Value-based care disruptors: What can health systems learn from their successes and failures?

By Kimberly Radel, Associate Principal

Vizient Consultant, Sg2 Value Transformation & Payer-Provider Alignment

Economic forces such as rising costs, labor shortages, consumerism and demographic shifts are driving the need for change and innovation. The healthcare industry is not immune to these forces. In fact, healthcare is further complicated by nonsustainable reimbursement models, digital disruption, an increasingly "sicker" population and rapid changes in ownership models. This has led to an increase in disruptors entering the healthcare market — some that succeed and others that fail. Health systems can learn from key behaviors in how disruptors approach the market.

Why value-based care disruptors exist

Disruptors — primarily tech companies, nontraditional providers, payers and large retailers — entered value-based care to fill a void in the traditional healthcare ecosystem. New business models and funding sources fuel these new entrants to provide health services (medical and/or administrative) and technology in different ways that meet consumer or payer demands for access, affordability and ease of use. These disruptors have a blank slate to conceptualize and execute on a fundamentally different business model than what traditional healthcare systems rely on: dependence on the fee-for-service model. Like Oak Street and ChenMed, they may be created due to experiences the founder(s) had with fragmented care, or like Walmart or Optum, they are organized to augment the parent company's business goals. In any case, these disruptors typically focus on a particular "missing link" in value-based or consumer-focused care.

How disruptors succeed

While some disruptive behaviors may negatively impact traditional healthcare, there are positive attributes health systems can learn from disruptors to improve the way innovation is implemented. What is it that makes disruptors successful? For starters, they have a clear focus on their product offering, including a defined value proposition and clarity on which part of the market they serve. Typically, the product focuses on improved access to care. It includes a clinical model enabled by the technology and analytics to drive results.

Oak Street Health — a leading multipayer, value-based primary care company purchased by CVS in 2023 — recognized the unmet needs of the 65+ senior population and built a business model around the Medicare Advantage product. They optimize use of technology but not at the expense of high-touch care when warranted. This scalable integrated care model has demonstrated significant improvement in outcomes such as reducing hospital admissions by approximately 51% and driving a 42% reduction in 30-day readmission rates and a 51% reduction in ED visits.

Taking a management approach to driving change — which includes having the structure to support rapid learning and knowing when to partner — is another positive attribute that can serve health systems well. Success follows the ability to make rapid decisions about what's working and what isn't; companies that are nimble and not afraid to fail are structured to recover quickly and adapt their business models based on what they've learned.

Having clarity around when to take on the market alone vs. when to partner and integrate with traditional payer, provider, and/or consumer relationships is another key factor when driving change. For example, One Medical, purchased by Amazon in 2022, typically partners with a local health system to access specialty networks and other medical services they themselves do not provide in their primary care model.

How disruptors collapse or go stagnant

Not every innovative company can create sustainable high value to its customers. Many healthcare disruptors create models that lack the ability to scale and/or sustain profitability. One mistake is adding point solutions to an already fragmented healthcare system, which will only cause more division instead of fostering collaboration. As a result, patients are still left to "hopscotch" their way through the system to manage their care. Often, disruptors will hang their hat on convenience and subspecialization when integration into a more comprehensive workflow is needed. 

Another pitfall is creating a business model dependent on shareholder or board expectations of a "quick fix." The pace of change in healthcare tends to be slow, and innovative solutions are no exception. Real outcomes in healthcare require time to produce and measure. Simply put, healthcare takes longer to pay off — a lot longer. Investors accustomed to transactional-focused products, with visible short-term results, will continue to struggle in this longitudinal industry. The number of healthcare bankruptcies in 2023 increased 71% from 2022, reaching the highest level in the last five years. Digital health firms among this group were hit hard by cost containment efforts due to decreased capital.

Lastly, when companies depend on acquisitions yet cannot scale the true value of the service, growth comes to a halt. One example of this can be found with Walgreens and VillageMD. Walgreens plans to exit approximately five markets and close 60 VillageMD clinics in fiscal 2024. The economic gains through reducing duplication of services and cost synergies across acquired assets takes time, yet clinic closures and service stoppage are a high dissatisfier for patients who are forced to find a new provider, most likely less equipped to provide value-based care.

How to behave like a disruptor

How can you incorporate these takeaways into your value-based care strategy? Pay attention to the key behaviors that enable disruptor success and make them your own:

• Pursue risk models to the extent that resources and capabilities exist and organizational commitment is clear.
• Have confidence in the clinical model — this is a result of a clear product offering with an understanding of the target market.
• Invest in analytics to successfully manage cost of care.
• Incentivize affiliated physicians.
• Don't be afraid to fail fast. Build success measures into rapid testing and adapt quickly.

Now is the time to figure out creative ways to share in the reward of increased quality and service at a lower cost.