Value-based care (VBC) is reshaping the healthcare landscape by focusing on improving patient outcomes while keeping costs under control. Unlike fee-for-service (FFS) reimbursement, this approach prioritizes quality rather than quantity, aiming to reward effective treatments and preventative strategies that can lead to healthier communities and more sustainable healthcare spending.
Traditionally, VBC initiatives have zeroed in on primary care providers, who are essential in guiding patients through routine check-ups and preventative care. As healthcare challenges grow more complex and the sector becomes increasingly competitive, discussions among healthcare experts have increasingly considered expanding the focus of VBC to include specialist care. Specialists are essential for managing complex health issues. Engaging them in VBC through financial incentives further enhances patient care. Integrating primary and specialty care could advance healthcare by making systems more adaptable and responsive. This collaboration can improve care quality and better meet diverse patient needs across the continuum of care.
In this blog post, we will discuss the current state of VBC and the difficulties of engaging specialists, highlighting recent trends to extend VBC initiatives beyond primary care to include specialty and post-acute care (PAC). We will examine how the inclusion of specialty episodes of care and effective PAC management are being used to drive more inclusive and impactful healthcare solutions. By implementing robust benchmarking and financial incentives, organizations are working toward a future where all facets of patient care align with the shared goals of improved outcomes and cost efficiency.
Current state of value-based care & challenges with engaging specialists
VBC has built a strong foundation in primary care by emphasizing prevention, early diagnosis, and effective management of chronic conditions. Primary care providers play a pivotal role in coordinating care, taking a holistic view of patient health, and nurturing relationships that encourage patients to follow recommended care plans. This approach not only supports better health outcomes but also helps control costs through proactive and coordinated care.
The FFS model pays providers based on service volume, which can lead to inefficiencies and potentially higher costs. In contrast, value-based models are designed to reward providers for improving quality of care and patient outcomes. This shift aims to control costs and improve care through payment structures like capitation and bundled payments, aligning financial incentives with patient health.
Although many VBC models have concentrated on improving access to high-quality primary care, specialty care accounts for a significant portion of healthcare spending. In an analysis of specialist-related spend based on 5% Medicare FFS sample, Milliman consultants found specialists manage or are involved in 80% of the total cost of care (TCOC).1 As illustrated in the table below, which breaks down healthcare costs by clinical category, specialists are involved in the management of the vast majority of spending, with $13.99 billion, or 80% of the total allowed dollars, associated with specialist management or involvement. TCOC refers to the aggregate amount spent on all healthcare services for a population, including hospitalization, outpatient visits, procedures, and other medical expenses.
Engaging specialists in VBC has the potential to reduce TCOC, but is challenging due to the complexity of their treatments and care episodes, along with the limited opportunities for most specialists to be responsible for TCOC and patient outcomes. Standardizing and measuring specialist care can be difficult, complicating the implementation of value-based metrics. Attribution issues also arise when multiple providers are involved, making it hard to fairly compensate or incentivize specialists. Developing models that accurately reflect specialist contributions to variation and creating incentives that focus on quality and efficiency are crucial for their engagement in VBC.
Importance of specialty episodes of care in the total cost of care
Specialty episodes of care involve managing specific treatment periods for complex conditions, such as cancer or heart disease—that require advanced interventions from highly trained specialists. Episodes of care define a clear start and end point for a specific medical event or condition, such as the diagnosis of cancer through to the completion of chemotherapy and follow-up. This structure allows for more precise measurement of the resources, coordination, and outcomes directly associated with specialist-driven care. Between 60% and 80% of healthcare services are primarily managed by specialists2, highlighting the significant role specialty care plays in overall healthcare spending. If a VBC arrangement wants to include specialty care, it should consider defining specialty episodes of care to enable benchmarking and measurement of specialist performance.
By developing well-defined, risk-adjusted specialty episodes, healthcare organizations could compare specialist performance, identify variation in care, and tailor improvement efforts to where they will have the most impact. This episode-based approach ensures that specialists are evaluated on the care they directly manage, rather than being held accountable for costs or outcomes beyond their influence. Risk-adjusted benchmarks allow stakeholders to evaluate how specialists are handling episodes of care that they primarily oversee. By analyzing these episodes, it is possible to pinpoint areas of provider efficiency and identify opportunities to improve care.
Post-acute care – strategies for managing effectively
PAC is another significant factor in healthcare spending, accounting for 10-15% of TCOC3 and defined as the healthcare expenditures associated with services occurring in the 30 days after discharge from an acute care hospital. These services, including skilled nursing care, home health care, and inpatient rehabilitation, support patients regaining independence and are closely tracked for their association with readmissions. However, there is considerable variation in practice patterns across these services.
Aligning PAC utilization with well-managed benchmarks is one aspect of identifying opportunities for better management of post-acute site of care patterns. Site of care optimization has significant implications for the TCOC, ensuring that care is both efficient and cost-effective. By focusing on these strategies, healthcare providers can select the appropriate place of service for PAC, optimizing spending while enhancing patient outcomes and minimizing readmissions. This is why benchmarks are essential—performance relative to peers must be understood to keep costs in check while maintaining high-quality care.
