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Value Based Healthcare

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The metamorphosis of health care is underway with the shift from a volume-driven, profit-oriented environment towards a holistic, value-based care approach. A recent study by Managed Care shows that “Three-fourths of providers currently participate in at least one value-based payment model, and more than 60 percent expect them to become the dominant payment model (pg. 1).” But what really is value-based health care, why do we need it, and why is it portrayed as the solution to a seemingly unsolvable issue? Around the world, health care in nearly all systems is struggling with rising costs, decreased benefits, and uneven quality across the board. Well-intentioned and well-educated clinicians despite their hard work, cannot turn the system around themselves. It is not the participants of the system, but rather the system itself that is the issue. Countless incremental “solutions” like enforcing practice guidelines or attacking fraud have proved ineffective and inefficient ways to implement the much needed change in the Health Care System.

Value-based health care is directly related to patient’s health outcomes per dollar spent. Professor Michael E. Porter from the Harvard Business School says “value is the only goal that can unite the interests of all system participants” (Porter,2013,p2) value for the patient is at the core of value-based health care. In other words, “achieving the best outcomes at the lowest cost” (Porter and Lee,2013). It is a management strategy that focuses on quality and aims to create a culture of health within the whole organization. This includes the extension of the health care system beyond treating the patient and towards keeping the patient healthy. This effort will increase the value that a patient will receive, having not only the solution to short-term problems but to long-term ones as well. Lastly, “VBHC involves collaboration among plan sponsors, participants and providers to pursue high-quality and high-value care while reducing the need for high-cost medical services” (“International Foundation”, 2014). The teamwork between patient, clinician, and company is vital to the effectiveness of the model.

The value-based health care system moves away from a profit and supply oriented system “organized around what physicians do and toward a patient-centered system organized around what patients need” (Porter and Lee, 2013). The health care system today is designed around healing people who are sick. Value-based care is designed around keeping people healthy. The overarching purpose, therefore, is not just to create a better system, but to create a more healthy community in general. The result of this new attitude towards health care will indeed result in reduced costs, increased organization and collaboration, and value towards the patient, but at its core it will create a model whose participants will be more active in the care of their own health.

A goal of the Affordable Care Act is a shift from volume- to value-based reimbursement and service. Improved coordination of care and effective communication among healthcare providers are essential for success under the new model. From internal communications for processes and physician involvement in leadership and decision-making to patient outreach support and solutions, the key to patient satisfaction is delivering seamless information needed for physicians to do their job and ensuring patients receive the information and streamlined communication expected when interacting with the organization, all empowering the stakeholder to feel involved and contribute to quality care coordination (Nicolof, 2013). A streamlined communication plan drives value to physicians through new patient acquisition, which also drives downstream revenue into specific service lines for the organization and keeps patient satisfied by getting them the information and care needed to get well and carry on.

Griffin Hospital, in Derby, Connecticut, adopted a communication initiative designed to empower patients through education, according to a recent article called “Top Trends for Capitalizing on the Hospital-based Values Purchasing System” published on JP Morgan’s website. Under the new program, every newly admitted patient at Griffin meets with an attending physician and primary care nurse for an information session in which daily treatments are explained in simple terms. The initiative has consistently placed Griffin in the upper-ninetieth percentile of hospitals in patient satisfaction surveys.

As the healthcare industry places more emphasis on value-based performance, healthcare executives need to assess whether their leadership falls under that category. According to the article, Hospitals and Care Systems of the Future, (American Hospital Association, 2011) in order to grow as a value-based leader an individual must grow as a person. Values based leadership is leading by example, which is doing the right thing for the right reason. A leader who embraces this type of thinking can be very successful in fostering strategic vision and gaining the support and partnership of other potential business partners (Nicoloff, 2013). Putting physicians in leadership roles is critical to making the shift toward value, says John Combes, M.D., President and Chief Operating Officer of the American Hospital Association’s Center for Healthcare Governance (Hospitals and Care Systems of the Future, 2011).

