The U.S. healthcare system faces significant challenges and opportunities as it enters 2025, including navigating policy shifts, demographic pressures, and technological advancements. Health systems must contend with shifting payment models, operational pressures, and health disparities, all while adopting innovations that enhance care delivery. At the heart of this evolution lies value-based care (VBC) — an approach designed to improve patient outcomes while controlling costs. Despite policy uncertainty, the foundational principles of VBC remain crucial for sustainable, high-quality healthcare. This article is intended to provide insights on where healthcare is headed, the trajectory of VBC, and why it must remain a strategic priority for 2025 and beyond.
Policy Landscape and Strategic Priorities:
As we enter a new Trump administration, it will be helpful to review the VBC initiatives from his previous administration. These initiatives emphasized deregulation and market-driven reforms and introduced models like Pathways to Success and Direct Contracting to increase provider accountability through two-sided risk models. The subsequent Biden administration reinforced VBC by prioritizing health equity and expanding value-based frameworks through the ACO REACH model and increased attention to social determinants of health (SDoH).
Looking ahead, the potential return of policies influenced by Trump-era priorities suggests a shift toward decentralization, flexibility, and competition while Biden-era initiatives increased focused on prioritizing community-based care and equity-focused reforms. These distinctions underscore how federal priorities have influenced innovation and care delivery over the last decade; however, both Republican and Democrat administrations have consistently supported VBC’s overarching goal to control Medicare expenditures and improve outcomes. What is clear is that while value-based care is challenging, it is a bipartisan issue which has transcended several administrations. It should not be thought of as a fading trend and will be a strategic priority moving forward.
Furthermore, the need for sustainable value-based frameworks also reflects growing recognition of global best practices. Other health systems worldwide achieve better outcomes by emphasizing primary care, enforcing spending limits, and employing financing models that engage consumers, employers, and governments. According to the Commonwealth Fund’s latest ‘Mirror, Mirror’ report, top-performing nations prioritize universal access to primary care, allocate a higher percentage of healthcare spending toward prevention and chronic disease management, and maintain streamlined care coordination structures that reduce delays and disparities. These nations also implement robust primary care networks and invest in social services that impact health outcomes, such as housing, nutrition, and transportation. While the U.S. system faces unique challenges due to its size and complexity, these international comparisons highlight the importance of limiting administrative costs, expanding patient access to comprehensive primary care, integrating care with social supports, and fostering policy innovation to improve health equity and outcomes across diverse populations.
CMMI’s 2030 Vision and Cost Concerns:
The Center for Medicare and Medicaid Innovation (CMMI) has set a bold goal of having 100% of Medicare beneficiaries in a care relationship with accountability for quality and total cost of care by 2030. This ambitious vision underscores CMMI’s commitment to advancing value-based care. However, skepticism remains due to the Congressional Budget Office’s (CBO) report indicating that CMMI’s pilot programs have cost $5.4 billion more than they have saved while testing 49 different models and only approving five expansions. Critics argue that the innovation center must refine how it sets savings benchmarks to avoid discouraging provider participation. Nonetheless, supporters note that innovation inherently involves trial and error, and CMMI’s initiatives have piloted vital models that advance care coordination.
New models are now focusing on specialty care integration, which has been highlighted in recent strategy updates. For instance, CMMI’s strategic refresh emphasizes integrating specialists into value-based arrangements, a key gap in earlier models. By promoting person-centered specialty care, these new frameworks aim to improve continuity and outcomes for complex, high-cost populations. This includes innovative payment mechanisms tailored for oncology, cardiology, nephrology, and other specialty fields where care coordination has historically lagged.
Moreover, CMMI is enhancing its data-sharing strategy to improve provider participation and accountability. As highlighted in CMMI’s recent data-sharing strategy initiative, streamlined data access empowers providers to better manage patient populations, identify cost-saving opportunities, and implement timely interventions. This aligns with broader efforts to make value-based care models more accessible, particularly for smaller provider groups that lack the resources of larger health systems.
Another area of focus is addressing the “benchmark ratchet” issue that penalizes high-performing providers by tightening financial targets after early successes. Policymakers are experimenting with solutions such as incorporating a prospective, external factor in growth rates used to update the historical benchmark, adjusting ACO benchmarks to account for prior savings, reducing the impact of the negative regional adjustment, and regional benchmark assignment window to align with ACO’s chosen assignment, among others. It is therefore advised to have a thorough understanding of the benchmarking calculations before entering any CMMI or CMS MSSP agreement period, or any agreement period renewal. These refinements aim to create a more equitable and predictable value-based care landscape, ensuring that early adopters or high performers in low benchmark areas are not disproportionately disadvantaged.
