What is Value-Based Healthcare? A Comprehensive Guide
The Affordable Care Act (ACA) of 2010 is renowned for its sweeping health insurance reforms.
The ACA was designed with clear objectives to overhaul healthcare delivery by:
- Pioneering New Healthcare Models: Testing innovative approaches to enhance healthcare efficiency and effectiveness.
- Reforming Payment Structures: Transitioning from a volume-based to a value-based reimbursement model that rewards quality over quantity
- Enhancing System-Wide Resources: Investing in infrastructure and technologies to support long-term improvements across the healthcare system.
The shift from a traditional fee-for-service healthcare delivery model to a value-based care model has significantly changed the way healthcare is delivered and reimbursed in the United States (US).
As such, value-based care is a focus area for Veradigm. That's why we've compiled this comprehensive guide to value-based care in healthcare, enriched with practical use-cases, insights, data, and more, to provide you with the knowledge and tools needed to navigate this evolving healthcare environment.
Learn More About Veradigm
What Is Value-Based Healthcare?
Value-based healthcare is a healthcare delivery framework that incentivizes healthcare providers to focus on the quality of services rendered, as opposed to the quantity.
Under a value-based healthcare model, healthcare providers (including hospitals and physicians) are compensated based on patient health outcomes. Clinicians who participate in value-based care agreements are rewarded for promoting healthy patient outcomes, reducing the chronic disease burden, and helping their patients live healthier lives through evidence-based medicine.
Value-based healthcare programs are vital to a larger quality strategy to reform how healthcare is delivered and paid for. According to the Centers for Medicare and Medicaid Services (CMS), value-based care supports the triple-aim of providing better care for individuals, better health for populations, at a lower cost.
Why is Value-Based Healthcare Important
Value-based healthcare is important because the traditional fee-for-service model of healthcare delivery needs revision or replacement. Historically, too great an emphasis was placed on how many services a healthcare provider delivered versus the focus on the quality of care being delivered.
Among other issues, the focus on volume over value of care has contributed to the ballooning of healthcare costs in the US. Unfortunately, as you will read in the next section, these costs are often not commensurate with the health outcomes.
Value-Based Healthcare in the United States
In the U.S., healthcare is paid for in a variety of ways: through government programs (like Medicare and Medicaid), private insurance plans, and out of patients’ own pockets.
Regardless of the sources of funding, healthcare costs in the US are higher than other countries, putting a strain on the overall economy. According to CMS, U.S. healthcare spending grew 7.5% in 2023. To put that in perspective, that is $4.9 trillion in total, or $14,570 per person.
As a share of the nation's Gross Domestic Product, health spending accounted for 17.6 percent.
Unfortunately, higher healthcare costs do not always translate into better patient health outcomes.
When comparing high-income countries in the Organization for Economic Cooperation and Development (OECD), The Commonwealth Fund found the U.S. spends nearly twice as much on healthcare yet has the lowest life expectancy at birth, the highest death rates for avoidable or treatable conditions, and the highest suicide rates. In addition, The U.S. has the highest rate of people with multiple chronic conditions and an obesity rate nearly twice the OECD average.
These statistics illustrate the need to reduce the gap between the amount of money spent on healthcare and the value provided as evidenced via patient health outcomes. One way to begin closing this gap is by shifting away from a fee-for-service model to one that implements value-based care principles.
How Does Value-Based Healthcare Work?
To illustrate how value-based healthcare works, meet our fictional patient, Jason. Jason is a 57-year-old male living in North Carolina. He has private health insurance through his job as an IT developer.
Jason visits his primary care physician complaining of shortness of breath and chest pain. His primary care physician is part of an Accountable Care Organization (ACO). ACOs are networks of doctors and hospitals who share financial and medical responsibility for providing coordinated care to patients. ACOs were developed to support the healthcare industry transition away from fee-for-service and toward value-based healthcare.
Because of his family history, and because Jason is overweight and smokes, his primary care physician is concerned that Jason may be at risk for cardiovascular disease (CVD). Jason’s primary care physician coordinates care with a lab facility who runs Jason’s blood work, and a cardiologist who screens Jason for markers of CVD.
After getting his labs back, Jason’s care team diagnoses him with atherosclerotic cardiovascular disease (ASCVD) which is a type of CVD. ASCVD contributes to the buildup of plaque on arterial walls, which can increase the risk of heart attack or stroke.
Because Jason’s care team is part of an ACO, he has access to a nurse care manager who helps educate him about ASCVD and lifestyle changes he can implement to improve his health. Jason’s physician has also prescribed him a lipid lowering medication to help lower his high LDL-C.
Jason regularly meets with a dietitian who helps him start a heart-healthy diet and encourages him to become more active. Jason’s nurse care manager helps him find a smoking cessation program that works for him.
Jason’s care team is working hard to treat him efficiently, without driving up unnecessary costs, all the while focusing on improving and maintaining his health. His care plan has kept him on his prescribed medication and encouraged him to live a healthier lifestyle, lose weight, and stop smoking. He has avoided the hospital and did not require any invasive, costly surgeries to treat his ASCVD.