Much of the Affordable Care Act is focused on rewarding hospitals for their medical, not operational, performance. “These are clinical issues, so you need clinical leadership to help guide the programs and implement the practices that will get you improved outcomes,” he says. Preparation can come in any form, from sending doctors back to school, to building in-house physician leadership institutes, to having physicians co-manage service lines and build their expertise through experience. “The relationship with the physician community is changing,” says Richard Lofgren, M.D., Senior Vice President and Chief Clinical Officer at UHC. “At one point they were customers, then they were partners, then they were competitors, and now they really have to be part of the integrated whole. The challenge is how you bring physician leadership into the senior management team (Nicolof, 2013).”

The way our healthcare system works today, providers are paid based on each service provided or performed. They are paid more on the basis of quantity than quality of care. The payments do not reflect the outcome (whether a procedure was successful or if the patient was readmitted into the hospital within 30 days) nor does it reflect whether the service provided was of medical necessity, or if it was the best (most effective and efficient) method of care. The healthcare industry is currently moving away from this fee-for-service payment model and moving towards a direction of reimbursement based on the value of the care, instead of the volume.

High Quality Health Care
Two factors driving the need for high-quality health care providers are the Affordable Care Act which created incentives, and penalties for hospitals to improve care, as well as value-based reimbursement models, which changes how providers will be reimbursed so that their revenue will not be based “just on the provision of a service but also on other factors, such as quality and safety measures, provision of recommended care and avoidance of wasteful care.” (Optum, 2013) According to Dartmouth-Hitchcock, one way to combat high variations in costs of procedures and care, is to focus on “quality over costs over time”, which is called the “value equation”. “For patients, this means safe, appropriate, and effective care with enduring results, at reasonable cost. For us (providers), it means employing evidence-based medicine and proven treatments and techniques that take into account the patients’ wishes and preferences.” (Dartmouth-Hitchcock, 2014)

One of the common goals of the health insurers and providers is offering better care while eliminating any unnecessary costs. One of the objectives of value-based reimbursement is to align the payer and the provider’s incentives so that they are both focused on the patient. The payers are incentivizing providers to provide high-value health care in a multitude of ways. Some of the financial incentives can include reimbursement based on performance & outcome measurements, payments/bonuses based on the number of members per month a provider has in their PCMH, or shared savings from reducing costs and/or the number of unnecessary procedures. “By realigning the incentive to actually be rewarded financially to keep well, we actually get the benefit of reduced cost for the patient, less hospitalizations, and follow-up if they do need hospital care. It’s not necessarily reducing or limiting care, it’s giving them the right care.” (Nerney, 2014) One other form of incentive is being included in specific payer’s tiered service networks, which are made up of only the best-performing care providers.

Pay-for-performance (P4P) is a financial model that utilizes outcome measurements and data in rewarding and incentivizing providers to focus on meeting specific care-related deliverables. The patient-centered medical home (PCMH) delivery model is an enhanced primary care delivery model that is designed to improve quality of care through team-based coordination of care, treating multiple needs of the patient at once, while increasing access to care, promoting prevention, quality and safety, as well as creating a partnership between the patient and the primary care physician, and empowering the patient to be involved in decision-making regarding their own care. The thought is that throughout all of this, better outcomes and lower costs will result. In the PCMH model, payers often reward providers with a per member per month “bonus” for improving primary care services for each patient in the medical home. (Top Questions About ACOs & Accountable Care, 2011)

Also based around a strong primary care core, the Accountable Care Organization (ACO), also known as a shared-savings model, is an administrative model which includes many medical practices and primary care providers who work together in managing the health of a defined population across a broad scope of services. “The belief is that, if well-conceived and implemented, ACOs can achieve both cost and quality improvements because the coordinated and collaborative nature of the delivery system itself is paid for and rewarded for its outcomes, not for its volume of services.” (Why are Accountable Care Organizations Important to Achieve Improved Cost and Quality?, 2011) Unlike PCMHs, ACOs are accountable for the costs, care, and health outcomes of patients with the primary care providers as well as with the specialists and hospitals within the ACO. This is one of the reasons that many ACOs have adopted electronic medical record (EMR) systems, to help them effectively coordinate the care of their patients across all providers within the ACO.

