The Perverse Incentive Trap Hidden Inside Value-Based Care — and What to Do About It. EP512

When Risk-Based Payment Becomes Its Own Upcoding Arms Race. Episode 511

Medicare Advantage plans get paid more for sicker patients, which is why upcoding became a problem — and now health systems are upcoding visit complexity right back, with MA plans automatically downcoding in response. In this episode, Stacey Richter plays an unpublished clip from her conversation with Ahilan Sivaganesan, MD (Dr. Siva), a neurosurgeon and head of quality and value at Mishe Health, on why physicians must understand their own costs before taking on financial risk, then revisits an earlier conversation with Monica Lypson, MD, MHPE, vice dean for medical education at Columbia University Irving Medical Center, on whether handing health systems that same risk-based incentive could end up worsening the very disparities value-based care is meant to fix.

WHAT YOU'LL LEARN

✅ Why Medicare Advantage plans' incentive to upcode patient complexity is now mirrored by health systems upcoding visit complexity — triggering automatic downcoding wars between MA plans and providers

✅ Why physicians can't responsibly go at risk for outcomes and costs without first understanding their own costs through time-driven activity-based costing — without it, Dr. Siva says, you're "jumping blind into an abyss," straight toward cherry-picking and lemon-dropping patients

✅ How sliding-scale bundled payments, calibrated to patient and procedure complexity rather than a flat lump sum, could let practices take on bundled risk without being punished for treating sicker patients

✅ Why handing health systems a sliding-scale risk adjustment framework risks recreating the same upcoding incentives that plagued Medicare Advantage, just one level up the chain

✅ How perverse incentives baked into value-based and risk-based contracting can worsen existing healthcare disparities when systems are structurally rewarded for avoiding complex or costly patients

WHY THIS MATTERS

Risk-based and value-based payment models are often framed as the fix for fee-for-service's worst incentives. But if the underlying cost data and risk-adjustment frameworks aren't built carefully, the same gaming that plagued Medicare Advantage — and fee-for-service before it — can simply move up the chain to health systems and physician practices, with disparities in care quietly bearing the cost.

MENTIONED IN THIS EPISODE

EP505 with Ahilan Sivaganesan, MD: Apple Podcasts | Spotify | Other Apps

EP485 with Cristin Dickerson, MD: Apple Podcasts | Spotify | Other Apps

EP436 with Elizabeth Mitchell: Apple Podcasts | Spotify | Other Apps

EP491 with Elizabeth Mitchell: Apple Podcasts | Spotify | Other Apps

SUMS9 with Elizabeth Mitchell: Apple Podcasts | Spotify | Other Apps

EP462 with Scott Conard, MD: Apple Podcasts | Spotify | Other Apps

EP319 with Grace Terrell, MD: Apple Podcasts | Spotify | Other Apps

EP431 with Kenny Cole, MD: Apple Podcasts | Spotify | Other Apps

EP409 with Larry Bauer, MSW, MEd: Apple Podcasts | Spotify | Other Apps

EP495 with Mick Connors, MD: Apple Podcasts | Spotify | Other Apps

LinkedIn Post by Mark Weber

EP484 with Dave Chase: Apple Podcasts | Spotify | Other Apps

=== LINKS ===

🔗 Show Notes with all mentioned links: Show Notes

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TIMESTAMPS

00:00 Introduction to this episode.

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

17:49 "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

19:28 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?

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.