Margin Compression, Physician Supply, and Healthcare System Constraints:
Healthcare systems are grappling with significant margin compression due to rising labor costs, inflation, declining reimbursements, and increased denials. Inflation has driven up operational expenses, while Medicare’s adjustments to the physician fee schedule have led to reduced payments despite increased service demands. According to the American Medical Association, the conversion factor recalculations aimed at maintaining budget neutrality have resulted in cumulative financial pressures for health systems. In response, many health systems are reevaluating their service portfolios, divesting from underperforming facilities, and investing in outpatient care and telehealth to improve financial sustainability. However, these strategies require upfront investments that may further strain near-term budgets. The Centers for Medicare and Medicaid Services (CMS) has also finalized a 2.83% reduction to the conversion factor in the Medicare physician fee schedule for 2025, marking the fifth consecutive year of reductions. This reduction has prompted widespread concern, as physicians already face mounting financial pressures due to increased labor costs and administrative burdens. There were hopes of a bipartisan package in December which would have provided a 2.5% patch, but Congress ultimately did not provide relief in a continuing resolution. Many may remember similar discussions and fixes commonly referred to as “doc fix” during the era of the Sustainable Growth Rate (SGR) before the implementation of the Medicare Access and CHIP Reauthorization Act (MACRA). Due to these pressures many healthcare leaders have called for reforms to stabilize payments and encourage provider participation, with discussions also focusing on a permanent replacement for the Merit-based Incentive Payment System (MIPS).
One of the most pressing challenges in healthcare, unfortunately, is the dwindling physician supply. With approximately 11,000 Baby Boomers turning 65 daily, as of 2024, the demand for healthcare services continues to grow. However, many physicians in specialty fields are nearing retirement, exacerbating provider shortages. This creates capacity and resource constraints that challenge value-based models which depend on robust, well-coordinated primary and specialty care networks.
In addition, the rising administrative burden associated with electronic health records (EHRs) and regulatory requirements has contributed to physician burnout, further straining the workforce. Policymakers and healthcare leaders must explore strategies to support physician retention, such as implementing team-based care models, expanding the use of advanced practice providers (APP), and leveraging technology to reduce paperwork and streamline workflows. Healthcare organizations are also increasingly adopting collaborative approaches, such as centralized scheduling, flexible work arrangements, and better mental health support for providers, to improve physician well-being and retention. These interventions can strengthen the care delivery system and ensure that physician shortages do not undermine the goals of value-based care.
Furthermore, the geographic distribution of physicians remains uneven, with rural and underserved areas facing the greatest shortages. Incentivizing services in these regions through loan forgiveness programs, increased reimbursement rates, and improved telehealth infrastructure can help bridge this gap.
The key takeaway here is that healthcare demand remains largely inelastic, as patients will continue to need care regardless of economic shifts or provider supply. This inelasticity underscores the importance of hospitals and health systems maintaining a balanced approach that includes both fee-for-service (FFS) and value-based care (VBC) models. By continuing FFS operations alongside proactive VBC adoption, organizations can optimize throughput, improve financial resilience, and drive better patient outcomes. Proactive participation in VBC allows systems to “do well while doing good,” creating efficiencies that improve care quality, reduce unnecessary utilization, and foster population health improvements. It is also an opportunity to gain experience with Alternative Payment Models (APM) while there are still upside only risk options available.
Medicare Advantage Growth and Implications:
Traditional Medicare enrollees continue to migrate to Medicare Advantage (MA) plans, attracted by lower premiums, expanded supplemental benefits, and out-of-pocket cost protections. However, a recent Modern Healthcare report highlights that insurers are increasingly exiting less profitable markets and scaling back benefits such as over-the-counter products and transportation services. It also reported a 167% increase in pharmacy deductibles and a 20.7% rise in annual out-of-pocket maximums for some plans. This may be driven by a need for investor returns and insurers potentially focusing on profits over growth strategies. Despite these cutbacks, CMS reports stable overall premiums, underscoring the complexity of balancing affordability and benefit breadth.
The influx of beneficiaries into MA plans has also raised concerns about equitable access. MA plans often differ in benefit structure across geographic regions, creating variability in care quality. Policymakers must address these disparities by enhancing oversight and improving star rating systems to ensure consistent standards. As previously mentioned, this trend reflects ongoing pressure on insurers to balance competitive offerings with profitability amid stricter regulations and risk-adjustment measures.
These developments illustrate the rapidly evolving landscape of value-based care and underscore the need for policy stability, innovative payment structures, and collaborative solutions. Healthcare organizations must remain flexible, anticipating policy changes while leveraging bipartisan support for payment innovation.
