Looking Back at Seema Verma’s Value-Based Approach: A Model for the Future of HealthCare

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Medical care has often operated under a different economy than other goods and services. Twisted incentives have led America's healthcare system to prioritize treating patients while sick instead of keeping them healthy.

The vision of value-based medical care that focuses on patient outcomes has long been supported by Seema Verma, the former administrator of the Centers for Medicare & Medicaid Services. Her practical approach to altering incentives continues to stand as a model for how government agencies can help change the healthcare system in a way that both lengthens lives and lowers costs.

Her record shows that when healthcare providers are compensated for keeping patients healthy, they become more innovative—and patient outcomes improve.

A Record of Change

The U.S. spends much more of its gross domestic product on health care than many other industrialized nations but gets relatively little in return. Among high-income countries, America ranks as the No. 1 country for both preventable deaths and infant deaths.

During Verma's tenure at CMS, the department introduced several value-based programs that helped shift economic incentives away from a system that prioritizes the volume of services and toward one that rewards better health outcomes and lower costs.

For example, Verma overhauled the Medicare Shared Savings Program with an initiative called Pathways for Success, which encouraged healthcare providers to take new approaches to providing services for Medicare beneficiaries.

"Pathways to Success is a bold step toward quality health care at a lower cost through competition and beneficiary engagement," said Verma.

"Medicare can no longer afford to support programs with weak incentives that do not deliver value. As we structure new payment arrangements, the impact on the overall market will be top of mind."

Built for providers that agreed to be held accountable for the quality, cost, and experience of Medicare patients, the initiative effectively incentivized physicians and hospitals to become more competitive. Providers that participated in the program and took innovative steps to treatment, such as instituting telehealth applications, which Verma promised would "translate to lower costs and higher value for Medicare beneficiaries and taxpayers," in a blog post on Health Affairs.

Her analysis proved prescient. Pathways for Success was projected to save $2.9 billion over ten years. But that program wasn't the only way she tried to alter the economics of American health care.

Solving Drug Pricing

When Verma oversaw CMS, she pushed for value-based care on several fronts. One of her biggest successes came from changing a long-standing policy on how Medicaid could buy medicine from drugmakers.

The old policy, known as the "best price" model, allowed pharmaceutical companies to report the lowest price of their products to Medicaid agencies. But that didn't account for value-based pricing models or recent changes to the medical field, such as new treatment regimens that treat and manage diseases in novel ways.

"Rules on prescription drug rebates and related reporting requirements have not been updated in 30 years and are thwarting innovative payment models in the private sector," Verma said in a statement put out by CMS. "Medicaid's outdated rules have consistently stymied the ability of payers and manufacturers to negotiate drug reimbursement methods based on the actual outcome of the treatment. A new generation of approaches to payment methods is needed to allow the market the room to adapt to these types of curative treatments while ensuring that public programs like Medicaid remain sustainable and continue to receive their statutorily required discounts."

The newly revised regulations allow for payment models in the private sector to reflect the reality of modern medicine better. In particular, value-based systems can be put in place for treatments—such as new genetic therapies—that flip the script on medical pricing by having high upfront prices but lower overall costs.

In addition, the new rules Verma enacted allow pharmaceutical companies to issue multiple "best prices" as yet another way to incentivize value-based arrangements. States and Medicaid-managed care organizations can now choose the pricing plan that works best for them, based on their unique circumstances, instead of being forced to pay a single price for a drug.

The Next Few Years

The new regulations went into effect in January 2022. Once health economists and medical researchers have a chance to parse the data, it should give the country a better understanding of the benefits of a values-based approach to medical care.

A full analysis of the impact should include not just how much money has been saved but also how many patients are living longer and healthier lives as a result of CMS' renewed focus on health outcomes.

These regulatory changes can guide our future policy decisions to help the United States healthcare system become a more efficient and effective tool for improving the health of all Americans and ensuring that our medical providers and institutions stay competitive.

"Going forward, value-based care can help ensure health care resiliency," Verma wrote in an article for Health Affairs. "By accepting value-based or capitated payments, providers are better able to weather fluctuations in utilization, and they can focus on keeping patients healthy rather than trying to increase the volume of services to ensure reimbursement. Value-based payments also provide stable, predictable revenue—protecting providers from the financial impact of a pandemic."