Case/Disease Management
As part of the ACA, it is mandatory for all insurance payers to provide preventative services at no cost to the patient. This increased focus on primary care is being encouraged from the objective to manage people’s health & wellness rather than to treat only when there is a health episode. Prevention and wellness programs can help discover health problems ahead of time, which can reduce the costs of emergency surgeries, hospital stays, and readmissions. This is especially true for patients who are chronically ill. Ensuring they receive the proper care in a timely fashion will help reduce their chances of serious medical episodes or complications occurring. “According to the U.S. Department of Health and Human Services, up to 70 percent (or more than $1 trillion) of health care costs are lifestyle-related and therefore preventable. Early detection and proactive management of care can cut costs and raise the quality of health by up to 50 percent.” (eSync: Technology for Synchronizing Health Care Management, 2014)

There has been an increased focus on patients with multiple chronic clinical conditions and trying to improve their overall well-being, as well as to improve health outcomes and affordability. “Greater use of disease management, which places a greater emphasis on helping patients manage chronic illnesses such as diabetes and cardiovascular disease, is the most significant change to result from value-based contracts…” (Healthcare Managers Expect ‘Value-Based’ Contracts To Hurt Profits; Providers Pessimistic: KPMG Survey , 2014)

III. Employer/Plan Sponsors
“Employers have a vested interest in their employee’s health” (Porter, M.E., 2009, p. 10). By providing employees provisions to develop a culture of wellness, employers are creating value; they are enabling effective prevention and screening, and directing employees to high-value providers. This also allows all employers, from small organizations to large conglomerate organizations, to foster competition and drive broader system improvements. Essentially, employers are able to offer employees health insurance plans that capitalize on individual employee health needs and to subscribe to those providers that provide the inherent value in committing to employee’s overall health and well-being (Harvard Business School, 2009). The opportunity to capitalize on this value-orientation, to promote viable and sustaining positive health outcomes within their workforce has gained significant momentum.

In fact, the Catalyst for Payment reformed identified that “while only 11% of payments that commercial insurers made to in-network providers were ‘value-oriented,’…that’s more than halfway to its goal of 20%, which the group hopes to attain by 2020” (Block, 2013). Furthermore, perhaps what is most striking in offering value-based healthcare through value-based insurance plans is the realization that these plans exist in many forms. That is, they range from capitated payments to shared savings on the plan side to reformed copays and deductibles on the beneficiary side (Block, 2013). Thus, those employers who subscribe to value-oriented, employee-wide subsidized health plans will be able to offer a suite of benefits that are specifically tailored to employee needs. Individual employees are able to select those services necessary for health and well-being by foregoing those services that are most appropriate for other employees within the plan or that the employer can remove from the health plan’s offering. Employee

In a value-based health care delivery system, employees are at the forefront of driving competition, creating the market for specific services, and in articulating to their employers and larger government subsidized health care plans, what is most important in driving decision making for consumers of health. Much like the benefits offered to employers in subscribing to value-based health care plans, employees benefit from the tailored health care services and offerings that these plans can deliver (Block, 2013). For example, in a recent investigation of value-based health care services for diabetic patients, survey results determined that diabetic patients demonstrated increased medication adherence, reduced likelihood of diabetic complications, and improved overall health. These results demonstrated positive and longer-sustaining results when compared to hospital/clinical settings that offered general preventive/treatment services that were not tailored to a value-orientation or for specific diabetic patient populations (Mahoney et al., 2013).

Most health care settings and organizations currently offer services that are fairly representative of any type of community within the United States. In order to drive competition and contribute to a value-based orientation, specific services whereby once designated by departments/field of study, need to provide evidence-based health care outcomes that provide value for their target populations (Harvard Business School 2009; Porter, 2009). By focusing on a need to create a culture of wellness and deliver on evidence-based health outcomes that are positive, employees need to have a vested interest in their own health but also in articulating the design phase of any value-based insurance plans that will serve to offer value-based health care services.

The current fee-for-service system places incentives on volume rather than preventive care and care coordination among providers. Getting past the complexities of each individual, the overall goal for value-based healthcare is to provide the best and most cost-effective care. To achieve this goal, new policies and strategies need to be implemented that motivate the provider for streamlined and necessary care. Payment reform is the primary method of shifting the treatment focus to where healthcare providers are motivated by the patient outcomes achieved. Decreasing unnecessary services and concentrating on the medical conditions that a specific organization treats allows healthcare to be more efficiently and effectively delivered (Porter & Thomas, 2013). A recent example of this shift is hospitals who treat Medicare patients, that fail to reduce their readmissions or infection rates will suffer a loss of up to 2.5 percent of the rate at which they are paid (Binder, 2014). This value-oriented strategy incorporated into Obamacare motivates the provider to decrease health related complications that typically inflate the fee-for-service treatment volume that currently exists.

