Specialty care has emerged as a major driver of increasing US healthcare spending. Specialty care focuses on specific body systems or diseases, such as orthopedics or oncology. Primary care, by contrast, covers a range of health services addressing common illnesses and prevention. Payers and health systems are seeking ways to improve patient experiences and outcomes while appropriately managing costs in specialty care.
To do so, some organizations have adopted value-based-care (VBC) models that share financial risk with physicians. The goal of these models is to provide high-quality care at lower costs, compared with the traditional fee-for-service model in medicine in which physicians are reimbursed based on the volume of services provided. However, compared with primary care, only a fraction of specialty care is actually delivered under risk-bearing VBC arrangements.1
In this article, we focus on four main topics:
- Specialty spending is a leading source of increases in total health expenditures.
- A considerable portion of specialty spending—potentially up to $100 billion a year—could be avoided through VBC approaches.
- The ability to manage spending will vary by specialty, as will the capabilities needed to better serve patients and capture sources of value.
- There are several archetypes of organizations addressing specialty costs, but players typically lack the full suite of capabilities to achieve VBC’s potential.
Specialty care is rapidly becoming the leading contributor to healthcare spending
Patients requiring specialty care account for a growing share of healthcare spending. In 2023, direct specialty spending on orthopedics, oncology, cardiology, women’s health, behavioral health, and nephrology reached 38 percent of total medical spending (Exhibit 1).2 Total cost of care (TCOC) for patients seeing specialists in these six areas accounted for 68 percent of total commercial and Medicare spending in 2023.3
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A segmented column chart with two columns shows the breakdown of Medicare and commercial spending in 2020 and 2023 by area: nephrology, behavioral health, women’s health, cardiology, oncology, orthopedics, and all other spending. It shows that spending in the six specific areas grew by 9.3% from 2020 to 2023 whereas spending in all other areas grew by just 6.8% in that time—a difference of 35%.
Source: Centers for Medicare & Medicaid Services Limited Data Set (2020–23); Merative MarketScan Commercial Dataset (2020–23)
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Private payers are increasingly focusing on the rise in specialty-care spending. For example, each of the top six commercial payers mentioned specialties such as cardiology, oncology, and behavioral health two to three times in 2023 and 2024 investor disclosure reports.4 Additionally, the Center for Medicare and Medicaid Innovation (CMMI) has launched more than a dozen specialty-care-focused models over the past decade. The 2025 CMMI strategy includes expanding specialty VBC models to Medicare Advantage and Medicaid while increasing the participation of independent specialists.5 In parallel, there has been considerable investor interest in specialty VBC. Companies that provide technical support to specialty physicians in VBC contracts raised more than $63 billion in 2023.6
Despite increased interest in specialty-spending management, only a small amount of specialty care is actually delivered under risk-bearing VBC arrangements. While more than half of original Medicare members are under a value contract with their primary care physician, VBC covers only about 28 percent of patient lives in nephrology, 20 percent in orthopedics, and 5 percent or less in the other highest-spending specialties, such as cardiology, oncology, women’s health, and behavioral health.7
Substantial savings could be achieved by better managing specialty spending (Exhibit 2). Even at the lower end, our estimates indicate a potential reduction in Medicare and commercial specialty spending by $100 billion a year (see sidebar, “Methodology”).8
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A bar chart shows total cost of care—broken out by specialty-specific spending and other spending—and potential annual savings via value-based-care levers for patients across six areas of care: nephrology, behavioral health, women’s health, cardiology, oncology, and orthopedics. These levers could generate tens of billions of dollars in savings across areas of care, with the highest potential savings in oncology ($50 billion to $60 billion), orthopedics ($35 billion to $45 billion), and nephrology ($30 billion to $40 billion).
Source: Centers for Medicare & Medicaid Services Limited Data Set (2020–23); Merative MarketScan Commercial Dataset (2020–23); McKinsey analysis of literature as well as expert interviews and surveys
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The levers that lead to potential savings while achieving high-quality care and favorable outcomes are consistent, effective, and timely diagnostics; cost-effective therapeutic alternatives (such as lower-cost medications or less-invasive procedures) that are equally effective; lower-cost sites of care when clinically appropriate (such as ambulatory surgical centers instead of hospitals or home-based care instead of nursing facilities); and prevention of complications from procedures or acute events through clinical best practices and follow-ups. These levers differ by specialty (Exhibit 3).