Since Jason’s care team treats him and other patients with chronic disease, they have met many of their quality benchmarks for the year, thereby qualifying for value-based care financial bonuses from CMS.
This example of value-based care shows how Jason's healthcare team, including his primary care doctor, lab technicians, and a cardiologist, collaboratively manage his risk factors for cardiovascular disease by offering coordinated care that emphasizes preventive measures and lifestyle modifications. This integrated approach can help improve Jason’s overall health while avoiding unnecessary costs, aligning with the goals of value-based care to provide better health outcomes at lower costs.
Fee for Service Healthcare vs Value-Based Care
Value-based care is a relatively new approach to healthcare. Traditionally, a fee-for-service (FFS) model has been used. There are fundamental differences between the two.
Under the FFS model, healthcare providers are compensated based on the amount, or quantity, of services delivered. These services can include:
- Office vists
- Tests
- Procedures
- Other treatments
Reimbursement rates are established for each service clinicians provide.
With the FFS model, clinicians are paid for each service individually. Therefore, healthcare providers are, in effect, incentivized to provide a greater number of services per patient. As previously mentioned, healthcare for value-based care emphasizes quality care over the quantity of services offered, effectively moving away from the FFS model.
Transitioning from Fee-Based to Value-Based Healthcare
While clinicians support the goals of value-based care, there are some challenges to adopting these programs. Providers may not have the infrastructure and staff to support value-based models. Programs can differ by payer with each plan having its own models, metrics, and documentation requirements.
Other common barriers to program participation include:
- Unrealistic goals
- Complicated metrics
- Risk and compliance concerns
- Program length and a delayed payment cycle
Reimbursement for Value-Based Care
When transitioning from FFS to value-based care, a variety of reimbursement approaches are available to healthcare providers. CMS has created several different reimbursement models, while commercial payers have followed with variations and models of their own.
All of these models follow a risk-reward pathway. In the context of reimbursement for value-based care, this refers to how the payment model aligns the financial incentives of healthcare providers with the quality and efficiency of the care they deliver.
This pathway involves varying degrees of financial risk and potential rewards for healthcare providers based on their performance against specified quality and cost metrics. Some of the most important quality metrics for value-based care include effectiveness and efficiency, timeliness, safety, patient focus, and equitability.
Alternative payment models that are considered “riskier” along this pathway may require additional investment in Health Information Technology (HIT), deeper quality and outcomes data analytics and reporting, and care coordination with ACOs and Patient Centered Medical Homes.
Types of Healthcare Reimbursement Models
Pay-for-Performance (P4P)
- Risk: Low
- Reward: Bonuses or incentives
- Description: Providers receive bonuses or financial incentives based on their performance against specific benchmarks, such as patient satisfaction scores, adherence to clinical guidelines, or health outcomes.
Bundled Payments
- Risk: Moderate
- Reward: Share in savings
- Description: Providers are paid a set fee for managing a patient's entire care episode, from start to finish. If they deliver care for less than the bundle price, they keep the savings; if they exceed the cost, they may incur losses.
Shared Savings and Shared Risk
- Risk: Moderate to High
- Reward: Savings split or financial penalties
- Description: In shared savings models, providers and payers agree that if the providers reduce healthcare costs while meeting quality benchmarks, they share the savings with the payers. In shared risk models, if costs exceed expectations, providers may also share the losses.
Capitated Payments
- Risk: High
- Reward: Predictable revenue stream
- Description: Providers receive a fixed, per-patient per-period payment regardless of how many services the patient uses. This places more risk on providers to manage care efficiently since they will not receive more funds for providing additional services but can benefit from reduced care costs.
Population-Based Payments (PBP)
- Risk: Very High
- Reward: Full control over budget
- Description: Providers are responsible for the total cost of care for a specific population for a specified period. This model offers the highest reward potential but also requires sophisticated risk management strategies, as providers assume financial responsibility for both over- and under-utilization of medical resources.
How to Implement Value-Based Healthcare
If you are a healthcare professional, there are steps you can take to begin implementing value-based care in your practice. According to the American Medical Association (AMA), there are five steps healthcare providers can take to prepare their practices for value-based care:
- Identify your patient population and opportunity
- Design the care model
- Collaborate for success
- Drive appropriate utilization
- Quantify impact and continuously improve
Following these five steps may seem straightforward, however, implementing value-based care is nuanced and should be done with proper thought and planning. For many physicians, this means striking a balance between fee-for-service and value-based care as their practices navigate traditional revenue cycle management.
When implementing value-based care, it is critical to embrace technology and establish collaborations to help make the transition seamless and cost effective. A good place to start is with a robust IT infrastructure, including an electronic health record system and other tools.
Value-Based Healthcare and Veradigm
Veradigm is dedicated to simplifying the complicated healthcare system with next-generation technology and solutions. Our unique portfolio of solutions provides data-driven, actionable insights and are derived from best-in-class analytics. When integrated with point-of-care technology solutions, Veradigm is poised to help improve the quality, efficiency, and value of healthcare.
Veradigm’s innovative solutions help to promote value-based care initiatives for life sciences, health plans, healthcare providers, and most importantly, the customers they serve.