Benchmarks are established for each PAC site, down to the hospital discharge Diagnosis-Related Group (DRG) level. By leveraging these benchmarks, providers in VBC arrangements can calculate cost-savings opportunities at the aggregate level that account for their mix of hospital dischargers. This deeper analysis of costs and opportunities within the data enables organizations to optimize their PAC strategies. By gaining a comprehensive understanding of the overall landscape, healthcare providers can unlock the potential to achieve 2-3% savings4 on TCOC, through enhanced management of PAC utilization.
Financial incentives & benchmarks to engage specialists in value-based care
Organizations can drive meaningful value by engaging specialists in episodic VBC models that reward improvements in quality, patient outcomes, and cost efficiency for specific conditions or procedures. A critical component of designing these models is ensuring that performance measurement adjusts for factors outside of a specialist’s control, removing undue variation and ensuring fair comparisons. Each episode should capture clinically relevant claims tied to the targeted condition and be risk-adjusted based on factors that meaningfully impact outcomes for that condition.
Traditional primary care-based VBC models often rely on Centers for Medicare & Medicaid Services and the Department of Health and Human Services Hierarchical Condition Categories methodologies to predict total healthcare spend at the population level. However, these models are typically ill-suited for episodic use, as they do not account for the condition-specific clinical nuances inherent to specialty care.
Milliman has developed clinically meaningful episodes of care supported by condition-specific risk adjustment methodologies across a wide array of medical and surgical specialties. These models enable organizations to measure specialist performance based on factors within the specialist’s control—improving precision and fairness in benchmarking. By incorporating both chronic and procedural episode types, organizations can align incentives with the particular services specialists deliver.
In addition, Milliman has produced episode-level benchmarks for cost, utilization, and quality using data from 100% Medicare FFS and Medicare Advantage populations. These benchmarks offer granular insights—including service category spend breakdowns—to help organizations identify key drivers of performance variation and design more effective specialist-focused payment models.
For example, knee arthroplasty episodes demonstrate substantial variation across providers. Median standardized episodes cost $15,800, with costs ranging from $20,860 at the 10th percentile to $12,787 at the 90ths percentile. PAC spending spans from $4,068 (10th percentile) to $167 (90th percentile), and higher-performing episodes (75th percentile and above) are predominantly performed in outpatient settings. Quality outcomes, such as readmission rates, also improve at these higher percentiles. These data points illustrate the range of performance and underscore opportunities to target improvement.
Next steps:
Integrating specialists into VBC is increasingly recognized as important for enhancing patient outcomes and managing costs across the continuum of care. Traditionally centered on primary care, VBC now requires specialists to tackle complex healthcare challenges and manage specialty care episodes, which carry significant implications on TCOC.
Financial incentives are key to engaging specialists within VBC by providing them “skin in the game.” Defining meaningful episodes of care and developing benchmarks allow providers to measure specialist contributions to TCOC savings and offer shared savings for efficient care. Well-defined risk adjustment protects providers from being penalized for treating more complex patients. Incorporating risk adjustment for patient acuity ensures that specialists are evaluated fairly and are incentivized to improve patient outcomes and manage costs effectively.
Solutions like Milliman ACO Builder and Milliman MedInsight Bundles, along with VBC Insights PAC dashboard, provide comprehensive insights to optimize care coordination across primary and specialty care. This integration not only enhances patient satisfaction but also helps reduce unnecessary procedures by offering detailed analytics and benchmarks for PAC management.
Milliman ACO Builder offers comprehensive data and projection models, aiding healthcare organizations in forming effective partnerships and achieving financial success. Milliman MedInsight Bundles further enhances cost management efforts by providing a thorough assessment of the economic impact resulting from program changes. Through detailed analytics and data-driven insights, these bundles enable healthcare organizations to evaluate how modifications in care delivery, such as new treatment protocols or care coordination initiatives, affect overall costs and resource utilization. This comprehensive analysis helps organizations make informed decisions, ensuring that any program adjustments lead to improved financial outcomes without compromising the quality of care provided to patients.
By adopting these strategies, healthcare systems can improve outcomes, use resources efficiently, and create sustainable, patient-centered care that meets diverse needs.
References:
1. According to an internal Milliman study using the 5% Medicare sample population, this statistic was developed to support marketing efforts for certain Milliman products and is not publicly published.
2. According to an internal Milliman study using the 5% Medicare sample population, this statistic was developed to support marketing efforts for certain Milliman products and is not publicly published.
3. According to internal Milliman research, all figures presented are not drawn from published materials.
4. According to internal Milliman research, all figures presented are not drawn from published materials.
Source:
Presentation, “Beyond Primary Care: Engaging Specialists in VBC” by Jonah Broulette and Michele Berrios at the HIMSS 2025 Global Health Conference & Exhibition, March 4, 2025.
