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What Is Value-Based Care: Improving Healthcare Quality, Outcomes, and Cost 

by | Oct 6, 2022

Value-based care (VBC) is a healthcare delivery model that centers on providing high-quality care to patients by prioritizing outcomes, efficiency, and patient satisfaction. Under this model, healthcare providers, including hospitals and physicians, are compensated based on their ability to improve health outcomes, reduce the incidence of chronic disease, and enhance the overall quality of life for their patients. This article introduces the VBC model and how it compares to the traditional fee-for-service structure. 

Value-Based Care Definition 

Under the VBC model, payments are linked to the effectiveness, equity, and efficiency of the care provided, rather than the volume of services rendered. The primary objective is to enhance the overall health of populations while controlling healthcare costs and improving patient satisfaction. In a nutshell, better cost management and patient satisfaction stem from the population’s improved health. 

Key Components of Value-Based Care 

Providers are compensated based on meeting thresholds for specific performance metrics, which often include patient outcomes, adherence to clinical guidelines, and patient experience scores. This confirms that the emphasis is placed on delivering high-quality, effective care. Additional components include:  

  • Equity in healthcare: The VBC model aims to ensure all patients, regardless of their socio-economic status, ethnicity, or geographic location, receive the same high standard of care. 
  • Cost-effectiveness: By incentivizing preventive care and the efficient management of chronic conditions, VBC is designed to reduce unnecessary medical interventions and hospital readmissions, leading to lower overall healthcare costs.  
  • Addressing misaligned incentives: In a traditional fee-for-service (FFS) model, providers are paid for each service they deliver, which can lead to overutilization of tests, procedures, and treatments without necessarily improving patient outcomes.  

Ultimately, the goal of value-based care is to create a healthcare system that is both sustainable and centered around patients. By prioritizing outcomes, equity, and cost-efficiency, VBC fosters a holistic approach to healthcare that considers the full spectrum of patient needs. 

How Does Value-Based Care Differ from Fee-For-Service Models?  

At a basic level, the difference between VBC vs FFS payment models is quality over quantity. With value-based care, payment is performance-based, so providers earn incentive pay according to quality measures. Value-based care’s predecessor is fee-for-service, where the more patient encounters a provider completes, the more reimbursements they can collect.  

VBC care payment incentives help balance out the decrease in patient visits incurred by substitution for fee-for-service. For example, providers may address several high-priority health concerns in one visit instead of spreading them out over several follow-ups. 

The Goals and Principles of Value-Based Healthcare 

At the heart of value-based care is the commitment to providing quality healthcare. This includes considering the patient’s perspective and providing optimal care based on the latest clinical guidelines and best practices. For providers, VBC involves measuring and rewarding based on their ability to achieve positive health outcomes and maintain high standards of care. The following sections address additional principals and goals. 

Managing Overall Health While Considering Personal Health Goals 

VBC emphasizes a personalized approach for each patient’s unique health goals and circumstances. Key aspects include individualized care plans that align with the patient’s specific health objectives based on all aspects of a patient’s health, including physical, mental, and social well-being. 

Promoting a Holistic Approach to Healthcare 

VBC promotes a holistic approach that looks at the patient’s general quality of life rather than just treating isolated symptoms. This involves coordinating between various healthcare providers to ensure seamless and comprehensive care delivery. It also promotes collaborative decision-making by involving patients in their care decisions to empower them and ensure they have a voice. 

Reduce Hospitalizations 

Preventive care and effective disease management are integral components of the VBC model. The focus here is: 

  • Preventive measures: Implement strategies like routine screenings, vaccinations, and lifestyle counseling to prevent diseases before they arise. 
  • Chronic disease management: Employ evidence-based practices to manage chronic conditions effectively that help prevent severe complications and hospital readmissions. 
  • Reducing hospitalizations: By emphasizing prevention and efficient management of health conditions, VBC aims to minimize unnecessary hospital visits and associated costs. 

By prioritizing high-quality care, managing overall health, adopting holistic practices, and focusing on prevention and effective disease management, VBC aims to significantly improve patient outcomes while reducing the overall cost of healthcare. 

Types of Value-Based Care   

A simple explanation does not paint the whole picture of the value-based care payment structure. The following graphic illustrates the various forms of value-based care.  


Healthcare providers charge a fixed fee regardless of how many providers treat the patient. The benefits of bundling include:    

  • Improved collaboration   
  • Avoiding redundant testing  
  • Potential for cost reduction and improved patient care  

Shared Savings   

In shared savings models, providers are reimbursed individually using a fee-for-service model, along with a potential for a portion of shared savings based on quality and cost targets. Advantages of this model include:   

  • Providers can share savings with the payer when targets are not exceeded  
  • If targets are exceeded, providers may be responsible for down-side risk 
  • Opportunities for providers to partner with Accountable Care Organizations (ACOs) to reduce costs and improve patient care  

Shared Risk   

The shared risk model incentivizes providers with the potential to receive higher incentive payments when health care costs and quality metrics meet or exceed set goals between the payer and provider, while also posing a greater risk for financial losses if missing these goals.  

Global Capitation   

The global capitation model has providers assuming 100% of the risk. Providers are paid a set amount per patient but can keep any savings remaining. However, they must also take on all losses. To mitigate loss from this risk, providers can employ this model partially. 

How Does Value-Based Care Work and Function? Understanding the Mechanics of VBC 

At the core of the value-based care model is the principle that providers earn payments based on patient care outcomes. Instead of payment for each service or procedure performed, healthcare providers are compensated according to specific health outcomes. This approach encourages providers to focus on improving health outcomes and increasing patient satisfaction. 

