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What Is Value-Based Healthcare?

Blog Post · January 1, 2017

Value-based healthcare is a healthcare delivery model in which providers, including hospitals and physicians, are paid based on patient health outcomes. Under value-based care agreements, providers are rewarded for helping patients improve their health, reduce the effects and incidence of chronic disease, and live healthier lives in an evidence-based way.

Value-based care differs from a fee-for-service or capitated approach, in which providers are paid based on the amount of healthcare services they deliver. The “value” in value-based healthcare is derived from measuring health outcomes against the cost of delivering the outcomes.

What Are the Benefits of Value-Based Healthcare Delivery?

The benefits of a value-based healthcare system extend to patients, providers, payers, suppliers, and society as a whole.

  1. Patients spend less money to achieve better health

    Managing a chronic disease or condition like cancer, diabetes, high blood pressure, COPD, or obesity can be costly and time-consuming for patients. Value-based care models focus on helping patients recover from illnesses and injuries more quickly and avoid chronic disease in the first place. As a result, patients face fewer doctor’s visits, medical tests, and procedures, and they spend less money on prescription medication as both near-term and long-term health improve.

  2. Providers achieve efficiencies and greater patient satisfaction. 

    While providers may need to spend more time on new, prevention-based patient services, they will spend less time on chronic disease management. Quality and patient engagement measures increase when the focus is on value instead of volume. In addition, providers are not placed at the financial risk that comes with capitated payment systems. Even for-profit providers, who can generate higher value per episode of care, stand to be rewarded under a value-based care model.

  3. Payers control costs and reduce risk. 

    Risk is reduced by spreading it across a larger patient population. A healthier population with fewer claims translates into less drain on payers’ premium pools and investments. Value-based payment also allows payers to increase efficiency by bundling payments that cover the patient’s full care cycle, or for chronic conditions, covering periods of a year or more.

  4. Suppliers align prices with patient outcomes. 

    Suppliers benefit from being able to align their products and services with positive patient outcomes and reduced cost, an important selling proposition as national health expenditures on prescription drugs continue to rise. Many healthcare industry stakeholders are calling for manufacturers to tie the prices of drugs to their actual value to patients, a process that is likely to become easier with the growth of individualized therapies.

  5. Society becomes healthier while reducing overall healthcare spending. 

    Less money is spent helping people manage chronic diseases and costly hospitalizations and medical emergencies. In a country where healthcare expenditures account for nearly 18% of Gross Domestic Product (GDP), value-based care has the promise to significantly reduce overall costs spent on healthcare.

How Does Value-Based Healthcare Translate to New Delivery Models?

The proliferation of value-based healthcare is changing the way physicians and hospitals provide care. New healthcare delivery models stress a team-oriented approach to patient care and sharing of patient data so that care is coordinated and outcomes can be measured easily. Two examples are reviewed here.

Value-Based Care Models: Medical Homes

In value-based healthcare models, medical care does not exist in silos. Instead, primary, specialty, and acute care are integrated, often in a delivery model called a patient-centered medical home (PCMH). A medical home isn’t a physical location. Instead, it’s a coordinated approach to patient care, led by a patient’s primary physician who directs a patient’s total clinical care team.

PCMHs rely on the sharing of electronic medical records (EMRs) among all providers on the coordinated care team. The goal of EMRs is to put crucial patient information at each provider’s fingertips, allowing individual providers to see results of tests and procedures performed by other clinicians on the team. This data sharing has the potential to reduce redundant care and associated costs.

Value-Based Care Models: Accountable Care Organizations

Accountable care organizations (ACOs) were originally designed by the Centers for Medicare & Medicaid Services (CMS) to provide high-quality medical care to Medicare patients. In an ACO, doctors, hospitals, and other healthcare providers work as a networked team to deliver the best possible coordinated care at the lowest possible cost. Each member of the team shares both risk and reward, with incentives to improve access to care, quality of care, and patient health outcomes while reducing costs. This approach differs from fee-for-service healthcare, in which individual providers are incentivized to order more tests and procedures and manage more patients in order to get paid more, regardless of patient outcomes.

Like PCMHs, ACOs are patient-centered organizations in which the patient and providers are true partners in care decisions. Also like PCMHs, ACOs stress coordination and data sharing among team members to help achieve these goals among their entire patient population. Clinical and claims data are also shared with payers to demonstrate improvements in outcomes such as hospital readmissions, adverse events, patient engagement, and population health.

Hospital Value-Based Purchasing

Under CMS’s Hospital Value-Based Purchasing Program (VBP), acute care hospitals receive adjusted payments based on the quality of care they deliver. According to the CMS website, the program encourages hospitals to improve the quality and safety of acute inpatient care for all patients by:

  • Eliminating or reducing adverse events (healthcare errors resulting in patient harm)
  • Adopting evidence-based care standards and protocols that make the best outcomes for the most patients
  • Changing hospital processes to create better patient care experiences
  • Increasing care transparency for consumers
  • Recognizing hospitals that give high-quality care at a lower cost to Medicare

CMS is expected to continue to refine its VBP measurements, making it important for hospitals to continuously improve their clinical outcomes so they can simultaneously improve reimbursement and their reputation among healthcare consumers.

What Is the Future of Value-Based Healthcare?

Moving from a fee-for-service to a fee-for-value system will take time, and the transition has proved more difficult than expected. As the healthcare landscape continues to evolve and providers increase their adoption of value-based care models, they may see short-term financial hits before longer-term costs decline. However, the transition from fee-for-service to fee-for-value has been embraced as the best method for lowering healthcare costs while increasing quality care and helping people lead healthier lives.


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