Defining and Implementing Value-Based Healthcare: A Strategic Framework

Want to improve the way your healthcare organization operates? Learn how value-based healthcare enhances the patient experience and care quality. 

To control skyrocketing U.S. healthcare costs, The Centers for Medicare and Medicaid (CMS) is helping to drive the shift from traditional fee-for-service models to value-based payment programs. Collectively, value-based healthcare models strive to improve outcomes while reducing costs—and early results are positive. Harvard researchers compared changes in spending, utilization, and quality of care over eight years for a Blue Cross Blue Shield value-based care model, compared to a traditional fee-for-service model. The Alternative Quality Contract (AQC) model was associated with slower growth in medical spending on claims.

The increase in average annual medical spending for AQC program patients was $461 lower per patient than spending among non-AQC patients. This 11.7% savings on claims resulted from lower prices and long-term reduction in utilization of laboratory testing, imaging tests, and emergency room visits. AQC patients received better preventive care and achieved better management of chronic illnesses such as diabetes and high blood pressure, compared to patients treated by fee-for-service doctors.

According to Blue Cross Blue Shield, value-based healthcare has shown promising improvements in quality and total cost of care, through better site-of-care decisions and a focus on prevention and chronic disease management. Fourteen percent fewer ER visits, 3% lower readmission rates, 8% better comprehensive diabetes care, and 7% better breast cancer screening rates—and other efficiencies—are driving a 35% decrease in aggregate cost trend in some cases.

CMS’ goal is to have almost 100% of Medicare reimbursements tied to value-based contracts by 2025. CMS has also encouraged Medicaid directors to adopt value-based care strategies across their healthcare systems. Here’s what you need to know about value-based healthcare.

What is value-based healthcare?  

Value-based healthcare is a healthcare delivery model based on care quality, not quantity. Providers, including hospitals and physicians, are paid based on patient health outcomes, not the number of tests run and services provided (as in a fee-for-service model). 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. Evidence-based approaches are used to measure and track progress to these goals.

Healthcare systems must improve patient outcomes while reducing costs. Doing so meets the goals of the Quadruple Aim: improving patient experience, population health, and provider satisfaction, while reducing per capita healthcare costs.

How does value-based healthcare work?

Value-based care programs reimburse healthcare providers (or penalize them) based on quality and cost of care. For example, Under CMS’ Hospital Value-Based Purchasing Program (VBP), acute-care hospitals receive incentive payments based on the quality of care provided to Medicare patients. The VBP program encourages hospitals to improve the quality, efficiency, patient experience, and safety of acute inpatient care by:

  • Eliminating or reducing adverse events (healthcare errors resulting in patient harm)
  • Adopting evidence-based care standards and protocols that render 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

Hospitals are scored on measures such as:

  • Mortality and complications
  • Healthcare-associated infections
  • Patient safety
  • Patient experience
  • Efficiency and cost reduction

Hospitals may receive two scores on each measure: one for achievement and one for improvement. CMS adjusts a part of hospitals’ Medicare payments based on a total performance score that reflects how well they perform compared to all hospitals, or how much they improve their own performance from a prior baseline period.

Why improving value matters 

Value refers to the measured improvement in a patient’s health outcomes for the cost of achieving that improvement. Improving patients’ health outcomes relative to the cost of care benefits patients, providers, health plans (payers), employers, and government organizations such as CMS.

Greater efficiency of care and a better patient experience

Under value-based healthcare, providers may need to spend more time on new, prevention-based patient services, but ideally they will spend less time on chronic disease management.

Value-based healthcare focuses on the health outcomes that are most important to patients:

Capability: patients’ ability to do the things that define them as individuals; this is tracked by functional measures

Comfort: relief from physical and emotional suffering—pain and distress that often accompany illness

Calm: the ability to live normally while receiving care (e.g., freedom from the chaos that patients often experience during treatment)

Patient care that improves capability, comfort, and calm creates a better patient experience, satisfying one of the Quadruple Aim’s objectives.

Improving care quality

What is the link between value-based healthcare and quality of care? By definition, value-based healthcare focuses on the quality of patient care. Quality can be defined differently by the various players in value-based care models. According to the Agency for Healthcare Research and Quality, there are six domains of quality:

  1. Safe: Patient safety is a key quality measure in value-based healthcare models. A greater emphasis on patient safety prevents infections and hospital admissions, saving money as well as improving patient outcomes.
  2. Effective: If patients receive proper care in the hospital and are counseled correctly on care-coordination after discharge, readmission rates should be low. Value-based care often focuses on whether a provider is taking the proper steps (i.e., following the right process) to deliver the evidence-based standard of care to a patient.
  3. Efficient: How do we reduce unnecessary cost and waste while at the same time maintain or improve quality? Care setting, workflows, workforce management, and many more factors contribute to creating the most streamlined operations that still generate maximum safety and quality outcomes. 
  4. Timely: Patient-reported measures, captured by patient satisfaction surveys or other means, indicate whether patients feel they were seen promptly or had to wait for care.
  5. Equitable: Social determinants of health address this category. For example, preventive screening rates should be similar across various demographic groups.
  6. Patient-centered: Many providers use Consumer Assessment of Healthcare Providers and Systems (CAHPS) surveys to measure patient experience—patients’ perceptions of the care they are receiving from their provider. The survey asks whether patients feel their doctor or health plan listened to their concerns and cared about their values, a proxy for delivering patient-centered care.

