Value-based care in mental health: An explainer

Discussions about value-based care among therapists are often confusing and unproductive. In my experience, that seems to be because a lot of us simply don’t know what the term means. So it gets either dismissed as just a new term for things many of us already do (like measuring outcomes), or it gets framed as the boogeyman intent on destroying therapy as we know it. 

Neither of those perspectives is accurate. Real discussions of how value-based care will impact mental health care need to start from a more informed place. So we’ve prepared this brief explainer on what value-based care actually means, when applied in the context of outpatient mental health.

Bear in mind that value-based care is relatively untested in mental health care in the US. So as you read the discussion below, consider every sentence about value-based care to come with an implied “theoretically.” 

What is value-based care?

Broadly speaking, value-based care refers to changing treatment and payment structures to incentivize better care. This, frankly, is a big reason for the confusion around the term: “better care” is very much a subjective term. Even the Medicare page on the subject says “The ‘value’ in value-based care refers to what an individual values most.”

In more down-to-earth terms, value-based care can refer to a different kind of payment structure for health care. Today, therapists (like other health care providers) are paid based on procedures: There’s a certain pay rate for a 45-minute therapy session, another rate for psychological testing, another rate for crisis care. In other words, we’re paid based on the type and length of the service that we provide. When a client needs more care, we get paid more for providing more care.

Value-based care aims to change the payment model to one that – in at least one possible version – is instead based on diagnosis. A provider would receive a flat fee for their role in treating the diagnosis, and they could then use that fee however they want. 

Let’s say that a major depressive disorder of moderate severity typically takes 12 sessions to treat. Instead of getting paid per session, a therapist might be paid a flat rate based on the diagnosis. The therapist would then be free to choose the procedures they believe would be most likely to efficiently and effectively resolve the disorder. Perhaps that’s 12 weekly outpatient sessions. Perhaps not.

There are many other ways that value-based care systems can be structured, rather than being on a payment-per-diagnosis basis. We’ll get back to that below. But the overall idea is to reward providers for actions that can improve patient health outcomes while containing overall costs.

What are the potential advantages of value-based care?

The intended benefit of value-based care is that it provides incentives for providers to coordinate care across disciplines, and to be creative and innovative in designing treatment plans unique to each patient. It allows for freedom and flexibility in providing services that, in some cases, aren’t allowed under current insurance payment rules. 

For example, go back to that patient with a depressive disorder. If you believe that having them come in for two sessions a day is likely to benefit them, a value-based care model could allow you to do so. Present insurance rules typically will not reimburse for two of the same service on the same day.

By allowing providers to choose for themselves what treatments are likely to be most effective with a client, value-based care is respecting clinicians’ independent judgment. It also can reduce health care costs by eliminating incentives for unnecessary care. For example, when clients have already made significant improvement, some therapists conduct what may be needlessly-long termination processes. If insurers offer a singular payment for successful treatment, therapists may be more inclined to keep effective treatment as brief as possible.

Value-based care would require therapists to focus more on the measurement of outcomes, something that we know is helpful but that the field has been slow to adopt. And it financially rewards effectiveness and efficiency in a way that present systems do not. If you’re paid $2,000 to treat that patient, and your measurement shows that you effectively treated them for a cost on your end of $600, then you keep the extra money. With value-based care, clinical effectiveness could become a key driver of how profitable your practice is. If enough therapists participate, the overall effectiveness of mental health care could improve.

What are the potential disadvantages?

Of course, in this example the reverse is also true. If you were paid $2,000 to treat that patient and the client did not improve, then everyone involved faces questions. These questions make the actual implementation of value-based care thorny. Should the payer be allowed to claw back that $2,000 despite your best efforts, and the time you actually spent? Should you be required to continue treating the patient, without any additional payment, until such time as they finally improve?

To whatever degree the answer to those or similar questions is “yes,” that’s one of the big criticisms of this kind of value-based care structure. (Again, there are plenty of other potential structures, a subject we’ll return to momentarily.) It could shift the financial risks related to ineffective treatment away from insurers and other payors, and onto providers. Patients with many complex needs could find it harder to access care, as providers may be less willing to take on what they would understandably see as greater financial risks.

Providers already have plenty of reasons not to work with insurance. Insurers, in turn, predictably fail to maintain adequate provider networks. It seems unlikely that a move toward this kind of value-based care structure would somehow make it more appealing for providers to serve on insurance panels. 

Value-based care, or at least this particular form of it, also potentially incentivizes providers to falsify diagnoses. A more severe initial diagnosis could make it easier for the therapist to give the appearance of helpful treatment. Diagnostic categories, and their severity specifiers, are not hard science. They are often subject to interpretation and subjective understanding.

If clinicians (consciously or not) start describing or diagnosing client symptoms as being more severe, in order to reap the rewards of greater payment for treating those clients, then the hypothetical cost savings associated with this form of value-based care in mental health may never materialize.

Are there other models for value-based care?

Yes, and that’s another part of the reason why the whole discussion can get complicated. So far I’ve been discussing a model of value-based care where providers are paid based on a patient’s diagnosis. But there are many other ways value-based care can be structured. 

It can also be done on a per-patient (as opposed to per-diagnosis) basis. This would remove the potential incentives for providers to over-diagnose. It could even reward providers for engaging in more preventive care to stop diagnoses from emerging in the first place. 

In an insurance context, insurers could simply assign in-network mental health providers a certain number of people as their caseload. The therapist would then be paid a flat annual amount based on that caseload. You as the therapist could then manage the caseload as you see fit, as long as various measurements indicate that clients on your caseload are receiving adequate care. Of course, that model begs its own questions about whether therapists might discourage clients from accessing care when they need it. 

So is it good?

There’s just not a simple and easy answer for that question in mental health care. Much of what value-based care would likely ask of therapists, including more consistent measurement of client progress and improved coordination with other health care providers, is good. And if adoption of value-based care can make insurance payment more clear and reliable, all the better. But poorly-designed or poorly-implemented value-based care models could create what economists call perverse incentives – rewards for bad behavior, like overdiagnosing or turning away high-need clients.

Most of us would likely support the ideal of whole-person, accountable, integrated mental health care, with a focus on prevention and early intervention. But moving from philosophy to the practical realities of payment structures is complex, with many potential pitfalls. 

In mental health care, there has been a great deal of policy-level discussion of value-based care. But we’re just at the beginning of various experiments with implementation. (The Centers for Medicare and Medicaid Services have some interesting examples of value-based care across health care more broadly.) It’s likely to be a rocky road. But these experiments can help us understand whether value-based care can actually deliver on the promise of better outcomes at lower costs.