“VBP [Value-Based Payment] was ushered in by the Affordable Care Act (ACA), but it is best understood as a rebranding of the larger managed care paradigm that took hold during the 1980s. Managed care delegates total-cost containment to insurance companies and large provider groups, tasking these private-sector “risk-bearing entities” to restrict spending. Spearheaded by health maintenance organizations, the rise of managed care promoted now-familiar utilization management tactics, such as prior authorization and narrow provider networks. It also promoted capitation or risk-based payments—what we call VBP today. Unlike FFS [fee-for-service], insurance companies would incentivize providers to manage utilization by making them accountable for total-cost management. Although commercial health maintenance organizations faced stiff opposition in the 1990s, federal policymakers responded, rather curiously, by building managed care into government programs, notably with the George W. Bush administration’s 2003 investments in Medicare Advantage (MA). [..]
Yet this paradigm is rife with conceptual and empirical flaws. For one, saddling clinicians with insurance functions does not promote prevention and reduce costs. Patients frequently churn through insurers and providers, and clinicians are highly constrained in how much they can control the incidence of chronic conditions and utilization patterns. More importantly, VBP’s emphasis on utilization management overlooks that US residents do not, by and large, overuse health care. Our cost problem is driven primarily by unregulated prices in the commercial market, mispriced technology, and private-sector administrative bloat.
In Medicare, where prices are already administered, much of what gets construed as overutilization is actually a reflection of poor pricing policy and coverage decisions, not perversely incentivized clinicians. Insofar as Medicare has experienced periods of volume growth, it largely represents substitution of newer and more intensive technology, such as spinal fusion and transcatheter aortic valve replacement. Much of this is to be celebrated: one would not want the health care that was delivered in the 1950s. However, where these technologies have little value, the solution is not to delegate the rationing function to the clinician, but, like all advanced nations, to properly price the value of the new technology.
Given its misplaced emphasis on correcting perverse clinician incentives, it is perhaps unsurprising that VBP is failing to deliver on its primary objective to reduce costs. A Congressional Budget Office review of 49 VBP models implemented by CMMI found that the cost of operating the models exceeded Medicare spending reductions by $5.4 billion. Medicare’s largest accountable care organization, the Medicare Shared Savings Program, shows mixed results on cost and quality. Some studies demonstrate net savings, but others show losses to Medicare, particularly after accounting for gaming and selection. Further, VBP risk contracting is most prevalent in MA, led by corporate-owned and private equity–backed primary care chains. Yet overspending in MA—which has now reached $83 billion per year—is largely driven by a strategy in which these VBP operators specialize: risk coding.
VBP, rather than lowering costs by empowering clinicians, appears instead to be adding another layer of intermediaries into US health care. Indeed, clinicians are not well situated to act as “baby insurers.” VBP arrangements demand careful clinician selection, beneficiary attribution, risk coding, data transformation, and a willingness to bear total-cost risk—factors that drive small practices toward hospital systems, private equity firms, for-profit “conveners,” and insurance conglomerates. More broadly, the gravitational pull of VBP and managed care has misdirected and often inhibited urgent policy priorities. Erecting new VBP models in traditional Medicare has distracted policymakers from addressing overpayments in MA, critical problems related to physician supply and resourcing, and inadequate financial protections for beneficiaries in traditional Medicare. [..]
To reduce unnecessary spending, Medicare policy should instead focus on prices and coverage of new technology and administrative costs. Congress should explicitly consider the cost-effectiveness of new drugs and procedures when pricing them. This would expand the Centers for Medicare and Medicaid Services’ (CMS) existing practice of requiring clinical criteria for certain expensive procedures. Congress should also expand CMS’ authority to negotiate prices for more prescription drugs. Other policies would eliminate site-differential payments and subsidies to MA plans.
To improve FFS payment in traditional Medicare, Congress should create an alternative to the Relative Value Scale Update Committee, which effectively delegates rate setting to a trade group dominated by specialists. An alternative committee would reform the Medicare Physician Fee Schedule to more accurately measure the physician work and practice expense components of clinician payment using higher-quality data sources. Congress should modify the fee schedule to account for the costs and benefits of care. For instance, a value modifier could adjust clinician payment on the basis of cost-effectiveness information, calibrated initially from sources such as the UK’s National Institute for Health and Clinical Excellence and the Tufts Cost-Effectiveness Analysis Registry. If policymakers remain concerned about incentives in FFS to overdeliver care, they should pursue basic fraud enforcement with audits of services experiencing unwarranted increases in volume or intensity. They should also scrutinize ownership and governance of providers (eg, if evidence shows that private equity operators drive excessive increases in utilization).
This agenda would couple better FFS payment with labor and capital policy to promote clinician-led care insulated from corporate consolidation. Policies would include more deliberate efforts to train and allocate the types of clinicians that society needs, particularly in primary care. Finally, building a better Medicare means making it affordable for patients—implementing an out-of-pocket cap in traditional Medicare and expanding benefits to include dental, vision, and hearing aids. In 2025, a $5000 out-of-pocket cap on Parts A and B for traditional Medicare beneficiaries would cost approximately $16 billion, while expanded dental, vision, and hearing coverage would cost approximately $40 billion. The elimination of subsidies to MA and expanded authority for drug price negotiation alone could pay for these benefit enhancements.”
Full editorial, H Rooke-Ley and AM Ryan, JAMA 2025.2.20