient visits are a strict 45 minutes, which is often too long for a simple check-in but too short for someone with serious issues.

The fee-for-service model requires this machine-like approach to get the most payment in the least time. I wanted to help change healthcare from a transactional system to one focused on genuine health.

What is Value-Based Care?

Most people think of healthcare in Fee-for-Service (FFS) terms. where Doctors and insurers negotiate a fee per service provided to a patient. The prices aren't particularly transparent resulting in lots of surprise medical bills but it’s basically paying for a service with a little haggling there in the middle.

Value-based care takes a longer-term view of your health. It pays providers to keep you healthy and manage chronic conditions to prevent emergency room visits. There are a few common models:

With shared savings, if a team of doctors keeps their patients healthy and reduces overall costs, they get a portion of the savings.

Bundled payments use a single fixed price for an entire medical event, like a hip replacement. This encourages all providers involved to work together efficiently.

Capitated payments are like a subscription. Providers get a fixed monthly payment for each patient, regardless of how many services they need. This creates a strong incentive to invest in preventive care.

The main idea is to shift financial risk from the insurer to the provider. This encourages them to focus on high-quality, efficient care because it affects their finances. For patients, this should mean more coordinated care with a focus on wellness.

My experience with Value-Based Care

I have spent eight years working for companies that aim to use the ‘capitated’ VBC model. However, the reality of value-based contracting is much messier than the theory.

As a small startup, you begin with just a team of pretty smart folks with some idea for how to provide better care at lower cost. After raising funds, your first job is to get a value based contract with an insurance company so you can start seeing patients.

Value based contracting

When we brought on the CEO of Cityblock Health, we had his 90 day goal to ‘land a contract with an insurance company’. Little did we know, that takes about 1-2 years.

During that 1-2 year contracting process, the company needs to get ready so they can launch the moment the ink is dry. The sales team is feeding information back to the product team about what aspects of the care model are appealing to the insurance company. The finance team is figuring out what kind of money is available for operations. The team develops its offering by writing policies and procedures, designing a staffing model and setting up software – without seeing a patient or being able to test anything — for years.

The contracts themselves are often secret and legally complex, covering everything from financials to AI to data security. All of this effort is just to set up a pilot program. This high risk and capital intensive start tends to favors only founders with extensive industry experience – this isn’t the territory for fresh college grads.

Terms of the deal may include:

• Performance incentives for things like: Completing quality measures (e.g., A1c checks for diabetics), risk adjustment (updating diagnoses to increase insurer payments from Medicare/Medicaid) and steerage to designated providers.
• Control cohort definition for benchmarking.
• A per-patient-per-month management fee.
• Fee-for-service billing arrangement for some services.
• Carve outs for patients and for services that are out of scope

Over my time at Cityblock and firsthand, I’ve seen about 10 or so of these contracts get signed and every single one of them is different. The payment terms, performance metrics, data formats and reports are different every single time.

In theory, to scale a business you need to have some kind of operational consistency and shared tools that make you more efficient than 10 completely independent companies. In practice, consistency gets pushed to the side to sign the deal since the dollars are so enormous. If a national insurance company will to pay you to do something, you do it.

The race to see your first patient

It is easy to bemoan the long contracting process, but it ends up feeling like a year long sprint. Every week is a blessing as given the immense number of components to spin up before you see your first patient.

At Cityblock, about a week before launching our first clinic, we were testing out our system. One of our providers asked us how to schedule an appointment. Well, we never built scheduling. After years of going through the list of required features with focus groups, experienced providers and our leadership team who have run large systems — no one brought up scheduling. In about a week we built scheduling for our clinic on top of Google Calendar and it actually worked quite well for many years. It is easy to say ‘how did you miss something so obvious’ but the list of needs is so incredibly long. Table stakes features like scheduling are less differentiating in the market than AI enabled decision support.

For a bit more detailed look, here are a few things you need before standing up your first VBC clinic:

Value-based operations

Once you are seeing patients, the hard part has truly only just begun. One of the main aspects of healthcare business is that they tend to have many independent components that are actually pretty interdependent. Everyone needs to be both good at their job and good at collaborating with a wide array of very different people with very different goals.

This means lots of meetings with 10-15 ‘decision makers’. A simplified cross functional team might include a couple people from each of these teams:

• Growth: Making sure the deal is actually something the company can do and the financial terms make sense. Team up with finance and actuarial scientists
• Account management: After the deal is signed, it is handed to a team that manages the ongoing relationship and newer requests and reports.
• Data integrations: Ingesting the data from the insurance company q/a-ing it each time the files come in every month.
• Implementation: Setting up physical clinics and hiring teams for those clinics
• Data science: Predictive Analytics and Risk Stratification using sophisticated algorithms, this team identifies patients at high risk of developing chronic conditions or experiencing adverse health events. This allows for early intervention and targeted care management.
• Compliance: Make sure all the providers are credentialed and everyone has had the requisite training, policies are effective and enforced.
• Operations: This department is focused on measuring and enhancing the quality of care delivered and making sure it is delivered in a financially sustainable way.
• Engagement and outreach: Team to contact and get people enrolled in your program
• Clinical quality: They track key clinical outcomes, patient safety, and patient satisfaction. Their responsibilities include implementing evidence-based best practices, conducting audits, and preparing for quality reporting to insurance companies and regulatory bodies.
• Learning and development: Are teams able to perform our care model and use the software we have built and/or purchased?
• Billing: Value based care companies still have to file claims and negotiate with payers. These teams often have their own totally independent stack of tools.
• Oh and some tech stuff in there ;)

Each of these teams is essential, but each is so different the company ends up looking like a Frankenstein acropolis with Tuscan, Doric, Ionic, Corinthian, and Composite columns all mixed in. It is difficult to get these teams aligned. Operators in the field want to solve problems locally, while engineers want to build solutions that scale. Business managers try to optimize minutes, while clinicians might spend days helping a single patient. It is almost impossible to get these teams moving in the same direction to build a strong, scalable business.

I asked Google’s Gemini AI to try to help me make light of the challenges in VBC, but now I may need to go cry in the shower.

What about fee-for-service?

Fee-for-service may seem simpler right? But these practices also face a huge administrative burden. Their payments can be adjusted based on quality measures that require extensive documentation. Providers must not only do the right thing but legally prove they did it.

If you run a FFS facility, your job is to extract maximum revenue from each room. Facilities increase profit by boosting service volume and complexity, shortening visits and hiring staff to maximize billing. Optimizing the facility and staff performance requires many similar components to running a value based care business.

From a high level, value-based care also seems simple. Insurance companies pay more for better health outcomes. Yet defining "better" is subjective and proving results is a real challenge.

In either system, providers are frustrated by conflicting demands. They can do everything for the patient in front of them, but that delays other visits and increases costs. They can keep all visits the same length, but that means spending less time with patients who have complex problems. They can complete all their documentation to get a bonus, but that means less face-to-face time with patients.

Healthcare is hard

I say value-based care is harder than rocket science because we have spent far more money on healthcare reform than NASA spent on the moon landing, with much less success. The people in healthcare are skilled and well-funded, yet American health outcomes are worse and more expensive than in any other developed country.

Both fee-for-service and value-based care have their own administrative burdens and contradictions. The struggle to balance quality, cost, and access is what makes improving healthcare such a complex puzzle.

In many ways, data is oil in healthcare. Many of the problems facing healthcare are issues with capturing accurate data and then taking the correct course of action based on data.

In the next post in the series, I’m going to go into why healthcare data is especially difficult oil to refine. Check it out here.