Why Prevention Still Struggles Financially—Even in Value-Based Care 

For more than a decade, US health policy has been moving toward value-based care, or paying for health outcomes rather than the number of services delivered. One of the key goals is to improve health outcomes by rewarding prevention rather than treatment. A closely related goal is to improve affordability by reducing avoidable, high-cost care.

And yet, even within many value-based models, preventive care often remains financially difficult to sustain. This is not simply a question of awareness or clinical effectiveness. It reflects how financial incentives shape behavior across the system. When payment structures more reliably reward treatment than prevention, resources and attention tend to follow those incentives.

This is not because prevention lacks evidence. Programs that screen for risk factors and disease improve chronic disease management, expand behavioral health access, address social needs, or strengthen care coordination have often been shown to reduce hospitalizations and improve health. The challenge is more structural: even within many value-based models, the financial returns from prevention are not reliably captured by the organizations that invest in it — whether providers, payers, or other entities responsible for financing care.

Misalignment Within Value-Based Care

These patterns suggest that expanding prevention requires more than adding new programs. It requires aligning financial incentives so that the organizations best positioned to prevent avoidable illness are also positioned to benefit when they succeed.

Three structural dynamics help explain this gap.

First, the misalignment between investment and return. In many cases, the entities funding preventive interventions are not the ones that capture the resulting savings. A health system or primary care organization may invest in care management, community health workers, or social supports that reduce avoidable utilization. However, the financial impact of those reductions is often distributed unevenly. A significant share of the savings may accrue to payers in the form of lower claims, while providers absorb the upfront costs and may experience reduced revenue from avoided services. Additional savings may accrue to other insurers if patients transition between coverage types.

For example, a health system may fund housing support or intensive care management for high-risk Medicaid patients, successfully reducing hospitalizations. Much of the financial benefit, however, appears as lower spending for the Medicaid program or managed care plan, while the provider absorbs the upfront cost and potential loss of revenue from avoided services.

Second, fragmentation across payers limits any single actor’s ability to invest at scale. Most prevention programs operate across populations covered by multiple insurers — Medicaid, Medicare Advantage, and commercial plans. Each payer measures performance independently and captures savings within its own population.

This creates a collective action problem. A provider or community-based program may reduce total utilization across a population, but no single payer realizes enough of the savings to justify sustained investment at scale. In practice, a community-based program may reduce emergency department visits across a region, but the impact is spread across multiple insurers. Because the savings are fragmented, no single payer has a sufficient incentive to reimburse or otherwise financially support the program at the level required to sustain it.

Third, a mismatch in time horizons. Many preventive interventions generate measurable financial returns over several years. Improvements in chronic disease control, behavioral health stabilization, or housing support often translate into lower utilization of health care services over a three- to five-year period. However, value-based contracts between provider and insurers, premium rate-setting processes, and budgeting cycles frequently operate on annual timelines. This misalignment can make it difficult for organizations to justify investments whose financial benefits emerge beyond the current performance period. Taken together, these dynamics help explain why prevention can remain financially fragile — even in systems designed to support it.

The Role of States in Aligning Incentives

While these challenges are difficult for any single payer or provider to address independently, states are uniquely positioned to help align incentives across the system. States are major purchasers of health care through Medicaid and state employee health plans. They also regulate commercial insurance markets and can establish expectations that apply across payers. In addition, states can convene stakeholders to coordinate approaches that would otherwise remain fragmented. This combination of roles creates an opportunity to address misalignment in a more comprehensive way.

Policy Options for States

Several policy approaches could help make prevention more financially sustainable.

1. Multi-payer prevention funding or shared savings
States can convene Medicaid, commercial insurers, and other stakeholders to support shared investments in prevention tied to population-level outcomes. Pooling resources across payers can help overcome fragmentation and allow prevention programs to be funded in proportion to their system-wide impact, rather than the narrower savings realized by individual payers. For example, Massachusetts has used Medicaid waivers and multi-payer initiatives to support housing and care coordination programs, with public and private payers contributing to services that reduce hospitalizations across shared populations. Through its Health Policy Commission and cost growth benchmark, the state has also created a structure that aligns multiple payers around investment priorities, including primary care and prevention.

2. Primary care investment standards across payers
States are increasingly using policy levers to establish minimum thresholds for primary care investment that apply across Medicaid, commercial markets, and state employee plans. California, for example has set a benchmark of 15% investment in primary care (as a percentage of total health care costs) by 2034 for all health care payers. Standardizing expectations across payers helps ensure that prevention is treated as a shared priority rather than a discretionary strategy that varies by insurer.

3. Multi-year value-based contracting structures
States can encourage or require longer-term contracting arrangements — particularly in Medicaid managed care — that better align with the time horizons of preventive interventions. Oregon’s coordinated care organizations operate under global budget arrangements intended to support more flexible, longer-term investment in population health. While this model represents an important step toward alignment, experience has shown how difficult it can be to fully realize those goals in practice, as the organizations are still paid primarily based on medical claims rather than population health improvement. Multi-year contracts with stable benchmarks can give providers greater confidence to invest in programs whose financial returns accrue over several years.

Toward a More Sustainable Model for Prevention

The shift to value-based care has been an important step in aligning payment with health outcomes. However, expanding value-based models alone may not be sufficient to make prevention financially sustainable. As long as it remains easier for providers to be paid for medical treatment than for prevention, it will be difficult to fully realize the potential of value-based care. When incentives remain fragmented, savings are diffusely distributed, and timelines are misaligned, prevention will continue to face structural barriers — even when its clinical benefits are well established. States can play an important role in helping to realign these financial incentives across the system.

A more durable model requires aligning financial incentives across payers and over a longer period of time, so that the organizations investing in prevention can reliably capture a meaningful share of the value it creates. At its core, affordability and prevention are not separate challenges. A system that cannot financially support prevention will continue to rely on more expensive, reactive care. Aligning incentives so that prevention becomes economically viable and scalable is one of the most direct ways to reduce avoidable spending while improving outcomes.

States have a critical role to play in advancing this alignment. Without that alignment, prevention will remain a widely endorsed goal that is still, too often, economically unsustainable in practice.