The Fallacy of Better, Cheaper, Faster: How Health Plans Will Shift Risk to Providers

A Discussion Paper

The health care industry is driven by the promise of delivering better, cheaper, and faster services. However, in practice, this principle often fails due to the structural imbalance in value-based contracting. Health plans encourage providers to adopt high-risk contracts under the pretense of shared success, while transferring significant operational and financial burdens onto them. This dynamic reveals a calculated business strategy that prioritizes cost reduction and risk displacement, rather than genuine improvements in care quality.

The fallacy of better, cheaper, and faster care in value-based contracting conceals a calculated business model that transfers risks from health plans to providers while retaining profits. Policymakers, providers, and stakeholders must push for transparency, fair contract terms, and regulatory oversight to ensure health plans share financial risks equitably and invest in improving care quality rather than maximizing profits at providers' expense.

False Promises of Improved Services

Health plans promote the narrative that value-based contracts will result in better, cheaper, and faster care. This is predicated on the assumption that providers can deliver the same level of care at a lower cost by being more efficient. However, this overlooks the complexities of patient care, particularly in mental and behavioral health. Diagnoses do not accurately predict treatment needs or care duration, yet health plans impose rigid service caps or utilization controls. This standardization disregards individual patient differences and leads to inadequate treatment, worsening long-term health outcomes.

Low Competition, High Demand: Provider Leverage Erosion

The demand for health services, especially in mental health, far exceeds provider availability, creating a provider-driven market. Yet, health plans exploit this imbalance by using their market dominance to pressure providers into accepting contracts with reduced payment rates and higher administrative responsibilities. Competition for provider participation is low because demand guarantees continuous patient flow, reducing providers’ negotiating power. Health plans secure networks by limiting service duration and reimbursing providers below sustainable levels.

Forced Group Formation and Wage Suppression

To meet contracting requirements, health plans often encourage providers to form larger practice groups, promising economies of scale and shared resources. However, these groups are frequently underfunded, and provider wages are suppressed as cost-saving measures. The supposed "shared savings" are rarely reinvested into improving clinical services. Instead, health plans funnel profits toward operational expansions, executive bonuses, or shareholder dividends.

Shifting Financial Risk to Providers

Value-based contracts often include risk-sharing models where providers are responsible for achieving cost and care benchmarks set by health plans. Providers must invest heavily in technology, staff, and infrastructure to meet these targets, assuming both operational and financial risks. If targets are missed due to factors outside their control—such as social determinants of health or unpredictable patient needs—providers absorb financial losses. Health plans, however, remain insulated from these risks, continuing to profit from fixed premiums.

Subsidizing Innovation Through Provider Resources

The health plan business model increasingly relies on providers subsidizing innovation. Providers are expected to adopt new technologies, improve data collection, and implement evidence-based practices—all at their own expense. Health plans benefit from these innovations through improved service metrics and reduced claims costs, while providers rarely see proportional returns. This exploitative arrangement allows health plans to present themselves as champions of innovation without assuming any direct investment risks.

Operational Description of Risk Displacement

The operational strategy of health plans is rooted in creating a facade of collaborative care improvement while shifting most of the financial and operational risks onto providers. This process includes:

Contractual Ambiguity

Health plans frequently draft contracts with vague definitions of "quality benchmarks" and "performance metrics." These terms are often undefined or subject to unilateral interpretation, enabling health plans to change evaluation criteria mid-contract, making compliance nearly impossible for providers.

Payment Delays and Denials

Delayed payments or unjustified denials are common tactics used by health plans to stretch financial liabilities. Providers often face lengthy appeals processes that drain administrative resources, while the health plan benefits from holding funds longer.

Administrative Overload

Health plans require extensive documentation, performance reports, and compliance audits, shifting administrative burdens onto providers without offering additional compensation. This overload forces providers to allocate time and staff away from patient care.

Data Exploitation

Providers must submit detailed patient data as part of reporting requirements. Health plans then use this data to adjust reimbursement formulas, often reducing future payment rates or imposing stricter cost-control measures without compensating providers for the administrative burden.

Monopolistic Practices

Health plans exploit their dominant market position by enforcing unfavorable contract terms. They use exclusive contracts, network restrictions, and competitive exclusion clauses, limiting providers' options and reducing their ability to negotiate fair terms.

Risk Transfer Through Unrealistic Targets

Providers are held accountable for meeting targets influenced by social determinants of health, patient non-compliance, and other factors beyond their control. Failure to meet these metrics leads to financial penalties, while health plans remain protected from similar risks.

One-Sided Amendments

Contracts often include provisions allowing health plans to amend key terms unilaterally, leaving providers with limited recourse. Providers must either accept the changes or risk contract termination, jeopardizing their practices.

This operational model ensures that health plans maximize profits while keeping providers perpetually at risk, undermining the stated goals of value-based contracting. Providers bear the financial burden of care delivery while health plans extract profits through strategic cost-shifting, risk displacement, and administrative manipulation.

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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