The value-based care healthcare delivery model shows great promise for enhancing patient satisfaction, reducing hospital costs, and delivering improved patient outcomes. Many hospitals have already made the change, notably the Cleveland Clinic, which began transitioning to the model in 2008. Centers for Medicare and Medicaid (CMS) has said it plans to transition Medicare and Medicaid patients to the model by 2030, saying it will “improve the health system for all patients.” Here’s what you need to know about value-based care’s benefits and drawbacks, plus how it stacks up to the traditional fee-for-service delivery model.
What is value-based care?
Value-based care compensates providers for patient health outcomes rather than the number of services rendered, emphasizing quality over quantity. It also centers preventive measures and effective management of chronic diseases with the aim of reducing unnecessary medical interventions (and their expenditures).
Benefits of value-based care
- Reduces unnecessary hospitalizations and procedures: Value-based care models encourage providers to address health issues proactively, reducing costs from emergency department visits, hospital readmissions and inpatient care.
- Can improve reimbursements through incentives: Hospitals that excel in value-based care metrics (patient satisfaction, reduced readmission rates, effective disease management, etc.) are often eligible for financial incentives and bonuses from payers.
- Leads to higher patient satisfaction rates: Satisfied patients are more likely to adhere to treatment plans, experience better health outcomes, and choose the same hospital for future healthcare needs. Studies have shown that hospitals with higher patient satisfaction scores tend to have better financial performance.
- Increases innovation and operational efficiency: Value-based care models incentivize hospitals to move toward operational efficiency without sacrificing patient care. They also require cutting-edge technologies, which can help remove care delivery bottlenecks.
Drawbacks of value-based care
- High upfront costs: Tracking patient outcomes and provider performance takes robust data analytics, and those systems require hefty investments upfront.
- Challenging implementation: Shifting to value-based care can be time and resource-intensive, often requiring extensive team training and the restructuring of existing care processes.
- Health disparities affect the ability to meet care benchmarks: Providers caring for certain populations may face more challenges in reaching positive health outcomes.
What is fee-for-service?
Most hospitals and health systems use the fee-for-service model, which compensates them for each service they perform, like tests, procedures and appointments. Critics say that this model keeps the focus on quantity rather than quality, and does not foster quality care.
Benefits of the fee-for-service model
- Revenue is straightforward: Services are itemized, and payments are clear-cut.
- Thorough diagnostics and treatment: Providers may be incentivized to order more comprehensive evaluations and treatments.
- Hospitals do not assume financial risk for patient outcomes: Hospitals are paid for services rendered no matter what the outcome.
Drawbacks of the fee-for-service model
- Unnecessary costs and procedures: Because care coordination is not emphasized, providers work in silos. This makes repeat and unnecessary procedures relatively common, inflating costs.
- Increased administrative burdens: Documenting and tracking each service, as well as its corresponding billing and payment status, takes a lot of time for administrators, which can balloon costs.
- Less emphasis on preventative care: Since reimbursements are tied to procedures, there can be a lack of prevention, key in the early detection of some conditions that can be quite expensive, both in cost to treat and the effect on patient health.
Why transition to a value-based care model?
Value-based care models are growing in favor with payers, and more hospitals are likely to adopt them in the coming years. To prepare, hospitals can invest in new technology, like data analytics, and train teams to align care delivery with value-based care principles. They can also work with payers to create mutually beneficial value-based contracts, or implement hybrid varieties that draw on the best of both systems.
Regardless of which care delivery model a hospital chooses, focusing on quality care, efficiency, patient outcomes and satisfaction will provide a path to sustainable growth and a competitive advantage in the healthcare market.
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References and resources
CMS Innovation Center 2021 Strategy Refresh: Putting All Patients at the Center of Care (CMS).
Patient-Reported Experience Is Associated With Higher Future Revenue and Lower Costs of Hospitals (NIH).
Cleveland Clinic — Implementing Value-Based Care (mycleveland.org)
Financial Strategies for Optimising Value-Based Care Models (Health Management).
Fee-For-Service Vs. Value-Based Care: 6 Points Of Debate Raised By Health Policy Experts (Becker’s Hospital Review).
