The Shift from Fee-for-Service to Value-Based Payments: An Evidence-Based Analysis
A Discussion Paper
The landscape of healthcare payment systems in the United States has undergone a significant transformation over the past decade. Traditionally, the fee-for-service (FFS) model, where providers are paid based on the volume of services rendered, has dominated the healthcare industry. However, this model has come under scrutiny for incentivizing quantity over quality, leading to rising healthcare costs without a corresponding improvement in patient outcomes. In response, both federal and state governments, along with private payers, have increasingly promoted alternative payment models (APMs) that prioritize value over volume, such as value-based payments (VBPs) and population-based payment models. This paper presents and analyzes the evidence supporting the shift from FFS to value-based payments, highlighting key legislative and regulatory initiatives driving this change.
Federal Legislative and Regulatory Drivers
Affordable Care Act (ACA) of 2010
The Affordable Care Act (ACA) of 2010 laid the groundwork for many of the value-based initiatives that have followed. A key provision of the ACA was the establishment of the Center for Medicare & Medicaid Innovation (CMMI), which is tasked with testing innovative payment and service delivery models aimed at reducing costs and improving quality. CMMI has launched numerous APMs, including bundled payments, accountable care organizations (ACOs), and patient-centered medical homes, all of which incentivize providers to deliver value-based care. The ACA's emphasis on quality improvement and cost reduction has been a major catalyst in the shift away from FFS.
Medicare Access and CHIP Reauthorization Act (MACRA) of 2015
One of the most significant pieces of federal legislation pushing the healthcare industry toward value-based payments is the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015. MACRA introduced the Quality Payment Program (QPP), which offers two tracks for providers: the Merit-based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (APMs). MIPS adjusts payments based on performance in categories such as quality, cost, and improvement activities, while APMs offer added incentives for high-quality, cost-effective care. Through these mechanisms, MACRA has shifted a substantial portion of Medicare payments away from FFS and towards value-based models, encouraging providers to focus on patient outcomes rather than service volume.
21st Century Cures Act of 2016
The 21st Century Cures Act further supported the adoption of value-based care by promoting the development of new payment models and encouraging the use of health information technology (HIT) to improve care coordination and outcomes. By expanding opportunities for APM participation and emphasizing the need for interoperability and patient access to electronic health records (EHRs), this legislation has bolstered the move toward value-based payments in both public and private sectors.
Medicare Advantage and Value-Based Payment Models
Medicare Advantage (MA) plans, offered by private insurers as an alternative to traditional Medicare, have also been influenced by the federal government's push towards value-based care. While health plans offering Medicare Advantage are not legally required to adopt value-based payment contracting, they are strongly encouraged to do so by the Centers for Medicare & Medicaid Services (CMS). CMS incentivizes these plans through mechanisms such as the Value-Based Insurance Design (VBID) Model, risk adjustment, and quality bonus payments based on the Star Ratings system. As a result, most Medicare Advantage plans now incorporate some form of value-based contracting, further driving the industry-wide shift away from FFS.
State-Level Initiatives: The Case of Oregon
At the state level, Oregon has been a leader in promoting value-based payment models. The Oregon Value-Based Payment (VBP) Compact, launched in 2020, is a collaborative effort between the Oregon Health Authority (OHA), healthcare providers, payers, and Coordinated Care Organizations (CCOs). The Compact aims to transition 70% of payments to providers under value-based payment arrangements by 2024. It emphasizes health outcomes, cost efficiency, and health equity, reflecting Oregon’s broader commitment to replacing FFS with more sustainable and effective payment models. Although the Compact is not a legislative mandate, it has garnered strong support from state health policymakers and has been integrated into Oregon’s broader healthcare reform efforts.
Oregon House Bill 4069 (HB 4069)
In 2022, Oregon further solidified its commitment to value-based care through the passage of House Bill 4069 (HB 4069). This legislation requires the OHA to develop a strategic plan for adopting value-based payments within state health programs. It mandates regular reporting on the progress of VBP adoption and sets benchmarks for increased use of APMs across the state by 2030. Additionally, HB 4069 mandates that health plans wishing to serve key state groups, including the Oregon Education Benefits Board (OEBB), Public Employee Benefits Board (PEBB), and Oregon Health Science University (OHSU), must participate in value-based payments and sign the Oregon VBP Compact. This requirement aligns state-funded health programs with the broader goals of the Oregon VBP Compact, ensuring that public-sector health plans lead by example in the transition to value-based care.
Adoption of Value-Based Payments in Government Employee Health Plans
Both federal and state governments are increasingly incorporating value-based payment models into their employee Healthplans. The Federal Employee Health Benefits (FEHB) Program, which covers federal employees, has been actively encouraged by the Office of Personnel Management (OPM) to adopt value-based care models, such as ACOs and patient-centered medical homes. While there is no blanket mandate requiring all FEHB plans to be fully value-based, OPM promotes a gradual shift towards these models, aligning with broader federal healthcare goals.
