From Cano Health (CANO) to One Medical (ONEM), companies exposed to value-based care (VBC) are on a roll amid growing interest in takeovers as industry heavyweights seek to benefit from a lucrative market alternative to the traditional reimbursement model.
VBC ties reimbursements to the quality of care provided, rewarding healthcare providers for efficiency and effectiveness, as opposed to the fee-for-service (FFS) model, which relies on historical bills or annual fee schedules .
After COVID-19 highlighted the drawbacks of the FFS model, companies are turning to VBC, which offers better economics amid favorable government policies.
The early stage of the pandemic exposed the volume-driven FFS system as declining patient numbers led to a substantial decrease in payments, pointed out Corinne Lewis, program manager for delivery system reform at the group of reflection on health care, The Commonwealth Fund. “Thus, providers are recognizing the need to move towards more value-based approaches for more flexibility and protection against future volume. shocks,” she said. Medical economics.
Additionally, VBC models that focus on members’ long-term health outcomes offer higher cost-effectiveness to providers.
Highlighting its benefits, George Renaudin, Medicare President of the health insurer Humana (New York stock market :HUM), said value-based care models provide a 20% higher contribution margin to the company, reducing total medical costs by about 13.4% compared to Medicare. origin. Human (HUM) expects its value-based primary care and home health services to support EPS growth beyond 2025.
Some government policies are in place to support the change: In June, the Centers for Medicare & Medicaid Services (CMS) proposed a 4.2% reduction in home health services for 2023. Estimating its impact at $30 million , Susan Diamond, chief financial officer of HUM, said on the recent earnings call that the decision put “more emphasis on value-based payment models.”
Thursday, Humana (HUM) was named alongside CVS Health (SVC) as one of the potential buyers of Cano Health (CANO) Dallas, TX-based operator of a value-based care delivery platform.
Meanwhile, HUM rival UnitedHealth Group (A H) plans to accelerate its VBC shift, leveraging the company’s analytics and decision support tools Optum unit in a 10-year collaboration with Walmart Inc. (WMT).
In July, Amazon (AMZN) sparked interest in value-based care when the tech giant agreed to acquire One Medical (ONEM), a membership-based primary care organization, for nearly $3.9 billion.
A few weeks later, AMZN and UNH were listed as potential bidders to acquire Signify Health (SGFY), a company focused on the value-based payments industry, which finally agreed to be acquired by CVS for nearly $8 billion earlier this month.
Experts say the FFS model is unlikely to disappear completely, in part due to its effective delivery of certain medical practices, such as vaccinations. “I don’t think fee-for-service will ever be completely phased out, because in some cases it may be an appropriate mechanism to incentivize the care we want to see more of,” added Lewis of the Commonwealth Fund.
However, the stock performance of VBC leveraged healthcare players indicates otherwise. Oak Street Health (OHS), Privia Health Group (PRVA), agilon health (AGL), CareMax (CMAX), and Cano Health (CANO) have all outperformed the broader market over the past three months, as this graph shows.