Contributor: Turning Headwinds Into Momentum—How Value-Based Care Can Help Payers Manage Costs and Regain Stability

An aging population, growing chronic disease burden, and higher demand for care are driving sustained increases in medical spending, pushing national health expenditures to an estimated $5.3 trillion in 2024. This is not a temporary surge; it reflects a long-term shift in how often, and how intensively, care is being delivered.

At the same time, payer revenue growth is slowing. CMS’s proposed Medicare Advantage (MA) payment update for 2027 came in well below expectations, signaling limited reimbursement growth just as utilization continues to climb. For payers, this creates a widening gap between the cost of care and the dollars available to cover it. It’s what some are now calling “The Great Medicare Advantage Margin Squeeze.”

Together, these forces mark a tipping point for payers in Medicare, particularly MA plans. Traditional responses—tightening utilization management, narrowing networks, or reducing benefits—can offer short-term relief but often come at the expense of member experience, provider relationships, and long-term sustainability. As utilization continues to rise and reimbursement remains constrained, payers are being pushed to rethink not just how much care costs but how care is delivered and managed in the first place.

That shift is accelerating interest in value-based care (VBC) models that align financial incentives with health outcomes and total cost of care.

The Value-Based Care Imperative

Experts project the number of patients covered under value-based arrangements will more than double by 2027. And evidence suggests these models can deliver meaningful results.

One study found that MA members in VBC arrangements had a 20% lower risk of acute hospitalizations and nearly 40% lower risk of 30-day readmissions compared with members under traditional MA coverage.

Another national insurer reported average savings of 3% to 6% per person per year across commercial, Medicare, and Medicaid lines through value-based arrangements focused on prevention, alongside higher well-visit, screening, and immunization rates.

Beyond lowering costs, value-based models have the potential to improve member experience. The most effective programs deploy interdisciplinary care teams, including nurses, social workers, dietitians, and behavioral health professionals, to address members’ clinical and nonclinical needs. This holistic approach improves satisfaction and trust, and in MA plans, member experience directly affects Star Ratings, which, in turn, drive bonuses, retention, and growth.

However, moving from a fee-for-service mindset to VBC requires more than a new contract; it demands a structural overhaul of how plans partner with providers, use data, and allocate resources. To navigate this transition successfully, payers are focusing on three core implementation strategies.

From Strategy to Scale: 3 Priorities for Payers to Succeed with Value-Based Care

1. Get Smart with Data and Technology

Advanced analytics, AI, and machine learning are essential for identifying at-risk members, prioritizing interventions, and measuring outcomes in real time. As a value-based kidney care provider, Interwell Health uses predictive modeling to help payers reduce near-term risks—including programs designed to help prevent avoidable readmissions—and to manage long-term utilization and costs by proactively engaging members with chronic kidney disease (CKD) and end-stage kidney disease (ESKD).

Longitudinal data, historical utilization patterns, and other patient data sources offer powerful insights to improve patient outcomes. But sophisticated analytics alone are not enough. Predictive insights and AI-enabled clinical decision support must be embedded into clinical workflows to drive measurable impact. When risk alerts and intervention recommendations surface at the point of care, clinicians are empowered to make informed treatment decisions and develop care plans in real time.

Today, we are also able to apply natural language processing to analyze patient data and uncover insights that are enabling care teams to move from broad, uniform outreach to more targeted, data-driven engagement approaches. Equally important, AI-enabled workflows can streamline administrative tasks and reduce time spent on documentation, allowing clinicians and care coordinators to focus on high-value patient interactions.

2. Build Collaborative Partnerships

Effective VBC requires dedicated payer-provider alignment and the curation of high-performing physician networks. Provider enablement strategies should focus on empowering providers as they navigate new VBC workflows, such as risk stratification and clinical documentation. Clinical decision support tools and data-driven insights embedded into clinical workflows are examples of resources payers can provide to enhance physician-patient relationships while enabling clinicians to retain their autonomy.

Managing high-cost, complex conditions such as CKD, diabetes, and heart failure also calls for specialized value-based partners that serve as the connective tissue between plans and providers. Effective partners bring the infrastructure, technology, population-health capabilities, and built-in, highly engaged physician networks that make risk-sharing models more scalable and sustainable. By embedding these collaborations into shared-accountability frameworks, payers can maximize the benefits of VBC among member populations driving the greatest cost and complexity.

3. Prioritize High-Impact Specialty Services

Specialty VBC is emerging as the next major opportunity, offering a targeted way to manage chronic, complex conditions that account for an outsized share of avoidable hospitalizations and medical spend. As part of a highly strategic, results-driven growth model, leading plans are prioritizing specialties where earlier intervention can meaningfully change clinical trajectories and total cost of care.

Kidney disease is a prime example. CKD rarely operates as an isolated condition; most patients live with multiple comorbidities, driving utilization across multiple service lines. For payers, this makes kidney care not only one of the highest-cost specialties but also one of the most leverageable—where proactive, coordinated intervention can slow disease progression while improving overall health and reducing complications and hospitalizations.

Nephrology: A Model for Specialty Success

Kidney disease is increasingly prioritized in specialty VBC strategies because of the potential to meaningfully reduce utilization and total cost of care through value-based interventions. For older adults with late-stage CKD, annual spending exceeds $31,000 per person per year. And once patients progress to end-stage kidney disease (ESKD), costs can surpass $100,000 PPPY
 
In an environment where MA reimbursement growth is effectively flat, these six-figure care trajectories represent both the greatest area of financial exposure and the greatest opportunity for improvement. Value-based nephrology models shift care upstream, reducing emergency dialysis starts, unnecessary hospitalizations, and other high-cost events that disproportionately drive medical spend.

Importantly, the results are no longer theoretical. McKinsey & Company has highlighted value-based nephrology as a model for other specialties to follow, citing reductions in hospital admissions, readmissions, and “dialysis crashes,” as well as expanded use of home dialysis. One national health plan generated $36.2 million in savings by engaging members in value-based kidney care programs that reduced hospitalizations and readmissions.

A New Era for Managing Costs and Care

The headwinds facing payers are intensifying, but mounting financial pressure does not have to translate into diminished benefits or compromised care. Instead, it can serve as a catalyst for a necessary evolution in how care is delivered and financed.

Value-based care offers a path forward that balances financial sustainability with the outcomes members expect and deserve. By prioritizing high-impact specialties such as nephrology, leveraging predictive analytics to guide earlier intervention, and forging deeper, multistakeholder partnerships, payers can convert today’s market volatility into a strategic advantage.