David B. Snow, Jr. is chairman and CEO of Cedar Gate Technologies.
The U.S. healthcare system is at a crossroads, embarking on a crucial transformation in how care is financed. For decades, we’ve operated under a fee-for-service (FFS) model, which incentivizes service volume with little accountability for efficacy or costs. According to the Commonwealth Fund, this model contributes to poor healthcare access, lower care quality and lack of care continuity and is a factor behind the staggering per-capita healthcare costs in the U.S., which are the highest in the world.
Additionally, the FFS model contributes to economic instability and vulnerability for healthcare systems and providers. The Covid-19 pandemic exposed these vulnerabilities when doctors and hospitals saw volume (and income) fall dramatically within days and took months to recover. Relying primarily on care volume for revenue will continue to leave our healthcare system vulnerable.
In recent years, we’ve seen a shift away from the FFS model to progressive value-based care (VBC) models that link provider payments to patient outcomes, care quality and cost efficiency. This is a fundamental overhaul of healthcare economics, and although it may be challenging and disruptive, I believe it’s essential.
Value-Based Care Is A Journey
There’s undeniable momentum behind VBC. Across all healthcare payments, 61.6% of spending in 2023 was tied to a VBC model. The adoption of value-based models with two-sided risk in commercial healthcare markets climbed by 31% between 2022 and 2023.
In 2024, the Centers for Medicare and Medicaid Services (CMS) announced its first mandatory value-based model for hospital systems treating Medicare beneficiaries. The Transforming Episode Accountability Model (TEAM) begins January 1, 2026, and will require over 700 hospital systems nationwide to participate in bundled payments—an advanced VBC model that sets a single target price inclusive of all services in an episode of care, such as a joint replacement. The mandatory nature of this program signals CMS is forging ahead with its stated goal to have all Traditional Medicare beneficiaries in a value-based arrangement by 2030.
Many healthcare stakeholders recognize the long-term financial and clinical benefits of adopting VBC. Although obstacles remain on this journey, organizations that demonstrate foresight and commitment to transitioning can unlock greater opportunities and achieve enhanced financial stability.
Charting A Path Forward
The shift to VBC won’t happen overnight. It’s a journey that requires payers, providers and self-funded employers to invest in people, processes and technologies, typically beginning with simple initiatives focused on a handful of cost or quality measures and evolving over time into more sophisticated two-sided risk-based arrangements. Each organization’s journey to VBC will be unique, but certain principles for success are universal.
Start small.
Organizations should begin with upside-only models that reward primary care providers for meeting population cost and quality targets. This reduces financial risk and uncertainty in the process while allowing payers and providers to experiment with different VBC models and initiatives to find what works.
Invest in the right technology.
Many healthcare systems still operate in a fragmented data landscape, relying on a patchwork of legacy systems originally designed for an FFS model. To successfully transition, organizations should invest in modern data management and advanced analytics technologies that work seamlessly together and improve the efficacy of change management strategies. Pairing data management and analytics with care technology helps providers understand when and how to take decisive, targeted, patient-centric actions that help control costs and improve patient outcomes. Finally, to maintain operational efficiency, organizations also need payment technologies designed specifically for the administrative complexities of VBC.
Progressively build competencies.
VBC requires a significant shift in mindset, from simply providing care to proactively managing the health of patient populations. Advanced analytics tools help reframe an FFS mindset with appropriate incentives, building competency in VBC models that require taking on more clinical and financial risk.
Increase accountability through collaboration and shared risk.
Providers in a VBC arrangement must take responsibility for patient outcomes and costs. In more advanced value-based models, providers must also take on more risk. But to do so effectively requires a high level of collaboration with payer partners. Proactive data sharing enhances organizations’ ability to hold everyone—including internal and external participants in a VBC model—accountable for cost and quality targets that determine reimbursements.
Success Stories
There are numerous success stories from innovative organizations engaging in alternative payment models that provide valuable insights and best practices:
• Vanderbilt University Medical Center implemented an advanced VBC bundled payments model, which improved outcomes, reduced costs and increased patient satisfaction with maternity care. (Disclosure: Vanderbilt Health is a client of Cedar Gate Technologies.)
• Large health plans are investing in tools that facilitate collaboration with their provider partners, delivering person-centric insights to enhance performance in VBC.
• Performance results from one of the newest Medicare VBC programs—ACO REACH—achieved significant savings for both the government and participating health systems.
The Time For Value-Based Care Is Now
Taking the leap from FFS to VBC can be daunting. In my work with thousands of payers, providers and self-funded employers, I’ve seen the challenges firsthand. I often think of it like crossing a chasm—on one side lies the FFS model, driven by incentives for volume, and on the other side is VBC, which rewards cost efficiency and outcomes. Trying to operate both models simultaneously is unsustainable, as their incentives fundamentally conflict. Organizations in transition find that the most uncertainty and vulnerability lie at the halfway point, where retreating to the perceived safety and comfort of a fee-for-service model seems easier than forging ahead to fully embrace VBC. However, hesitation to move forward can bring even greater long-term challenges.
I believe the path forward is clear. Organizations that begin their VBC journey today have options, including low-risk arrangements that provide a pathway to greater reward when they can proactively manage patient care and patient health. The new VBC mandate from CMS signals a future where organizations will no longer have a choice, so those who build their competencies now stand to gain a significant advantage as VBC firmly establishes itself as the standard model for care and payment in the U.S.
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