Can We Control Costs without Value-Based Care?

Like many of my colleagues in the American healthcare system, I have been alternatively hopeful and skeptical about the potential value from pursuing more value-based care initiatives in relation to our current fee-for-service model. Accountable Care Organizations (ACOs) will probably save no more than five percent of total healthcare costs. Eight years into Blue Cross Blue Shield’s Alternative Quality Contract with two-sided risk in Massachusetts showed savings ranging from 2.3% to 11.9% over three years. Bundled payments for joint procedures may save a few percent (primarily from reduced post-acute care utilization). Some have suggested Centers of Excellence to both validate the need for a procedure and then perform the procedure with higher quality than other healthcare facilities. Although this approach may save some dollars, it appears to be limited to specific high-cost procedures with high variability in cost and utilization. Of the most recent payment innovations, reference pricing may be the most promising to slow down rising healthcare costs for procedures treated as commodities (e.g., colonoscopies).

What have other countries done to control healthcare costs? Gusmano et al. provide some insights into this question. France, Germany and Japan, three of the most populous high-income countries that combine universal health insurance with fee-for-service physician payment, do not implement value-based initiatives. These three countries use services at about the same rate as we do in America, but at a much lower price. These countries appear to limit competition to providers while assigning citizens to a specific private insurer. The three countries have different degrees of government involvement when setting fee-for-service rates. In all three countries, physician salaries are markedly lower. For Japan, most of the specialists are affiliated with academic centers, reducing their economic advocacy. Gusmano et al. suggest that “Medicare for All” or “single-payer” in America must eventually lead to how we as a country set prices for medical services. Setting prices will make broader healthcare coverage more feasible. American negotiations between payers and providers are not transparent, allowing providers to have greater control over their own prices. Simplified pricing systems can also reduce administrative burden and subsequently reduce overall healthcare costs.

Americans already rely on Medicare to determine what prices are “reasonable.” Medicaid and commercial payers often set their own rates in relation to Medicare’s reimbursement rates. Oberlander and White warned that setting Medicare prices without respect to private payer rates shift costs to commercial members. Uwe Reinhardt echoed this sentiment in a 2011 Health Affairs opinion paper. Gusmano et al. described how other countries bring health insurers together to set common payment rules. Oberlander and White suggest modifying prices as demand for a service changes rapidly. The payer coordination would allow private payers and government insurance to coexist without undue risk of cost-shifting (e.g., rising prices for commercial services, delaying procedures until after members qualify for government coverage). This would be several steps further than the current administration’s price transparency efforts.

Challenges with an All-Payer Rate Setting Model

Maryland tested a hospital-focused all-payer model between 2014 and 2018. The state reduced the growth of hospital expenditures by 4.1% ($796 million), resulting in an overall 2.8% reduction in growth of total expenditures among Medicare beneficiaries in the state. Additional savings were noted with lower post-acute service utilization (about $179 million). The state saved about $279 million in emergency department visits, but there was no decrease in inpatient costs for its Medicare population. The work has enabled the state to test a larger total cost of care model including hospitals, affiliated providers (hospitalists, community-based providers and post-acute providers) and primary care providers.

Maryland’s all-payer hospital model is probably the closest experiment to coordinated rate-setting among payers that we are likely to see in America. Although the savings are more than some models (e.g., Bundled Payments for Care Improvement, Comprehensive Primary Care), the state did not appear to save markedly more than other alternative payment models (e.g., accountable care organizations [ACO, one-three percent], prior authorization for non-emergent emergency transport [four percent]). Vermont is testing a Medicare ACO initiative as part of its all-payer ACO model scheduled to conclude in late 2022.

The limited experience with coordinated rate-setting in America does not seem as promising as what other countries have observed. Here in America, both payers and providers would have to redefine how they define value to the marketplace. Payers would have to move away from narrow networks. Providers would have to stop balance billing. Although physician salaries are not directly negotiated by negotiating fee-for-service rates, setting a single price for each service will almost certainly calibrate physician salaries downward. Although nearly all hospital and physician charges would be included, patients would still be exposed to high medication prices (e.g., insulin).


Current and proposed value-based care initiatives do not appear to generate meaningful (i.e., more than 10%) savings. When reviewing what other countries have done to control healthcare costs, setting prices for procedures and services seems to be a more fruitful exercise. Although this price-setting may be an implicit feature of “Medicare-for-All,” “Medicare-for-More” or a “public option,” explicitly setting prices in a fee-for-service environment across all payers within a geographic region may be more feasible in a country that expects private companies to help provide healthcare coverage. The price setting negotiations in other countries suggest that our efforts to set prices would need to be more transparent with input from more groups than the deliberations of the American Medical Association’s 31-member Relative Value Scale [RVS] Update Committee. Without a process to set healthcare prices focused on cost control, Americans may be subject to ever-rising healthcare costs, both in absolute terms (percent of gross domestic product) and relative terms when compared to other countries.