The Perverse Incentive Trap Hidden Inside Value-Based Care — and What to Do About It

If we want clinical teams to take on risk, we have to reckon with what that risk-taking actually incentivizes. In this episode, Stacey Richter weaves together conversations with two physicians to surface a tension she argues hasn't been said directly enough: the very mechanism we're counting on to fix healthcare — providers going at risk — has cherry picking and lemon dropping baked right into it. And the same organizations we're asking to take risk are the ones we already know are upcoding every ER visit to level four complexity.

In this episode, Stacey Richter speaks with Dr. Ahilan Sivaganesan, MD (Dr. Siva), a spine surgeon and researcher whose work on time-driven activity-based costing and the Operative Value Index appeared in EP505, and Dr. Monica Lypson, MD, MHPE, a physician and medical educator whose prior conversation with Stacey on this topic from EP322 has become, unfortunately, more relevant than ever.

WHAT YOU'LL LEARN

✅ Why physicians cannot responsibly go at risk for outcomes and costs without first knowing their own costs — and why time-driven activity-based costing (TDABC) is, as Dr. Siva puts it, existential for surgeons navigating procedural bundles

✅ How sliding scale bundled payments, where payment adjusts to the complexity of the patient and the surgery, could address cherry picking and lemon dropping — but only if the cost data underlying that scale is transparent and independently validated

✅ Why handing health systems a sliding scale risk adjustment framework is, in practice, handing them their own version of a Medicare Advantage RAF — and how we know exactly what happens next, because we've watched Medicare Advantage upcoding and commercial down coding play out simultaneously

✅ How the whole person health model — as practiced in independent advanced primary care, the VA, FQHCs, and some community health plans — reframes the economics: when care is genuinely comprehensive, many of the current upcoded profit centers become cost centers

✅ Why the solution to gaming risk adjustment frameworks may be the same as the solution to gaming credit scores: a neutral, detached third party scoring patient complexity using ground truths that cannot be manipulated by the parties with a financial stake in the outcome

✅ How structural barriers — misaligned funding streams, office hours that exclude working patients, the absence of robust quality measurement in most network contracts — can produce cherry picking and lemon dropping even without any overt intent to discriminate

WHY THIS MATTERS

We are deep into the value-based care era and the perverse incentive problem has not been solved — it has been relocated. Fee-for-service incents volume. Risk-based models incent patient selection. As Stacey frames it, the holy grail we are promoting has the very same conflicts of interest baked into it that we say we can't trust doctors to handle. What this episode surfaces is a conundrum worth naming plainly: you can't ask biased parties to grade their own homework, and right now that's exactly what we're doing every time we hand a large, corporatized health system a risk adjustment framework and expect them not to put a finger on the scale.

 

=== LINKS ===
🔗  Show Notes with all mentioned links:  
https://cc-lnk.com/EP511

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00:00 Introduction to this episode.

01:53 Upcoding problems: a previously unpublished clip from EP505 with Dr. Siva.

05:22 What is the minimum requirement for physicians to go at risk?

07:22 How sliding scale bundle payments can reduce risk for physicians.

10:43 The question covered in the upcoming episode.

13:19 Is value-based care good for underserved communities?

15:01 "If you create perverse incentives, you actually might make known healthcare disparities worse … to meet the demand's value." —Dr. Lypson

16:18 "There actually might be systematic and structural ways that the healthcare system might say … we're not interested in taking care of you." —Dr. Lypson

16:51 "The incentive to have a good outcome is not there; the incentive to have another visit is there." —Dr. Lypson

17:15 EP485 with Cristin Dickerson, MD.

17:49 "The only indictment I have on the fee-for-service system is that it's gotten us to where we are right now." —Dr. Lypson

18:41 "If you don't have any connection in that system, even the provider trying to … provide a good outcome might be disconnected because the system is not in place to … connect the dots." —Dr. Lypson

19:15 EP436, EP491, and SUMS9 with Elizabeth Mitchell.

19:28 What are the must-haves for a value-based system that create the patient outcomes we need?

19:51 What is a whole health model?

22:00 EP462 (Scott Conard, MD), EP319 (Grace Terrell, MD), EP431 (Kenny Cole, MD), EP409 (Larry Bauer, MSW, MEd), and EP495 (Mick Connors, MD).

22:23 LinkedIn post by Mark Weber.

25:05 EP484 with Dave Chase.

25:31 Why we need to fix the structural issues if we want to fix health.

26:00 Why a patient's bias is the one we want in the room.

27:36 Stacey's conclusion on this week's episode.