The Limits of Shared Savings: Why Value-Based Care Needs a Basic Shift
Shared savings programs have become a popular stepping stone for healthcare providers venturing into value-based care. However, a growing consensus suggests they represent a transitional strategy, not a sustainable long-term payment model. While effective at initiating a focus on value, shared savings alone lack the structural power to truly transform how health systems are financed and operated.
Patrick Runnels, Chief Medical Officer of University Hospitals in Cleveland, articulated this sentiment during a recent interview at Reuters’ Total Health conference. He emphasized that while University Hospitals generated approximately $50 million in shared savings last year – a critically importent sum - it represented less than 5% of the system’s total revenue. “Shared savings contracts are a really great mechanism for getting people to start to pay attention to value,” Runnels stated, “but their structure is, by definition, not overall how we’re going to get paid for our care.” Even a ample increase in shared savings – doubling or tripling the current amount – wouldn’t fundamentally alter University hospitals’ revenue streams.
The Core Challenge: Misaligned Economic Incentives
The fundamental issue lies in the economics of value-based care. Achieving genuine value frequently enough necessitates sacrificing the higher margins associated with traditional fee-for-service models. This creates a significant hurdle for health systems hesitant to jeopardize their financial stability. Runnels explained that most systems are understandably “reluctant to shift their economic engine to a value-based payment mechanism that is actually going to make them less money and be less sustainable.”
University hospitals is actively addressing this challenge by collaborating with a healthcare economist to pinpoint the “inflection point” - the moment at which reducing low-value care becomes financially favorable under existing incentives. This analysis is crucial for understanding the economic trade-offs inherent in transitioning to value-based care.
Beyond Utilization: The Importance of Cost Structure
Simply reducing utilization isn’t enough. Lower patient volume must be coupled with a corresponding reduction in costs to realize true savings.Runnels illustrated this point with a compelling example: University Hospitals successfully increased colorectal cancer screening rates from 40% to 75%, resulting in a 50% decrease in related surgeries. However, the system still bears the same fixed costs associated with surgical infrastructure, even with reduced surgical volume.
“Many hospitals are not built to lower their internal cost structures quickly,” Runnels noted. This inflexibility poses a major obstacle to widespread adoption of value-based care. Health systems require significant investment and operational restructuring to adapt to a model that prioritizes efficiency and cost-effectiveness.
The Role of CMS and payment Reform
Runnels believes the Centers for Medicare & Medicaid Services (CMS) holds a key to unlocking the full potential of value-based care. He doesn’t advocate for the complete elimination of fee-for-service, but rather a reshaping of payment incentives to reward high-value care and penalize low-value services.
Specific recommendations include:
* Increased Shared Savings Percentages: Boosting the financial rewards associated with shared savings programs.
* Fee-for-service Rate Adjustments: modifying fee-for-service rates to favor services that demonstrably improve patient outcomes and reduce overall costs.
* Temporary Incentives for Avoiding Needless Procedures: Offering short-term financial bonuses for providers who proactively avoid unnecessary tests, treatments, and hospitalizations.
These adjustments would create a more level playing field, encouraging providers to prioritize value without facing undue financial risk.
Looking Ahead: From Pilot to Scalable Model
Currently,shared savings programs function primarily as valuable pilots,demonstrating the potential of value-based care. However, without fundamental changes to the underlying economic incentives, they will remain limited in their scalability.
To truly move the needle, health systems need to embrace more substantial risk-sharing arrangements, such as capitated contracts, or witness a significant expansion of shared savings incentives. The future of healthcare hinges on a payment system that genuinely aligns financial rewards with the delivery of high-quality, cost-effective care. Until that shift occurs, shared savings will continue to serve as a useful starting point, but not a definitive solution.
Evergreen section: The Evolution of Value-Based Care
The journey towards value-based care is not new. It builds upon decades of research and experimentation aimed at addressing the inherent inefficiencies of fee-for-service. Early iterations focused on utilization review and managed care, but these often faced criticism for restricting access to care. The current emphasis on shared savings and accountable care organizations (ACOs) represents a more collaborative approach, empowering providers to take ownership of both cost