The first and most basic form of value-based reimbursement is the pay-for-performance model. This payment structure monitors performance processes and rewards providers for improving measures, such as lowering blood pressure. Typically, a threshold is set and a bonus is provided for exceeding this threshold or a clawback is used for falling short. Pay-for-performance is typically viewed as a stepping stone into more advanced forms of value-based care (Lindenauer et al., 2007). Bundled payments use a single negotiated payment for a specific procedure or condition through an episode-of-care or comprehensive payment method.

Under the episode-of-care method, a negotiated price is set for a given procedure to cover all the services rather than fragmenting the payments for each individual service. This motivates providers to eliminate unnecessary services, coordinate activities and avoid complications that would require further treatment under that episode of care. Comprehensive care payment takes this one step further by setting one set price for all services necessary to manage a patient’s condition during a set time, no matter the number of episodes (Yong, 2010).

Shared risk and full risk models of payment to providers allow for providers to reap financial gains so long as they operate effectively. In a shared risk model, the payer agrees upon a budget with the provider and demands that the provider covers a portion of the care cost if saving targets previously agreed upon are not met. In a full risk model, the provider accepts a capitated payment from the payer for all services required. This capitated rate is based off historic actuarial risk analysis of the patient population. Providers can use either stop loss insurance, where a third party accepts financial risk beyond a level the provider is not comfortable with, for a fee, or accept risk only for patients or conditions they feel they can successfully treat (Valence, 2013).

Finally, provider-sponsored health plans are the most representative of a value-based healthcare structure. Provider-sponsored health plans are structured so that a provider takes 100 percent of the risk for insuring a given patient population. This structure gives the provider total control by accepting the insurance premium directly from the individual, therefore, giving them the control over the benefit plan design (Demko, 2014). The hospital, or provider, essentially designs an insurance plan for a specific population and is able to keep costs low while maintaining high quality, provided the hospital network can manage all the necessary services (Healthcare coverage, 2004).

With the changing landscape of health care in this country, Value-Based Health Care is an option to meet the needs of insurers, providers, and consumers. It focuses on quality of care rather than the quantity of care, in regards to reimbursement. The goal is to encourage preventative healthcare, and change the current trend from treating the sick to keeping people healthy. A healthier population will result in decreasing healthcare costs. The goal is to empower people to have control over their own health and be a catalyst in their own healthcare decisions. Value-Based Health care is to provide the best services at the lowest cost, which could significantly improve the entire healthcare system.


Nicoloff, Nicole. A Comprehensive Communication Plan to Streamline Care Coordination Improves Patient & Physician Satisfaction., BerylHealth. April 03, 2013

Porter, Michael. “Redefining Health Care: Creating Value-Based Competition on Results” Harvard Business School Press. 2010, 86-87. 2

Works Cited
Dartmouth-Hitchcock. (2014). What is Value-Based Care? Retrieved September 25, 2014, from http://www.dartmouth-hitchcock.org/about_dh/what_is_value_based_care.html eSync: Technology for Synchronizing Health Care Management. (2014, October 2). Retrieved from UnitedHealth Group: http://www.unitedhealthgroup.com/Programs/eSync.aspx Healthcare Managers Expect ‘Value-Based’ Contracts To Hurt Profits; Providers Pessimistic: KPMG Survey . (2014, June 19). Retrieved from KPMG: http://www.kpmg.com/us/en/issuesandinsights/articlespublications/press-releases/pages/healthcare-managers-expect-value-based-contracts.aspx Nerney, C. (2014, September 17). Midwestern Providers, Payers Blaze Trail Toward Value-Based Care. Retrieved September 22, 2014, from Healthcare Finance News: http://www.healthcarefinancenews.com/news/midwestern-providers-payer-follow-path-toward-value-based-care Optum. (2013, August). Can Value-Based Reimbursement Models Transform Health Care? Eden Prarie, MN. Top Questions About ACOs & Accountable Care. (2011). Retrieved September 29, 2014, from

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