The healthcare sector is shifting from traditional fee-for-service models to value-based care (VBC), which prioritizes patient outcomes over service volume. This transition has far-reaching implications for providers, payers, and investors, making it critical to understand the trends driving VBC and the challenges it presents.
Beginning January 1, 2026, the Centers for Medicare & Medicaid Services (CMS) will implement the Transforming Episode Accountability Model (TEAM), requiring hospitals to manage total care costs for specific procedures. This approach incentivizes better coordination and cost management across entire care episodes, ensuring providers focus on efficiency and quality outcomes.
While initially focused on primary care, VBC is now expanding into high-cost specialty areas, such as cardiology and oncology. Referral networks and in-network specialty programs are effectively lowering costs and improving patient outcomes. At the same time, CMS encourages specialists to integrate with Accountable Care Organizations (ACOs) for more seamless and cost-effective care delivery.
Technology is essential for VBC success. Advanced tools, such as AI and analytics, help providers predict health events, identify high-risk patients, and expand access to virtual care. Virtual consultations are improving access to specialty care while reducing costs and logistical barriers.
Recent financial challenges in 2023 and 2024, including increased Medicare Advantage utilization and changes to risk-adjustment methodologies, have underscored the need for improved care management, particularly in specialty care. Seamless data sharing remains a key challenge in the transition to VBC. CMS is working to address these gaps with initiatives aimed at improving interoperability, which will be essential for the long-term success of VBC.
Health systems that have adopted VBC are already showing promising results. For instance, reductions in inpatient admissions and hospitalizations demonstrate the potential of VBC to create a more efficient, patient-centered healthcare system. Providers and investors who navigate and adapt to these trends may be better positioned for sustainable growth and improved health outcomes.
For more information on related investment opportunities and insights, please see our Healthcare Mosaic report, Advanced Specialty Care Update: As Acuity and Cost of Care Elevate, So Does Demand for Innovation, or explore more topics on William Blair’s Equity Research Rewind page.