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Ultimate Guide to Value Based Reimbursement

03.19.2019 | Ben Phillips, CFA


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The EventShares Policy Playbook series is a group of concise, client-friendly research reports highlighting key policy investment themes. Each Playbook covers background of the policy, U.S. industries and companies impacted, and the emerging opportunity. 


The Value Based Reimbursement Playbook provides an in-depth overview of the policy, the size of the market opportunity, the investment case and timing. Download the full PDF to read the entire report.


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Policy Overview: What's Happening?


There are two government sponsored health insurance programs in the U.S. -- Medicare and Medicaid. In the past, hospitals were paid on a per diagnosis basis, also known as “Fee for Service”. This meant a hospital was paid based on volume with minimal consideration as to the patient’s outcome. With skyrocketing healthcare costs, healthcare reimbursement is changing to a “Value Based” system. The new reimbursement programs aim to reduce health expenses and increase quality by: (1) ending payments based solely on volume and (2) rewarding top-performing hospitals that produce better outcomes for patients.



The Numbers: Size of the Opportunity


  • $1.3 Trillion - Total Medicare & Medicaid benefits paid in 2017
  • 17.9% of GDP - National healthcare spending as a percentage of GDP in 2017 (vs. 5% of GDP in 1960)
  • +5.5% Growth - Projected growth rate of national healthcare spending per year from 2018-2027



Our Take: The Investment Case


The move to value-based reimbursement is a fundamental change to the healthcare industry’s philosophy. Instead of focusing on how many patients are moved through the system, providers must now focus on ensuring each patient receives the highest quality of care available. This means previously stable revenues will now be linked to new factors related to hospital performance. The new system introduces a risk to the healthcare business model, especially for providers who are unable to successfully transition their operations.

A focus on different reimbursement factors will require new tracking systems to capture data and new technologies to ensure the quality of care. Certain data points are already being recorded, such as readmission rates, hospital acquired infections, and patient satisfaction. Under the new reimbursement system, providers will need to focus on processes to ensure a high quality of care. For example, providers can focus on automating medication dispensing to prevent drug overdoses and identifying adverse drug reactions when a patient is prescribed two different drugs for separate illnesses. Providers can also implement an internal communications network to decrease response time or an alert system for when a patient at risk for falling, lowers his or her bedrail. Preventative care will be an even bigger focus. For example, hospitals will likely continue to implement electronic health record (EHR) systems. In coordination with their EHR systems, providers will likely need to implement controls to identify a patient as "at risk" before a patient experiences a health issue (e.g. high number of medications with high doctor count).

Healthcare providers will rely on consulting firms to understand the new payment system and implement new processes and technologies. This represents an opportunity for companies with health consulting business lines to grow their revenues. 



Timing: Significant Actions Taken & Next Steps


The Centers for Medicare & Medicaid Services (CMS) defines value-based care as programs that “reward health care providers with incentive payments for the quality of care they give to people with Medicare.” CMS first began emphasizing value-based healthcare during 2008. The agency has implemented several programs since then, which establish reporting requirements and associated payment levels. For example, the agency reward providers for using electronic prescriptions and EHR technology. The most significant legislative action is the Afforable Care Act, which empahsizes quality of care and authorized multiple value-based programs to reward providers based on quality rather than quantity.


Despite early stages of adoption, value-based reimbursement is the definitive future of healthcare in our view. While CMS is currently working to implement more value-based systems, it is not yet clear what they will entail or when they will be created. Either way, so long as safer and higher quality healthcare is valued, value-based healthcare will continue to be developed in the coming years.


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