Here's an oldie but goodie: Two hikers encounter a bear in the woods. One of the hikers slowly removes his backpack and says, "I'm running for it."
The second hiker replies, "Are you crazy? You can't outrun a bear."
"I don't have to outrun the bear," the first hiker says. "I just have to outrun you."
A lot of ink is spilled daily debating whether—and when—AI will be able to outrun the bear. What gets lost is that AI is already outpacing the other hiker, performing low- and mid-level work in the mid- and back office. Even if AI doesn't get any smarter, it will replace humans in these jobs.
In healthcare, AI is poised to become the bear, accelerating the transition from fee-for-service (FFS) to value-based care (VBC).
FFS healthcare—the nearly $5 trillion status quo—is based on the volume of services rendered. VBC healthcare—the future, in testing for nearly a decade—rewards providers for positive health outcomes rather than the volume of procedures. A good way to think about it is: In FFS, more sickness equals more billing; in VBC, healthier patients mean better pay for providers.
A recent study in the American Journal of Managed Care found that Medicare Advantage (MA) patients in full-risk VBC models—where providers bear the cost of poor outcomes—had 36–43% fewer hospitalizations for acute and chronic conditions, 39% fewer readmissions, and 19% fewer avoidable ER visits than traditional FFS Medicare patients.
So, why aren't we all speeding toward an all-VBC future as soon as possible? There are four reasons:
Pre-Authorization Delays vs. Timely Care: Insurers use pre-authorization to control costs, but providers argue it undermines VBC's focus on timely interventions. For example, delays in approvals for surgeries or specialty treatments can worsen outcomes in fields like oncology or cardiology.
Benchmarking and Financial Risk: Value-based contracts often hinge on complex benchmarks tied to cost and quality metrics. Disputes arise over how benchmarks are set and updated and whether savings in one year penalize future performance. Providers risk financial losses if benchmarks are unrealistic, while insurers prioritize cost containment.
Data Transparency and Trust Gaps: Payers typically control the data used to assess provider performance, leading to mistrust. Providers demand visibility into calculations to verify accuracy, but insurers often withhold proprietary methodologies.
Standardized Care vs. Personalization: Insurers favor evidence-based, standardized protocols to curb costs, while providers advocate for personalized approaches tailored to individual patient needs. This clash risks alienating patients who expect customized care.
Solutions to these challenges have been slow in coming. But recently, CMS—the federal agency administering Medicare and Medicaid and, at $1.9 trillion, the largest health payer on the planet—announced plans to accelerate the shift to VBC with AI.
CMS intends to use AI to analyze vast amounts of patient data to identify trends, anticipate future health issues, and enable early intervention—particularly for chronic diseases.
CMS uses the Star Ratings system to assess hospitals and health plans on multiple quality metrics, including safety, readmission rates, patient experience, and mortality. They'll use AI to help organizations manage and interpret these complex and evolving metrics, simulate the impact of quality improvement initiatives, and prioritize efforts that will most effectively boost their ratings (and payouts).
CMS will also use AI for automated risk adjustment, mining electronic health records (EHRs) and claims data to confirm medical necessity, identify patients with undiagnosed conditions, and ensure accurate risk scoring—critical for fair reimbursement in VBC contracts.
They'll use it for other things, but these are the biggies. New CMS Commissioner Dr. Mehmet Oz has been vocal about pushing VBC as the future. "Fee-for-service is a relic," he said in the CMS press briefing. "AI will help drive the transition to value-based care, achieving the triple aim of better care for individuals, better health for populations, and lower per capita costs." It's hard to argue with any of that.
As CMS goes, so go the rest of the big healthcare insurers, from UnitedHealth Group on down. The bias for action at CMS is being expressed as a bias for AI--damn the uncertainties.
There's a bear in these here woods.
