Value-based health care: the role of payors

by Ropes & Gray LLP
Bill Knowlton, Ropes & Gray health care partner, examines the critically important role of payors in value-based health care programs.


Payors are critically important to value-based health care because they're driving the economics of health insurance. And payors are broadly defined as commercial payors, Medicare, Medicaid – all of them are trying to bend the cost curve. Even while health care reform tries to increase coverage, none of the reforms yet have figured out how to bend the cost See more +

Bill Knowlton, Ropes & Gray health care partner, examines the critically important role of payors in value-based health care programs.


Payors are critically important to value-based health care because they're driving the economics of health insurance. And payors are broadly defined as commercial payors, Medicare, Medicaid – all of them are trying to bend the cost curve. Even while health care reform tries to increase coverage, none of the reforms yet have figured out how to bend the cost curve and reduce medical inflation, so payors are really driving that part of value-based health care. In fact, providers who used to operate under fee-for-service all the time would not have the incentive to move to value-based health care unless the payors were driving that – they control the dollars, they control the economics, whether it's state, federal, or commercial.

Employers are driving commercial payors to reduce costs for them and their employees, so that is the big driver in the commercial market. Employees are paying higher copayments and larger deductibles, and even employees are driven to push providers to find cost savings so they have more of an interest in finding cost savings themselves. The key differences between commercial and government value-based health care programs is that the government programs are being driven by the Affordable Care Act. The Affordable Care Act encouraged the development of ACOs and episode-based management programs, and there are very specific requirements for meeting those programs. Commercial payors are plowing ahead even without any inducement from the government other than to save costs.

Payors are pushing downside risk sharing by encouraging providers to collaborate amongst different specialty care services, hospital services and physician services. By doing population-based payment systems, by doing episode-based payment systems, they're encouraging providers to collaborate to find cost savings as a group – that is the only way it truly will work. If hospitals and physicians aren't working together or hospitals and specialty providers, whether they be nursing homes or community providers, aren't working together, then they're not managing the care of the patient as well as they could and therefore able to find true cost savings.

The key regulatory issues that a payor must examine when looking at a value-based health care program are state licensure laws, state risk-bearing organization laws, federal Anti-Kickback laws, and privacy laws of the state and federal HIPAA laws. There are certain exemptions under federal Anti-Kickback laws – for others, there are not. So, we would help our clients navigate which federal Anti-Kickback laws applied or which waivers applied in that instance.

We help our clients navigate value-based health care by helping them understand the business models that they can pursue in value-based health care and also understanding the regulatory risk as they set up their business models. Even without health care reform, cost pressures will continue, and Medicaid, Medicare and commercial programs will need to respond. They will primarily do so through value-based health care programs, so that will continue to exist and grow in this environment.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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