Patience

I recently read a LinkedIn post about how value-based care (VBC), is a false promise, it will never be profitable, and private equity (PE) should not invest in VBC. I disagree with the first two assertions and, generally, agree with the third.

I didn’t respond to all the commenters who agreed with how horrible VBC is, pointing to all the publicly traded VBC-companies and enablers that have yet to show a profit, slamming VBC as impossible to get into the green in revenue. I didn’t see the point. It would be like trying to describe the benefits of a cell phone to someone from 1920. Fantasy in their reality.

Many people fail to see VBC as a different paradigm of healthcare delivery and revenue compared to the conventional fee-for-service (FFS) style that has dominated the US for the past century. VBC workflows and processes can support and improve FFS, but the converse is less true. An unwavering approach to FFS gets in the way of the shift to VBC. Add to this problem that many organizations think they can simply start taking on risk or premium dollars and then they’re “in VBC.”

Operationally, it just doesn’t work.

Likewise, when you try to plug VBC into a conventional investment pattern, such as PE or venture capital (VC) investments, the difference in conceptual models needs to be accounted for. Often, though, it is not, and the results reflect that.

For the sake of clarity, there are numerous practices and groups out there working in VBC where their VBC revenue eclipses their FFS revenue. They are profitable in VBC, and some are supported by PE. Of course, I only know of one successful organization that is currently traded publicly (a common goal of PE). There are a couple of reasons for that, in my opinion. 

PE firms usually follow a standard pattern in their investments. Buy, build, or invest in a company, bump up the assets on the balance sheet, and then go public or have some type of capital event (purchase, etc.) within 2-4 years. The balance sheet is usually massaged by cuts in expenses.

Producing the same widgets for less money is a primary driver in PE investing. When the entity then goes public, it’s a grand payday for all of those with equity. The widgets, meanwhile, are about the same as they were prior to investment.

Contrast that with starting from scratch with a practice or group of practices to transition them into VBC. These docs are used to being cogs in the machine and producing widgets – billable patient encounters. They may not like it, but they understand it. Getting them out of that mindset is imperative to succeed in VBC.

VBC looks to flip the narrative so that docs and patients are people, focused on doing things with and for patients that improve outcomes. Their relationship helps uncover barriers to optimal health and well-being. An improved longitudinal health journey, not billable transactions, is the eventual goal of VBC. The accountability in VBC is not for RVU production but for improved patient outcomes leading to lower medical expenses and increased opportunity at shared savings or risk revenue.

If the widgets (patients) look the same after the PE investment, true VBC and its associated revenue will not be realized.

This change in mentality, outlook, and a focus on what’s important does not happen at the flip of a switch. It takes time.

It takes a couple of years to align physician and staff compensation models and workflows with the priorities of VBC. If done suddenly, everyone freaks out and some docs leave. If never done, the work of VBC is left misaligned, unincentivized, and undone. When the intersection points of VBC and FFS are leveraged, though, (see my previous writings on these intersections) a steady, sustainable transition is possible over 2-3 years.

If you’ve only been doing FFS medicine when a PE group buys your practice to switch it to VBC, wholesale cutting of non-reimbursable expenses while changing revenue sources will not help you make the transition. There needs to be investment in practice infrastructure, processes, and workflow to bolster the work of VBC. The area of most focus in recent years has been mostly in risk coding. This is also where PE and VC often stop spending their money.

Unfortunately, they then leave identification of patient risks, risk stratification, patient communication, meaningful use of data, and construction of platforms to support patients unfunded. All their effort is focused on front-end revenue with none on decreasing medical expenses. Decreasing expenses is where the sustainable revenue is made in VBC. It should therefore be no surprise when they aren’t profitable in years 2 or 3.

In that model, the widgets (patients) emerge without positive effect on their cost or quality. In other words, no value is created through improved patient outcomes at more appropriate cost.

And forget about experience. People know when they’re being treated like widgets and respond accordingly.

From a business model perspective, VBC works best when the premium dollars set aside for patient care are mostly in the hands of those providing the care. But you can’t go at risk for premium (step E in VBC) if you can’t or don’t successfully lay the groundwork in steps A to C. (Step D would be shared savings.)

Many of the PE and VC firms that have been successful in the primary care VBC space have often purchased or invested in practices that were already more mature in VBC. For them, trimming fat and scaling efficiencies based on data can make sense - make the docs even better at what they’re already doing then reap the profit from their work.

Overall, though, if they don’t intend to change their script on investment strategy, I think PE and VC should stay out of primary care VBC operations. They generally don’t have the patience to do it right, they don’t invest the time and resources into decreasing medical expense, and they tend to forget about the patients and docs in the equation.

When that happens, we’re back to nobody-wins-medicine.