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The introduction of the phrase “value-based care” into the industry lexicon can be tracked back to 2010 driven by the reforms of the Affordable Care Act (ACA). The HMOs of the 1990s weren’t balanced with quality, access, consumerism, nor were they tech enabled. They indeed failed spectacularly but moving back to FFS indefinitely wasn’t the answer either. Lessons learned were applied to the Medicare Advantage modernization aspects of the ACA to align quality, cost and consumerism. The ACA also came with the commitment from the government for continued payment model innovation through the Center for Medicare and Medicaid Innovation (CMMI) which started a new value-based care arms race in the private sector.
There was a lot of experimentation and innovation from 2010-2020 and we are now starting to see the promise of value-based care prove itself out with sustainable, value-creating healthcare companies. In fact, CMS has doubled down on the trajectory and commitment of value-based care over FFS with the creation of its most advanced payment model yet, ACO REACH, and with the goal of all Medicare and Medicaid beneficiaries to be in a value-based model by 2030. Value-based care is no longer an experiment, and the equity markets have noticed.
To be clear, I am not talking about the exuberance we saw in the Special Purpose Acquisition Company (SPAC) markets in 2020 and 2021. Most of the SPAC companies were NewCos built on the promise of value, often through a PowerPoint presentation, with little to no operating history, capitalizing on the market’s desire to get in on these companies early, in a desirable sector, when the market was flush with capital. But it takes more than a PowerPoint to deliver on the promise of value-based care. Value-based care is simple in concept but incredibly difficult to execute. This was demonstrated by many of these SPAC companies missing their FIRST quarter commitments and trading down 90% of their initial stock price. Experience matters in value-based care.
Where the equity markets have maintained, and increased valuations are with companies that are already (or are close to) cash flow positive and have a track record adding value to the healthcare supply chain. Deals that involve value-based payment, continuum of care coordination, and ease of access consumerism have been the focus recently.
Sherlock Company, a research organization that tracks the state of investment in public value-based care companies, states seven value-based care public companies it follows had revenue growth of nearly 100% year-over-year, and outperformed the greater S&P 500, even in the broader bear market.