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Reasons for the Value-Based Care Gap Between Public Payers and Employer Groups

By: Micah D. Iberosi-Parnell, Esq.

The long-term struggle over the price of health care services between providers and payers is a tale as old as time. On one side, providers want to preserve the status quo, fee-for-service payment (FFS) system, which often leads to unnecessary treatment and wasteful health care spending. Meanwhile, payers have consistently pushed new payment models that attempt to tie spending with results. Collectively, the models pushed forward by payers are often referred to as “value-based care” (VBC) or “alternative payment models.”

New survey data shows a growing gap between the success of Medicare and employer-based group plans when it comes to implementing VBC payment reforms. In 2020, 40.9 percent of all health care payments in the U.S. were paid through some form of VBC model – an all-time high – according to the Health Care Payment Learning & Action Network (LAN). Traditional Medicare and Medicare Advantage plans were the main drivers of this achievement, as 85 and 62 percent of their payments, respectively, were value-based. Meanwhile, employers and commercial payers lagged behind this, with only 49 percent of payments tied to VBC. The survey did not measure the difference between self-insured employer plans and large commercial plans but the proportion of employer VBC payments is likely lower than for large commercial insurers.

This gap translates into real-world price disparities between Medicare and group health plans:

  • Inpatient hospital prices for group plans grew 42 percent from 2007 to 2014, while physician prices for inpatient care grew 18 percent;
  • Employer dollars spent per employee for healthcare increased twice as fast as Medicare after the ACA was passed in 2008.

The primary causes of the VBC gap boil down to basic principles of market position and bargaining power. At the highest level, self-funded groups must lease provider networks through one of a few national carriers, which impose mandatory FFS rates and prevent plans from steering patients to in-network providers with better value or contracting with out of network providers directly.

Provider demands underpin these one-sided networks agreements. Increasingly-consolidated provider chains are the main source of both high prices and the resistance to VBC.
Today, nearly 90 percent of all U.S. metro areas are “highly concentrated” in terms of provider competition. For context, the U.S. soda market with only two choices, Coke or Pepsi, is also considered “highly concentrated.” Large providers leverage their monopolization of regional markets to demand higher reimbursements and one-sided contract arrangements from the networks, which then offset the costs on to group health plans. Medicare has always counteracted these forces because of its market position as America’s largest health insurer (by enrollees) and political power. Meanwhile, group plans must tolerate unilateral network agreements or find alternative solutions that may increase the risk of balance billing on plan members.