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Table of Contents
**Disclaimer: All opinions and ideas expressed in this article are solely mine and none represent a recommendation or should be viewed as advisement of any kind to anyone to do anything.*
Volume of Services per Beneficiary vs. Costs of Service Units
There’s a lot of finger-pointing in healthcare. That leads to a lot of confusion. And that leads to people thinking they know the problem, or what will solve it, or who’s at fault. It leads to feeling helpless and frustrated.
I am a value-based care expert and advocate. VBC principles are undeniably better for providers and patients. Reward upstream, team-based care that’s structured so long-term patient outcomes improve. That is the nuts and bolts of it. Change incentives, transform how care is delivered.
When done well, which I’ve seen happen in advanced, team-based primary care, managing acute episodes of care, and much more, you get great results for everyone. You reduce the utilization of high-cost settings like inpatient hospital stays and reduce risk of readmissions after a stay, care is coordinated between providers, patient pro-active outreach is prioritized, preventive screenings are done on more patients so high-morbidity and mortality diseases are caught earlier, patients are more directly engaged in their care, they have better access to care, chronic disease progression slows…and the list goes on.
What value-based care can excel at, when structured and executed well, is reducing the volume of high-cost medical interventions.
What it can’t do well is lower unit costs of care outside the primary care setting. There are exceptions, of course. In advanced VBC arrangements, primary care practices can establish downstream relationships with specialists and others, like post-acute providers, to better align incentives and partner with high-value practices and organizations who agree to support the goals of the arrangement.
Spending per enrollee that’s driven by high cost specialty drugs, high hospital prices, new high-cost procedures, device and supply prices, and more is the major force that negatively impacts benefit compression, higher premiums, plan market exits, higher deductibles, co-pays, and co-insurance, and more.
I think sometimes we say value-based care isn’t working because we don’t fully appreciate all the drivers of cost and what can and can’t be controlled by whom. Besides that, transitioning away from transactional, volume-awarded reimbursement is very, very hard. There’s been major progress in the ten years since it became a concept many physicians understand.
As a physical therapist by training, I can say that most non-physician healthcare professionals have little to no understanding of VBC. They have largely been left out and are often struggling to stay afloat even harder than physicians have. It’s hard for them to take the time to learn about it, even if they were exposed to it more. And their buy-in is crucial. For PTs alone, there are several hundred thousand employed in the United States.
Unit Cost and Mix are Difficult to Address
While these are dominant drivers of spending spikes, they are hard to fix.
Here are some concentrated areas of high costs:
Specialty drugs and drug mix make up a high share of Part D spending. Use of new, high-cost agents for oncology, biologics, GLP-1s, cellular therapies, and more and shifts in the mix contribute a lot to the growth. Milliman does a great job covering this here. Here’s a nice visual from their site 👇
Hospital prices and intensity remain the largest slice of Medicare goods and services. Per-enrollee spending is increasing as a result of price growth, labor costs, and service intensity. Also, consolidation and market power can amplify negotiated prices. This article in Health Affairs dives deeper into this 👇
High-cost procedures and supplies—rapid growth in spending for items like skin substitutes (addressed in the 2026 Physician Fee Schedule final rule) has produced dramatic year-over-year jumps.
Higher-priced and high site-of-care imaging modalities—this article published in Radiology in 2021 (FDA Commissioner Dr. Marty Makary is a co-author) looks at commercial negotiated prices for CMS-specific shoppable radiology services. This 2025 article in Health Affairs Scholar. This is directly from the “Results” section, no surprise: “Key findings include greater variation in facility fees compared to professional fees, with facility coefficients of variation often 3 to 6 times higher than professional components.”
Why All Stakeholders Should Understand
Value based care can and should be expanded. It will help blunt future volume growth and improve outcomes. But utilization reductions from VBC can’t offset line items like single drugs or devices or interventions that cost tens to hundreds of thousands of dollars.
Market mechanics amplify the pain. Health system consolidation, transparency limitations, and more allow dominant providers to command higher prices and widen regional price gaps. This makes it harder for payers and policymakers to control spending and for consumers to understand the true costs of their healthcare.
Some Practical Levers to Pull
Double down on VBC to address volume and quality. This includes things like investing in care navigation, chronic care models, addressing social and functional drivers of health, ED diversion, and more. Keep working to scale VBC and reduce avoidable utilization while improving patient experience.
Attack unit costs through formulary design, negotiation biosimilar uptake (besides VBC, this is the major lever to drive lower medical trend), utilization management for specialty drugs that includes patient engagement efforts, and more.
Align payment to evidence. For poorly evidenced, high-cost supplies (like skin substitutes), tighten coverage rules and prior authorization.
Fix healthcare market distortions through hospital price transparency and benchmarking methodology that limits the ability of providers to achieve outsized prices.
Keep fighting fraud, waste, and abuse in the extreme areas. Address unexplained spikes in utilization immediately. Let’s not forget that ACOs blew the foghorn when their claims data started showing urinary catheter spend when patients weren’t receiving it and it wasn’t being ordered!
Here’s the Takeaway
There are many inter-connected factors driving our healthcare affordability problems. When it comes to volume and costs, two truths can coexist. VBC is essential to reduce avoidable volume and improve quality of care, outcomes, and the patient experience. But unit costs and the changing mix of care are a real fiscal problem driving spending per beneficiary in Medicare.
We can make progress with VBC. That being said, expectations for overall results in VBC should take into account the time it takes to get everyone rowing the same direction (we have a long way to go) and the culture and practical changes that have their own associated costs.
But the runaway train is the unit cost and mix of services being used. There are levers to pull to address them, but they are also heavy lifts. Keeping in mind the factors involved in taking action that include: what changes would be needed, who can make the changes, who doesn’t want the changes, and more.
One final thought. Something simple often gets lost when clinicians talk about things like the shrinking conversion factor and reimbursement pressures and when we all rightly lament about the cost of care. I often hear the blame pointed at payers, from CMS to health plans to self-insured employers.
But this is a factor that often gets lost:
There’s a fixed amount of money in a budget every year to cover all expenses that a payer’s population will incur. When unit costs and mix are so high, like we covered here, and the spending trend is up close to double digits in a single year, what are the options to stay in the budget?
They can pay for fewer units of care, increase responsibility on patients, reduce reimbursement levels to clinicians and other providers, raise maximum out of pocket costs, and other cost-control mechanisms. The pie can only be cut so many ways.
Good solutions can only be developed when we recognize there’s no one individual or entity or part of the system to “blame.”
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*Disclaimer: All opinions and ideas expressed in this article are solely mine and none represent a recommendation or should be viewed as advisement of any kind to anyone to do anything.*
