Healthcare is an expanding and complex industry. The ageing population, higher prevalence of chronic diseases, advances in digital technologies, highly efficacious and expensive drugs have led to an increase in the healthcare demand and expenditures. The global health care spending projected at $ 10.05 Trillion by 2022 represents 2018-2022 CAGR of 5.4%, a considerable rise from 2.9% in 2013–2017¹

Having said that, the healthcare systems are shifting from volume-based care (fee for service) to value based care (fee for value). A recent report showed that value-based care reduced the medical costs by 5.6% on average in 2018 while improving care quality and patient engagement⁵

Value based care is on the rise and the following US statistics also shows how true it is:

• In 2018, 34% of the total US healthcare payments were tied to value-based care in 2017 an increase from 23% in 2015³
• In 2018, UnitedHealth Group also reported that nearly 60% of the insurer’s 130 billion in annual medical spending was done via value-based models. $ 90 million was paid as performance bonus / reward to Medicare physicians for achieving improved quality and better care²
• A national study of 120 payers reported that two-thirds of healthcare reimbursements were based on value in 2018⁴

What is Value Based Care? – To deliver value for the patient

Designed by the Harvard economist Michael Porter, value-based care is a delivery framework to improve health outcomes at a lower cost. This approach seeks to achieve the triple aim of lowering costs, improving health and bettering patient experiences. Additionally, the model is designed to reward those healthcare providers who are achieving positive patient outcomes in a cost-effective manner.

This model encourages components like quality, safety, patient experience and their participation in the decision making by the health care team. The most important thing is that this model seeks to avoid extraneous diagnostic and therapeutic interventions.

What is Volume Based Care – Is it working for patients or the payers?

The traditional healthcare service (fee for service) is not working in the best interest of patients: extraneous diagnosis adversely impacts patients via costs and inconvenience without any reassurance of a positive outcome. Even for payers, the situation is not particularly pleasant: the healthcare providers are paid for each service and/or procedure performed regardless of whether a diagnosis or procedure was necessary or was successful or considered as best practice.

The benefits of Value based healthcare

Almost all stakeholders in healthcare value chain are expected to benefit in the value base model:

• Patients: Better health outcomes and lower out of pocket costs
• Payers: Stronger control of extraordinary costs (lesser exacerbations/hospitalizations) and potentially better financial margins
• Providers: increased operational efficiency and better relationships with patients
• Medical Technology Providers: Pharmaceutical and Medical Device manufacturers are likely to achieve better revenues and/or margins as their reimbursements are aligned with patient outcomes

Are there any challenges?

The transition from a well-established fee for service model to fee for value model is not so simple. Logistically it is quite complicated, and if not implemented properly, value-based care can carry high failure risk to providers and health care facilities. Some of the common challenges to value-based programs include:

• Aligning physician incentives with quality and cost goals: It is challenging to build incentives into physician contracts that reward them for keeping people healthy. This problem is exacerbated by our current limitations in defining what high quality care should look like and how to measure quality vis-à-vis outcomes and Key Performance Indicators, for a given disease
• Consistent care delivery: Variations are observed in the diagnostic/treatment protocols and patient outcomes between different medical institutions/individual practitioners. This inconsistency will necessarily result in fragmented patient outcomes which in turn, results in lowering the care quality at a population level
• Data, analytics and IT tools: Many health systems struggle to obtain relevant, accurate and timely data and use that data to implement an institutionalized value-based care model

Summarily, Value-based care has great promise and it holds the potential to change the healthcare industry for good. The adoption rate for this new model is slower than expected but it will continue to increase.

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