Similarly, many state governments, including Oregon, are progressively adopting value-based payment models in their contracts with Healthplans that cover state employees. These initiatives often align with state healthcare reforms and support the broader transition from FFS to value-based care.
The Timeline for Replacing Fee-for-Service with Value-Based Payments
The complete replacement of fee-for-service with value-based payments will not occur overnight. However, the momentum behind this shift is strong and continues to build. Several key factors influence the pace of this transition:
Short-Term (Next 3-5 Years): Significant adoption in public programs (Medicare/Medicaid) is expected, with increasing pressure on private payers to adopt value-based models. Early adopters in psychotherapy and counseling will begin integrating VBP into their practices, particularly in states with strong legislative pushes like Oregon.
Mid-Term (5-10 Years): Continued expansion of VBP models is anticipated, with many healthcare providers, including psychotherapists and counselors, transitioning away from FFS as the default model. Widespread implementation among major health plans, especially those involved in public contracts, will likely occur.
Long-Term (Beyond 10 Years): Fee-for-service will become the rare exception rather than the rule, with most psychotherapy and counseling practices operating under value-based contracts, driven by both regulatory requirements and market demands.
Conclusion
The shift from fee-for-service to value-based payments is being driven by a combination of federal and state legislative initiatives, regulatory encouragement, and strategic policymaking. Federal legislation such as MACRA, the ACA, and the 21st Century Cures Act has laid the foundation for this transition by incentivizing providers and payers to adopt alternative payment models that prioritize quality and cost-effectiveness over service volume. At the state level, initiatives like the Oregon VBP Compact and HB 4069 demonstrate a strong commitment to value-based care, with Oregon serving as a model for other states. While the transition is ongoing and varies by region and payer, the evidence clearly shows that the era of fee-for-service is gradually being replaced by value-based payment models that aim to deliver better health outcomes at a lower cost. The urgency for providers, including those in psychotherapy and counseling, to adapt to this shift cannot be overstated, as the long-term success of their practices may depend on embracing these changes.
Discussion Outline
The Transition from Fee-for-Service to Value-Based Payments
1. Introduction
Overview of Fee-for-Service (FFS) Model
Definition and historical context.
How FFS incentivizes volume over quality.
Emergence of Value-Based Payment (VBP) Models
Shift towards quality and outcome-based healthcare.
Importance of efficiency and cost-effectiveness.
2. Federal Legislative Drivers of Change
Medicare Access and CHIP Reauthorization Act (MACRA) of 2015
Introduction of the Quality Payment Program (QPP).
Two tracks: Merit-based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (APMs).
Affordable Care Act (ACA) of 2010
Establishment of the Center for Medicare & Medicaid Innovation (CMMI).
Promotion of bundled payments, ACOs, and patient-centered medical homes.
21st Century Cures Act of 2016
Encouragement of interoperability and electronic health records (EHRs).
Expansion of opportunities for APM participation.
3. State-Level Initiatives: Oregon as a Case Study
Oregon Value-Based Payment (VBP) Compact
Goals of the Compact: Transitioning 70% of payments to VBP by 2024.
Collaborative efforts among the Oregon Health Authority (OHA), healthcare providers, and payers.
Oregon House Bill 4069 (HB 4069)
Strategic plan for adopting VBP within state health programs.
Mandate for health plans serving OEBB, PEBB, and OHSU to participate in VBP and sign the Compact.
4. Impact on Psychotherapy and Counseling
Adoption of VBP in Mental Health Services
Growing interest among commercial purchasers in VBP contracts.
Alignment with broader healthcare trends focusing on outcomes and cost-efficiency.
Benefits for Providers and Patients
Improved quality of care and patient outcomes.
Potential challenges for providers in adapting to new models.
5. The Timeline for Replacing FFS with VBP
Short-Term Outlook (Next 3-5 Years)
Significant adoption in public programs (Medicare/Medicaid).
Early adoption by psychotherapy and counseling providers, especially in progressive states like Oregon.
Mid-Term Outlook (5-10 Years)
Continued expansion and widespread implementation among major health plans.
FFS becomes less common as VBP models dominate.
Long-Term Outlook (Beyond 10 Years)
FFS may become the exception, with most practices operating under VBP.
Long-term adaptation necessary for success in the evolving healthcare landscape.
Conclusion
Recap of the Shift from FFS to VBP
Legislative and market forces driving the transition.
Specific impacts on psychotherapy and counseling.
The Urgency of Adaptation
Importance for providers to prepare for and embrace VBP models.
Anticipating future changes and aligning with industry trends for sustainability and growth.
DISCLAIMER and PURPOSE: This discussion document is intended for training, educational, and or research purposes only. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge.
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