Private Equity in Healthcare:
The 2025 healthcare landscape presents a dynamic environment for private equity (PE) investments, influenced by regulatory changes, policy shifts, and evolving market conditions. The re-election of President Trump signals a potential shift towards deregulation and market-driven healthcare policies, with anticipated appointments such as Robert F. Kennedy Jr. as Secretary of Health and Human Services (HHS) and Dr. Mehmet Oz as Administrator of the CMS.
Despite these potential federal shifts, state-level regulatory scrutiny is intensifying. Currently, 15 states have implemented healthcare transaction review laws requiring pre-closing submissions and approvals for mergers, acquisitions, and restructurings. These regulations can extend transaction timelines and impose additional compliance burdens. The Federal Trade Commission (FTC) has also heightened its scrutiny of PE’s role in healthcare.
Nevertheless, private capital will likely be essential in driving public mission goals, especially in an era of margin compression for traditional healthcare services. With labor costs rising, inflation, and declining reimbursements from Medicare and Medicaid, health systems are facing unprecedented financial pressure. PE investments can provide the necessary funding to innovate, modernize infrastructure, and expand access to care. By targeting areas like outpatient care, telehealth, and behavioral health, private capital can help bridge resource gaps while aligning with value-based care objectives.
Strategically integrating private capital into healthcare also allows for accelerated adoption of technologies like AI-driven diagnostics, precision medicine, and advanced data analytics. These innovations not only have the potential to improve patient outcomes but also enhance operational efficiency. For example, PE-backed organizations are increasingly leveraging data-driven approaches to reduce administrative burdens, streamline care delivery, optimize supply chains, and reduce unnecessary utilization.
However, PE firms must balance profit motives with the public mission of healthcare. Transparent governance structures, long-term planning, and patient-centered strategies will be critical to ensuring that private investments lead to sustainable improvements without exacerbating disparities. Collaborating with experienced legal counsel and consultants while engaging stakeholders early in the transaction process can further mitigate regulatory risks and align investments with broader healthcare goals.
Restoring Trust in the Healthcare System:
Lastly, public trust in the healthcare system has declined due to concerns over affordability, transparency, and disparities in care. Regaining this trust requires meaningful reforms that address both patient experience and outcomes. Expanding health education, improving communication around costs, and demonstrating transparency in pricing are critical steps. Moreover, fostering partnerships with community organizations can help address SDoH, reinforcing trust through holistic, patient-centered care. Efforts to improve trust should also include leveraging digital health tools to increase engagement. Patient portals, telehealth follow-ups, and health monitoring apps can enhance the continuity of care and promote transparency by providing patients with real-time access to their health data.
The tragic killing of UnitedHealthcare CEO Brian Thompson in late 2024 has further amplified public scrutiny of the healthcare system. While the circumstances of this incident were deeply troubling, it has become a flashpoint for broader discussions about the role of profit motives within the industry. Critics have highlighted the need for healthcare organizations and payors to prioritize patient outcomes over financial gains to regain public confidence. This event has served as a stark reminder that the healthcare system must shift its focus to ethical, patient-first practices while fostering a culture of accountability and empathy. By addressing these systemic issues, healthcare organizations can work toward rebuilding trust and delivering value-driven care that meets the needs of all stakeholders.
Conclusion:
This article aimed to provide an overview of where healthcare is headed in 2025 and beyond, with a focus on the strategic importance of value-based care. By analyzing key policy developments, national trends, and the significance of clinical integration and care coordination, it has highlighted the challenges and opportunities healthcare organizations face in the new era of healthcare.
Value-based care thus remains indispensable for addressing rising healthcare costs, demographic pressures, and persistent disparities. This article also articulates key recommendations for healthcare organizations such as investing in clinical integration to enhance care transitions, adopting risk-sharing models to strengthen financial accountability, and leveraging population health tools to identify and support high and rising-risk patients. By forming partnerships with community organizations and investing in digital health innovations, healthcare organizations can improve patient outcomes and adapt to shifting regulatory landscapes. The integration of digital health — such as telehealth and hospital-at-home programs — extends care beyond traditional settings and enhances efficiency. This combination supports financial sustainability and improves the patient experience.
To build a resilient healthcare future, healthcare organizations must balance regulatory agility with a commitment to delivering value-driven, patient-centered care. By remaining proactive and adaptive, together we can achieve long-term success!
If you or your organization has questions around trends in healthcare, how to formulate your strategy for the future of healthcare, or to discuss how to improve coordination and execution along the care continuum, please reach out to us here at Pinnacle Healthcare Consulting to continue the conversation.
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