Blue Cross CEO Admits Value-Based Payments Really Fee-for-Service

This video provides an in-depth exploration of the discrepancy between widely promoted "value-based payment" models in healthcare and the underlying reality of predominantly fee-for-service compensation. Dr. Eric Bricker, the speaker, presents compelling evidence, which he refers to as a "smoking gun," to expose how value-based contracts are often misrepresented. He leverages a candid admission from Pam Kehaly, CEO of Blue Cross Blue Shield of Arizona, made during a panel discussion at the 2019 HLTH Conference, to substantiate his claims. The core argument is that despite industry rhetoric, the economic incentives for hospitals make a true shift to value-based care extremely difficult, if not irrational, for providers.

The presentation details Kehaly's admission that while 50% of Blue Cross Blue Shield of Arizona's hospital contracts are labeled as "value-based," only a mere 10% of the actual payments within those contracts are genuinely tied to value. This means that 90% of the money exchanged in these supposedly value-based agreements remains fee-for-service. Dr. Bricker extrapolates this, noting that if only half of the contracts have a small fraction of value-based payments, then the vast majority of all payments across the system are still firmly rooted in the fee-for-service model. He emphasizes that this isn't due to a lack of desire from payers like Blue Cross, who would ideally prefer 100% value-based payments, but rather due to the strong resistance from hospitals.

Dr. Bricker explains the fundamental economic rationale behind hospitals' reluctance to embrace value-based payments. Hospitals, he argues, face significant financial losses from Medicare, Medicaid, and self-pay patients. To compensate for this hemorrhaging of funds, they are incentivized to maximize revenue from commercial insurance contracts. This means performing as many services as possible for commercially insured patients under a fee-for-service model. Transitioning to a 100% value-based payment system, in Dr. Bricker's opinion, would likely lead to many hospitals going out of business. He urges listeners to approach any claims of value-based payments, Accountable Care Organizations (ACOs), or "fee-for-value" with extreme skepticism, stressing the importance of analyzing underlying incentives rather than accepting surface-level terminology.

Key Takeaways:

• The Illusion of Value-Based Payments: Despite widespread industry promotion, "value-based payment" contracts are largely a misnomer, with the vast majority of payments still operating on a fee-for-service basis.
• Direct Industry Admission: Pam Kehaly, CEO of Blue Cross Blue Shield of Arizona, publicly admitted that only 10% of payments within their "value-based" hospital contracts are actually value-based, with 90% remaining fee-for-service.
• Hospital Economic Incentives: Hospitals are economically disincentivized to adopt true value-based payments because they rely on fee-for-service revenue from commercially insured patients to offset substantial losses incurred from Medicare, Medicaid, and self-pay patients.
• Payer Limitations: Even the largest insurance carriers, such as the Blue Cross Blue Shield Association, possess limited leverage to push hospitals towards fully value-based models due to the hospitals' strong financial imperative to maintain fee-for-service revenue streams.
• Skepticism Towards Jargon: Audiences, especially professionals in healthcare finance and related industries, should maintain a high degree of skepticism when encountering terms like "value-based payments," "ACOs," or "fee-for-value," and instead focus on the actual payment structures.
• Risk of Financial Instability for Providers: A complete shift to 100% value-based payments, under current economic structures, could lead to widespread financial distress or even bankruptcy for many hospitals.
• Impact on Pharmaceutical and Medical Device Commercial Strategies: Companies in the pharma and medical device sectors must understand these fundamental financial realities of healthcare providers. This knowledge is crucial for developing effective commercial operations, market access strategies, and any initiatives promoting value-based care for their products.
• Value of Unfiltered Industry Insights: Conferences and panel discussions can occasionally provide invaluable, candid admissions from industry leaders that reveal truths often obscured by public relations and marketing.
• Focus on Underlying Incentives: When evaluating healthcare payment models or proposed reforms, it is critical to analyze the economic incentives of all stakeholders, particularly providers, as these incentives dictate behavior more than stated goals.
• "Value-Afterthought" Reality: The video suggests that "value" in these contracts is often an afterthought or a minor component, rather than the central driver of payment.

Tools/Resources Mentioned:

• HLTH Conference: A healthcare innovation conference where the panel discussion featuring the Blue Cross CEO took place. The speaker notes that many videos from the sessions are available on YouTube, offering valuable insights.

Key Concepts:

• Value-Based Payments: A healthcare payment model where providers are paid based on patient health outcomes, quality of care, and efficiency, rather than the volume of services.
• Fee-for-Service (FFS): A traditional payment model where providers are paid for each service they provide, such as office visits, tests, or procedures.
• Accountable Care Organizations (ACOs): Groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated high-quality care to their Medicare patients. The goal is to ensure that patients get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending healthcare dollars more wisely, the ACO shares in the savings it achieves.
• Fee-for-Value: A term often used interchangeably with value-based payments, implying a shift from volume to value in healthcare compensation.

Examples/Case Studies:

• Blue Cross Blue Shield of Arizona CEO Pam Kehaly's Admission: During a 2019 HLTH Conference panel, she stated that while 50% of their hospital contracts are "value-based," only 10% of the payments within those contracts are actually value-based, with the remaining 90% being fee-for-service. This serves as the primary example and "smoking gun" evidence for the video's central argument.