Any of these quality measures can be leveraged in value-based care agreements.

Lower healthcare costs

 In the U.S., approximately 100,000 people die each year because of medical errors. The annual cost of medical errors to the American healthcare industry is $20 billion. Reducing adverse events and improving patient safety save money as well as lives.

Better health outcomes reduce healthcare spending and the need for ongoing care. Value-based healthcare prevents conditions from worsening and requiring more—and more expensive—care. A diabetic who doesn’t develop kidney failure, blindness, and neuropathy requires less care, and is less expensive to treat, than a patient whose disease progresses.

Preventive care improves population health

Population health improves when the health outcomes of many individuals improve—as they do under value-based healthcare. Lifestyle behaviors (e.g., physical inactivity, poor diet, and tobacco use) may account for up to 40% of premature deaths from cardiovascular disease, cancer, respiratory diseases, and unintentional injury annually. Applying evidence-based preventive practices can improve health outcomes and prevent disease, building a healthier society while reducing costs. Patients in value-based healthcare plans typically receive more preventive care than patients in fee-for-service plans.

Preventive healthcare includes three categories of prevention:

  1. Primary: prevents disease or injury before it occurs. Vaccines or smoking cessation programs (for people who haven’t yet developed respiratory diseases or lung cancer) fall into this category.
  2. Secondary: reduces the impact of an existing disease or injury. Screening procedures such as mammograms and prostate exams detect diseases in the early stages, when they are easier and less expensive to treat.
  3. Tertiary: ensures that people who have a health condition are as healthy as possible by improving functioning and preventing complications. Blood pressure management, remote monitoring of patients with heart disease, or rehabilitation improve the quality of life for people with chronic diseases.  

A framework to implement value-based healthcare 

Where should your healthcare organization start? Follow this framework to guide you in developing a successful value-based healthcare program:

Understand shared health needs of patients 

In most industries, service providers structure their offerings around a group of customers with similar needs. In the healthcare industry, most services are organized around the service providers—not the patients’ needs. Cardiologists practice in groups with other cardiologists, and endocrinologists, podiatrists, and ophthalmologists also tend to practice with their same-specialty colleagues. Diabetic patients, for example, who require coordinated care from these specialists, often must organize all these services themselves.

Healthcare delivery is more efficient and effective when it’s structured around segments of patients with common needs—such as diabetics or patients with knee pain. By doing this, care teams can anticipate patients’ needs and provide frequently needed services efficiently. Providers won’t have to spend time coordinating services that are routinely needed, giving them more time to address unique patient needs.

To identify shared health needs, start by actively listening to the experiences of patients/clients and their relatives. We call this patient/client participation. Participation can help you understand what patients need and what changes they’d like to see in the care process.

Design a comprehensive solution to improve health outcomes 

After you’ve identified the common needs of patient segments, the next step is to design and deliver care that meets those needs. By focusing on meeting patients’ needs—instead of just treating the condition—providers can address the clinical and non-clinical factors that impact health. For example, a pain management clinic may provide psychological counseling, relaxation training, and physical therapy in addition to drug therapy. Adopt evidence-based care standards and protocols for diagnosis and treatment to achieve the best patient outcomes.

Establish a multidisciplinary team

Implementing solutions that improve outcomes and address patients’ needs requires a team of caregivers from several disciplines. For example, a pain clinic may have psychologists or social workers (who provide counseling and relaxation training) and physical therapists as well as physicians, nurses, and other clinicians. When the team integrates services, you may not need coordinators. Having team members work in the same location facilitates frequent, informal communication that improves patient care. Assemble a team of health professionals who collaborate to improve and personalize patient care and learn from their experiences to improve health outcomes.

Measure health outcomes and costs 

If you can’t measure it, you can’t manage it. If you don’t measure health outcomes, your care teams won’t know whether they’re succeeding—and they won’t have the information they need to improve care and efficiency. Clinicians should measure the outcomes that define health for the particular patient segment, keeping in mind capability, comfort, and calm. For example, patients with chronic musculoskeletal pain are concerned about pain intensity and interference with daily functioning. Depression, anxiety, and sleep may also be important concerns—and relevant outcome measures—for  chronic pain patients.

In addition to measuring health outcomes, you must also measure the cost of the team’s services for every patient. Use cost-grouping methodologies or applications of time-driven, activity-based financials to determine costs so you can demonstrate the value of your team’s care. Then identify areas for improving care efficiency.

Expand partnerships

Expanding partnerships allows you to improve health outcomes for more people by expanding your reach. Partnering with other clinical organizations allows you to deliver care in more locations and/or across more stages of the care cycle (e.g., a skilled nursing facility for cardiac rehabilitation). Partnering with technology companies—which provide patient satisfaction surveys or digital solutions that identify and eliminate areas of potential patient safety risk—can enhance care delivery and the patient experience.

By implementing value-based healthcare, you can improve care quality and the patient experience while reducing costs. Learn more


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