Value Based Healthcare: An Overview

March 29, 2022


Value-based healthcare is a healthcare model that is becoming more prominent among healthcare systems worldwide. Under it, payers reimburse providers based on the patient’s overall outcome rather than for each service provided. This shift away from the fee-for-service model has benefits for patients, providers, hospitals and payers.

This article explores what value-based healthcare is and how it works when implemented. The article also analyzes how a focus on care quality can improve patient outcomes.

Understanding Value-Based Healthcare

The value-based care model focuses on patient-centric care. Under this model, healthcare providers are reimbursed based on the value they provide.

Organizations can measure the value of care in several ways. The most meaningful measures include patient-reported outcomes. Costs, hospital readmission rates and rates of health for populations are also often included.

The New England Journal of Medicine published an article written by Harvard Business School professor Michael Porter titled ‘What is Value in Healthcare?’ that developed the equation of value. This simple but consequential formula shows that the value of care can be measured by dividing outcomes, safety, and service by the cost of patient care over time. This formula was a catalyst for a shift in reimbursement models that prioritize value rather than volume.

This allows healthcare systems to incentivize providers to deliver higher-quality care. In turn, this can lead to better patient outcomes and lower healthcare costs.

Value-Based healthcare often relies on a bundled payment model. This is much different than the traditional fee-based model. In a bundled payment, providers earn a set amount for services during a specific episode of care. In addition to this bundled payment model incentivizing the care team to coordinate care, it also incentivizes them to prevent avoidable complications. Finally, it gives them the flexibility, and even encourages them to use lower-cost services when possible.

Dr. Kevin J. Bozic suggested that this type of payment reform could benefit patients. Bozic is Department Chair at Dell Medical School, at the University of Texas at Austin. “I am a big believer in bundled payment models,” said Dr. Bozic. “Bundled payments incentivize providers who treat conditions to come together around the management of that condition and work collaboratively to improve outcomes and reduce costs.”

As various value-based care models evolve, what is clear, is that the outcomes of the patient are at the core of determining the success of the care provided.

Comparison to the Fee-for-Service Model

Under the fee-for-service model, providers earn money for each service they provide. They are not reimbursed based on health outcomes or the value of the care they provide. This traditional approach to reimbursement may result in poorer health outcomes and excessive use of services.

For example, under the fee-for-service model hospital readmissions have been prevalent and costly. One study found that almost one-fifth (19.6%) of patients with Medicare returned to the hospital within 30 days of discharge.

The fee-for-service model does not promote coordination of care. Care is delivered in silos as a patient is in the hospital and then in rehab centers or therapy. This could lead to an increased risk of complications resulting in higher healthcare costs.

Finally, the fee-for-service system could lead to overtreatment. It gives providers a financial incentive to perform as many procedures as possible.

By contrast, value-based healthcare uses a value-based payment model. This incentivizes providers to focus on the quality of care over quantity.

The Benefits of Value-Based Healthcare

Value-based care has the potential to reshape how patients receive care. It could also change how providers interact with each other by shifting the focus to the patient’s overall health to address all conditions contributing to their current health issue, incentivizing hospitals and clinics to utilize the entire care team to ensure patients are getting the proper pre-procedure care and the support they need during recovery.

There is already concrete evidence to show that patient-centered care produces benefits. A study in JAMA Network Open suggests a focus on quality can reduce healthcare costs. It also implies that this could improve patient outcomes. The study found that patients treated under the model saw 5.6% fewer hospitalizations. The patients also experienced 13.4% fewer emergency department visits.

There are key benefits for providers as well. First, it can help to reduce internal costs because it incentivizes providers to focus on lower-cost services. This could reduce complexity and allow staff to focus on more patients at a time. Second, value-based healthcare can improve the patient experience. It encourages providers to focus on preventive care and early detection. This can reduce unnecessary waiting times. It could also reduce patient suffering due to late-stage intervention for chronic conditions. A better patient experience can produce better business outcomes for health systems.

Finally, value-based healthcare can help to build provider networks and improve care coordination. This could open new opportunities for partnerships and it could even expand health systems’ capabilities.

Challenges Associated with Value-Based Healthcare

Value-based healthcare is still a new way of thinking about healthcare. As such, it comes with challenges. For value-based care models to work, there must be dedication to understanding exactly how the policies and care pathways on paper impact the life of real patients.

Value-based healthcare puts more emphasis on preventing hospitalizations. Overall, this can be a benefit for patients but how do we ensure patients are getting the care they need without feeling as if they were withheld services? This can be helped by focusing on the patient’s goals, providing patient specific education and coordination of care between different care settings (e.g., primary care, specialists, hospitals).

Also, to understand the impact on value-based care, patient reported outcomes should be analyzed alongside co-morbidities and socio-economic determinants of health.This requires a significant amount of data collection and analysis. This can be costly and time-consuming, and it requires addition of health data analysts to the team. Patients race, zip code, co-morbidities are becoming necessary to understand the outcomes to manage value-based care models across populations. However, technology and registry databases have made this easier and the information much more accessible.

Finally, providers may need to change their payment and reimbursement processes. This requires buy-in from payers, providers, and stakeholders. Often the cost to provide additional services to manage the patients care will not be reimbursed until the conclusion of the bundle or episode. Providers will need to have the means to pay upfront for resources.

Most internal changes within healthcare systems can be difficult to put in place. Procedural and technical changes mean healthcare organizations must set aside time and resources. Leaders must engage in change management to actualize value-based care across the system.

Despite these challenges, value-based healthcare has the potential to improve patient outcomes and also reduce costs.

Conclusion: The Future of Value-Based Care

Value-based healthcare is still in its early stages. To realize this potential, organizations must address some challenges.

It can be difficult to measure patient outcomes. Healthcare organizations need data collection and analysis capabilities. They must also address changes in their reimbursement models in an incremental way.

Nonetheless, value-based healthcare has the potential to improve care delivery and reduce costs. With the right level of commitment, healthcare organizations can integrate value-based care.

Read the latest research and data from CODE Technology to learn more about value-based healthcare.

Learn More About Value Based Healthcare

Social Determinants of Health Tools

Social Determinants of Health Tools

Tools To Measure SDoH | A Closer Look As we’ve established, there's a heightened focus on understanding and addressing social determinants of health...

MIPS MVPs: 2023 Key Takeaways

MIPS MVPs: 2023 Key Takeaways

What is going on with MIPS and what are "MVPs"? The Merit-based Incentive Payment System (MIPS) is one of two tracks under the Quality Payment...