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A heat map shows the total cost of care savings of four levers for value-based care across six care areas—nephrology, behavioral health, women’s health, cardiology, oncology, and orthopedics. The levers are diagnostic intensity, treatment selection, site-of-care selection, and preventable complications. The highest savings are seen in treatment selection and preventable complications in oncology and site-of-care selection and preventable complications in nephrology. The highest overall savings, across levers, are also in oncology (15% to 17%) and nephrology (25% to 27%).
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Strategies to address specialty-care spending
To succeed in the evolving specialty-care landscape, specialists and the companies that support them with enablement services must adapt their capabilities and business models to manage spending while addressing patient needs and ensuring high-quality care. We have observed four distinct specialty VBC player archetypes in the industry to date, each of which has a different effect on sources of value (Exhibit 4).9
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A heat map shows four specialty value-based-care player archetypes and their impact on source of value (major, intermediate, or minor) across four different value-based-care levers: diagnostic intensity, treatment selection, site-of-care selection, and preventable complications. Site-agnostic wraparound services has the biggest impact on source of value for preventable complications; intensive outpatient-focused integrated care has the biggest impact on site-of-care selection; treatment pathways navigator has the biggest impact on both diagnostic intensity and treatment selection; and digital health innovator has the biggest impact on preventable complications.
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Site-agnostic wraparound services. Players in this area offer comprehensive care coordination, proactive patient engagement, and social support (together known as “wraparound services”) across all settings, including inpatient, ambulatory, and home care, and they save money by preventing complications. Successful organizations tend to focus on data integration to obtain a comprehensive picture of the patient’s clinical and social situation (for example, through access to electronic medical records, the integration of health information exchange, and direct patient engagement), and specialty-specific risk stratification to triage and direct patients to the appropriate care. We have observed that adoption of this strategy has accelerated rapidly in the past two to three years, especially in cardiology and oncology, where longitudinal patient engagement and support are critical to preventing high-cost complications.
Outpatient-focused integrated care. Players pursuing this approach use a convenience-driven, decentralized footprint to optimize patient access to lower-cost sites of care, generating maximum site-of-care savings. Successful organizations often also employ oversight of patient ambulatory journeys to realize savings from reducing diagnostic variability and preventing high-cost utilization in specialties such as nephrology.
Treatment pathway navigator. These players focus on aligning care planning and treatment pathways with high-value diagnostics and therapeutics such as orthopedics, cardiology, and oncology care. They see the largest cost savings from reducing variability in diagnostic testing and treatment selection. This strategy represents an evolution of traditional utilization-management approaches by incorporating more-holistic care pathways and integrating with providers to support decision-making.
Digital health innovator. These organizations employ digital technologies to enable proactive and continuous patient engagement, monitoring disease progression remotely to reduce preventable complications and subsequent utilization. Trust and ongoing communication with patients allow these entities to direct patients to the most appropriate site of care. This strategy is often seen in orthopedic care (such as remote physical therapy) and women’s health (fertility and maternity apps). It is also increasingly used in cancer care (symptom management apps), where continuous patient engagement and monitoring can be critical.
What’s ahead for specialty VBC
While individual players have executed these strategies to generate savings and improve patient outcomes, we have yet to see these models integrated at scale for specialty populations. The total potential at stake in specialty VBC is distributed across sources of value in each specialty, and each archetype is in a different position to access this value. Capturing this substantial opportunity across sources of value will require platforms to build capabilities across the four major strategies. It may also require them to pull strategies from multiple separate archetypes into a single platform.
With this in mind, organizations should consider what the ideal anchor asset is and where additional capabilities will be needed. Investors in specialty VBC should also consider the relative importance of sources of value for specialties of focus, given that the primary savings lever for one specialty may be much smaller for another. While achieving the potential savings in specialty spending will be challenging, these models have shown that impact is possible, and the next evolution of specialty VBC is likely to be even more promising.