Accountability for Quality, Cost, and Equity Measures 

In a value-based care system, providers are held accountable for their performance across several dimensions: 

  • Quality of care: Providers must adhere to evidence-based practices and meet predetermined quality benchmarks. 
  • Cost efficiency: Providers are incentivized to use resources judiciously, avoiding unnecessary tests and procedures that do not add value to patient care. 
  • Equity: Providers must demonstrate efforts to ensure all patients, regardless of background or socio-economic status, receive equitable care. 

Financial and Nonfinancial Incentives 

To promote the adoption of value-based care, both financial and nonfinancial incentives are employed: 

  • Financial incentives: These include bonuses for meeting quality metrics, shared savings programs where providers share in the cost savings generated through efficient care, and bundled payments that cover all services related to a specific treatment episode. 
  • Nonfinancial incentives: These can involve public recognition, professional development opportunities, and access to advanced healthcare technologies and data analytics tools that support high-quality care delivery. 

Commitment to High-Quality Care and Collaboration 

Provider organizations participating in value-based care must commit to delivering high-quality care and fostering collaboration across the healthcare continuum. This involves: 

  • Integrated care teams: Encouraging teamwork among primary care physicians, specialists, nurses, and other healthcare professionals to coordinate care effectively. 
  • Data sharing and interoperability: Leveraging electronic health records (EHRs) and other information systems to ensure seamless communication and data sharing between providers. 
  • Patient engagement: Actively involving patients in their care plans and decision-making processes so treatments align with their capabilities and health goals. 

By holding providers accountable for improving health outcomes, cost efficiency, and equity, while offering financial and nonfinancial incentives, VBC fosters a more patient-centric, sustainable, and collaborative healthcare system. 

The Patient Experience in Value-Based Care 

In the VBC model, the focus shifts towards a comprehensive and integrated approach where providers address not only the physical health needs of patients, but also their mental, behavioral, and social needs. This ensures care is coordinated across various healthcare professionals and settings, ensuring patients receive seamless and consistent care. The following sections illustrate strategies for improving the patient experience in VBC. 

Understanding Patient’s Health Needs and Goals 

Providers in a value-based care system invest time in understanding each patient’s unique health needs and personal goals. Detailed assessments and discussions help providers gain insights into a patient’s medical history, lifestyle, and preferences. By collaboratively setting health goals with patients, providers ensure the care plans are aligned with what the patients value most, whether it be managing a chronic illness, improving quality of life, or achieving specific health milestones. 

Active Collaboration and Treatment Plan Design 

Under the VBC model, patients play an active role in their healthcare journey by collaborating closely with their providers to design personalized treatment plans. Providers support this collaboration by educating patients about their conditions and the available treatment options, enabling them to make informed decisions about their care. 

Prioritizing Patient Experience, Engagement, Satisfaction, and Adherence 

Value-based care places a strong emphasis on optimizing the patient experience, engagement, satisfaction, and adherence, which are crucial for successful health outcomes: 

  • Patient experience: Efforts are made to ensure every interaction is positive and supportive. This includes respectful communication, wait-time efficiency, and responsive care. 
  • Patient engagement: Patients are encouraged to be proactive in managing their health. This might include using digital health tools, participating in wellness programs, or forming self-care habits. 
  • Patient Satisfaction: Measuring and nurturing patient satisfaction is a key component of VBC. Feedback mechanisms are in place to continuously improve the care delivery process based on patient input. 
  • Adherence to Treatment Plans: By involving patients in their care plans that are practical and feasible, VBC promotes adherence to recommended treatments.  

Through active collaboration and a deep understanding of each patient’s goals, value-based care fosters a supportive environment where patients are empowered to take charge of their health and well-being. 

Implementing Value-Based Care: Pilot Programs and Initiatives 

The Centers for Medicare & Medicaid Services (CMS) Innovation Center supports a transition to VBC by running pilot programs, often referred to as “models,” for providers to evaluate different approaches. These initiatives aim to institute value-based care across all Medicare and most Medicaid beneficiaries by 2030. The following sections provide an overview. 

CMS Innovation Center Pilot Models 

The CMS Innovation Center is at the forefront of testing innovative payment and service delivery models. It explores a variety of models, including Accountable Care Organizations (ACOs), bundled payments, and patient-centered medical homes, among others. Each model is rigorously evaluated to determine its effectiveness in improving care quality, enhancing patient outcomes, and reducing costs.  

Goal: Universal Participation by 2030 

One of the ambitious goals set by CMS is to have all Medicare beneficiaries and most Medicaid beneficiaries enrolled in accountable care programs by 2030 by:  

  • Expanding programs such as Medicare Advantage plans and ACOs, which emphasize coordinated care and shared savings, to encompass a larger portion of the beneficiary population. 
  • Implementing value-based care models within state Medicaid programs to ensure vulnerable populations also benefit from improved care coordination and outcomes. 

Insights into Best Practices 

Detailed data collection and analysis from pilots help identify what works best in different settings and populations. This evidence-based approach ensures the most effective strategies are scaled up. Engaging healthcare providers, payers, and patients in the design and implementation of these models fosters collaboration and buy-in, which are essential for successful adoption. 

Refining Models for Broader Adoption 

Based on the lessons learned from pilot programs, value-based care models are continuously refined to enhance their effectiveness and ease of implementation. This iterative process ensures the models are practical and beneficial. Models found to be successful can be scaled up to broader populations and different healthcare settings to disseminate effectiveness. 

Summary: What is Value-Based Care? 

Value-based care is a transformative movement within the United States health care system that seeks to improve patient outcomes and health equity by shifting away from the traditional fee-for-service payment model. Unlike fee-for-service, which compensates providers based on the quantity of services rendered, value-based care rewards health care providers for delivering high-quality care that enhances patient experience and health outcomes. This drive stems from an acknowledgment that excessive costs brought about by events such as hospital readmissions can be prevented by improving care quality.

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