What Is Value-Based Healthcare?

Explore the definition, benefits, and examples of value-based healthcare. How does value-based
healthcare translate to new delivery models?
Author: NEJM Catalyst Author Info & Affiliations

EJM CatalystJanuary 1, 2017

This article appeared in NEJM Catalyst prior to the launch of the NEJM Catalyst Innovations in
Care Delivery journal. Learn more.

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.

FIGURE 1

Value-Based Healthcare Benefits.

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.