Value-Based Care and Denials: An Emerging Intersection

The American healthcare system is in the middle of a slow but consequential transition. Fee-for-service — the model where providers are paid for each service rendered — is gradually giving way to value-based care arrangements that tie payment to outcomes, quality metrics, and cost efficiency. According to the Health Care Payment Learning & Action Network (HCP-LAN), approximately 40% of healthcare payments now flow through some form of alternative payment model. For physician practices, this transition creates a new and often confusing intersection with denial management.

The assumption that value-based care eliminates the denial problem is widespread — and wrong. While the nature of denials changes as payment models evolve, the administrative burden does not disappear. In some cases, it shifts and intensifies in ways that practices are not prepared for.

The Promise: Aligned Incentives, Fewer Denials

The theoretical case for value-based care reducing denials is straightforward. In a fee-for-service environment, payers have a financial incentive to deny services — every denial represents a cost avoided. In a value-based arrangement where the provider assumes financial risk for the total cost of care, the payer's incentive to micromanage individual service decisions theoretically diminishes. If the provider is responsible for keeping total costs within a budget, the payer should care less about whether a specific MRI or a specific medication is ordered.

Some value-based arrangements do reduce prior authorization requirements. CMS's Medicare Shared Savings Program (MSSP) and various commercial ACO contracts have experimented with reducing prior authorization for providers in shared-savings arrangements. The logic is that if the provider shares the financial risk, the administrative overhead of prior authorization is redundant.

The Reality: New Denial Categories Emerge

In practice, the intersection of value-based care and denials is considerably more complex than the theory suggests. Several new categories of denial and administrative friction emerge:

• Quality metric disputes. Value-based contracts often include quality metrics that affect payment. When a payer determines that a practice has not met a quality threshold — and reduces payment accordingly — the practice may need to dispute the data or the methodology. These disputes function like denials: the practice believes it earned a payment that the payer is withholding, and a formal process is required to resolve the disagreement.
• Attribution challenges. Many value-based models assign (attribute) patients to a primary provider or practice for purposes of measuring cost and quality. When a patient is incorrectly attributed — or when the costs of care delivered by other providers are attributed to your practice — the financial impact can be significant. Challenging incorrect attribution requires the same skills and persistence as challenging a claim denial.
• Hybrid model confusion. Most practices do not operate entirely under value-based arrangements. They have some patients in fee-for-service, some in shared savings, and some in capitated arrangements — often with the same payer. Managing different denial and authorization processes for different patient populations covered by the same payer creates operational complexity that can exceed the complexity of a purely fee-for-service environment.
• Referral and network denials in ACO models. Accountable Care Organizations often incentivize keeping referrals within the network. Services rendered outside the ACO network may face additional scrutiny or denial, even when the patient received appropriate care from an appropriate specialist. Practices that participate in ACOs must navigate these network-based denial risks.

Prior Authorization Persists in Value-Based Arrangements

Despite the theoretical case for reducing prior authorization in value-based care, the reality is that most value-based contracts have not eliminated it. A 2023 survey by the Medical Group Management Association (MGMA) found that practices participating in value-based contracts reported only modest reductions in prior authorization volume compared to their fee-for-service counterparts.

Several factors explain this persistence. First, many value-based contracts include "guardrails" — prior authorization requirements for high-cost services that persist even within the value-based framework. Second, payers may maintain prior authorization for services that fall outside the scope of the value-based arrangement. Third, during the transition period from fee-for-service to value-based care, payers often maintain legacy utilization management processes while the new payment model is being established.

The practical implication for practices is that participating in a value-based arrangement does not mean you can stand down your denial management capabilities. The volume and type of denials may change, but the need for systematic tracking, timely appeals, and payer-specific strategy remains.

Data Becomes Even More Important

In a value-based environment, data is currency. The practice's ability to track costs, quality metrics, patient attribution, and utilization patterns determines whether it can identify when a payer's performance assessment is inaccurate — and whether it can make the case for correction.

This is a meaningful shift from fee-for-service denial management, where the data challenge is primarily about individual claims. In value-based care, the data challenge extends to population-level analytics: understanding how your patient panel's aggregate utilization compares to benchmarks, whether attributed patients are actually your patients, and whether the quality metrics being used to adjust your payment are being measured accurately.

Practices that lack robust data infrastructure will find themselves at a significant disadvantage in value-based arrangements. When a payer reports that your practice's total cost of care exceeds the benchmark, you need the data to verify — or dispute — that finding. When a quality metric shows you falling short, you need the data to confirm whether the measurement reflects your actual performance or a data capture issue.

The Risk Corridor Problem

Many value-based contracts include risk corridors — thresholds beyond which the practice either receives additional payment (for being below the cost target) or owes money back to the payer (for exceeding it). When a practice approaches the upper boundary of a risk corridor, every denied claim takes on heightened significance. A claim that is denied but should have been paid counts against the practice's cost performance, even though the practice received no revenue for the service.

This creates a perverse dynamic where denials in value-based arrangements can have a double impact: the practice loses the direct revenue from the denied service AND the denial inflates the apparent cost of care, potentially pushing the practice toward an unfavorable risk adjustment. Identifying and correcting these denials is essential for accurate performance measurement.

Preparing for the Transition

For practices that are entering value-based arrangements or expanding their participation, several preparedness steps are critical:

1. Do not dismantle your denial management infrastructure. Value-based care changes the denial landscape but does not eliminate it. Maintain your tracking, appeal, and reporting capabilities.
2. Build data validation capabilities. You need the ability to independently verify the data that payers use to calculate your performance metrics, patient attribution, and risk adjustments.
3. Understand your contract's dispute resolution process. Value-based contracts should include clear processes for disputing performance assessments, attribution errors, and payment calculations. Know these processes before you need them.
4. Track the interaction between FFS and VBC denials. If you have patients in both payment models with the same payer, understand how denials in each model affect your overall financial performance and reporting.

The shift toward value-based care is real and accelerating. But the idea that it eliminates the need for denial management is a myth that can be costly if believed. The practices that will succeed in the emerging payment landscape are those that adapt their denial management strategies to the new realities rather than assuming the problem will solve itself.