Value-based purchasing (VBP) encourages outstanding health care by rewarding the quality — not just the quantity — of health care services.
Under the VBP model, insurers reimburse health care providers according to successful patient outcomes. A few proactive measures to manage blood pressure, for example, can keep patients on a healthy track, forestalling endless visits to address the problem should it escalate. This positive outcome can be a win-win for providers and patients alike: It saves money otherwise spent on costly treatments, and it rewards providers for helping patients get well.
A 2020 research article in Health Affairs predicts that health costs will account for nearly 20% of the U.S. gross domestic product by 2028. VBP helps address the high cost of health care — and improves patient satisfaction while doing so. Today’s education programs for emerging leaders, such as the Executive Master of Health Administration online program in the USC Sol Price School of Public Policy, focus on VBP and its effects on patient outcomes.
Value-Based Purchasing in Health Care
Value-based purchasing is a departure from the traditional fee-for-service (FFS) health care delivery model. Under that approach, insurers pay providers based only on the volume of their services.
The fee-for-service approach provides no incentive for positive patient outcomes. Consider this example: Suppose muscle and joint pain sends a patient to an office visit with a doctor, then to get an X-ray, then to get an MRI and then to a specialist for surgery. Under FFS, each provider along the way receives insurance reimbursement for each service provided.
Whether or not the patient shows the desired result — a healed muscle that allows them to move without pain — under FFS each hospital or other health care provider receives the same insurance reimbursement.
History of Value-Based Purchasing in Health Care
The fee-for-service model of health care delivery has often led to inefficiencies, and according to industry experts, health care expenditures have increased as a result.
Data from the Organization for Economic Cooperation and Development shows how the United States compares with similar nations in per-person health care spending: In 2019, the United States spent about $10,000 per person, while the average per-person spending by all OECD nations was $4,000.
But the level of care in the United States hasn’t always kept pace with spending. In an effort to enhance quality, coordination and efficiency, the Centers for Medicare & Medicaid Services (CMS) tested a value-based purchasing approach to health care delivery.
VBP creates an incentive for providers to offer quality and value. It encourages preventive care and coordination between hospitals and health care professionals, while holding them accountable for the quality of service they provide.
In the example of the patient seeking help for muscle pain, the doctors and other medical professionals providing care would receive insurance reimbursement for more than just the number of services they provided to treat the condition. Their reimbursement also would take into account the outcome of the treatment. It would factor in quality of care delivery, patient experience and cost effectiveness.
In 2008 CMS began focusing on VBP, with its Hospital Value-Based Purchasing Program emphasizing an enhanced quality of care and a better experience during hospital stays for patients. The agency has since added programs related to reporting requirements and payment under this health care delivery approach.
The Affordable Care Act (ACA), a health care reform law established in 2010, also includes value-based purchasing as part of its effort to lower costs and improve care.
Today, value-based care is becoming more common. Inc. magazine includes this type of care delivery among its list of trends shaping health care, noting the approach encourages innovation and infrastructure improvements.
How Value-Based Purchasing Works
Under value-based purchasing, hospitals and other care facilities receive incentive payments from insurers for the providers’ quality of care. Medicare’s Hospital Value-Based Purchasing (VBP) Program, for example, evaluates care results such as the following:
- Mortality and complications
- Health care-associated infections
- Personal and community engagement
- Safety
- Efficiency and lowered costs
Medicare’s VBP calculation scores how a hospital’s care compares to national performance standards and how the care has improved compared with the hospital’s own past performance. CMS adjusts a part of hospitals’ Medicare payments according to their performance scores. The goal of the program, according to CMS, is to improve hospital care and the patient experience in the following ways:
- Eliminating or reducing medical errors
- Following established care standards
- Improving the patient experience
- Making information about care outcomes more readily available
- Recognizing high-quality, affordable care
Value-Based Purchasing and the Affordable Care Act
The Medicare Hospital Value-Based Purchasing Program is one of three mandatory pay-for-performance programs the Affordable Care Act introduced. The ACA expands the role of performance-based purchasing as part of the law’s focus on insurance and on quality and cost of care.
Impact of Value-Based Purchasing in Health Care
Value-based purchasing holds benefits for providers and patients alike. It improves health care outcomes and reduces costs, according to the Cleveland Clinic.
Value-Based Purchasing and Enhanced Patient Outcomes
Value-based purchasing emphasizes collaborative, efficient and preventive care. It can improve patient outcomes and experiences in a variety of ways, including:
- Providing well-rounded care that takes into account the physical, mental and social factors that affect well-being
- Coordinating treatment so all of a patient’s providers are working in tandem
- Lowering costs by encouraging efficient treatment and services
- Eliminating errors that can adversely affect a patient’s health
- Encouraging the best outcomes for patients by promoting evidence-based standards of care
- Improving patients’ experience during hospital stays
- Increasing transparency of information about a provider’s quality of care
How Can Hospitals Improve Care in Value-Based Purchasing?
Hospitals can take steps to improve their care in the value-based purchasing model. By taking these actions, they can encourage the positive outcomes of value-based purchasing, including greater patient satisfaction and operational efficiency.
The COVID-19 pandemic spurred some of these actions, such as offering alternative ways to access care due to lockdown restrictions that affected patients’ ability to seek care in person.
Among the ways hospitals and other providers can improve care are the following:
- Adding resources and education that encourage a healthy lifestyle
- Being responsive to individual and community needs
- Adapting to a variety of organizational models, structures of care and health care specialties
- Encouraging innovative health information technology practices
- Adding options for care including post-acute and telehealth programs
- Communicating clearly with patients
- Increasing standardization in approaches to care among providers
- Forming strategic partnerships
Sharpen Your Expertise in Value-Based Purchasing
Health care providers, managers and administrators play a key role in ensuring the enhanced hospital performance and patient outcomes that value-based purchasing rewards. If you are ready to learn more about VBP and other key health care developments, explore the executive MHA from the USC Sol Price School of Public Policy. The program offers the flexibility of online education with in-person opportunities, including medical-site visits.
Discover how an EMHA degree from USC can help you pursue your professional goals.
Recommended Readings:
Health Care Administration: Lasting Impacts from COVID-19
Telemedicine, COVID-19 and the Future of Healthcare
Why USC EMHA with Dr. Tom Collins
Sources:
Advisory Board, “C-Suite Cheat Sheet: Hospital Value-Based Purchasing”
Aetna, “Better Health at Lower Costs: Why We Need Value-Based Care Now”
The Balance, “Can Value-Based Care Bring Down the Cost of Healthcare?”
Centers for Medicare & Medicaid Services, The Hospital Value-Based Purchasing (VBP) Program
Centers for Medicare & Medicaid Services, Value-Based Care
Cleveland Clinic, Value-Based Care
FirstQuoteHealth, Value-Based Purchasing (VBP)
The Fox Group, “Fee for Service vs. Value Based Reimbursement”
Health Affairs, “National Health Expenditure Projections, 2019-28: Expected Rebound in Prices Drives Rising Spending Growth”
Healthcare.gov, Affordable Care Act
Inc., “Six Trends Shaping the Future of Health Care”
Insider, “How and Why the Value Based Payment (Pay for Performance) Model Is Trending in the Health Care Industry”
National Law Review, “Value-Based Care in 2021: 5 Emerging Trends in Value-Based Care”
Organisation for Economic Cooperation and Development, “Health at a Glance 2019, OECD Indicators”
Rand Corporation, Value-Based Purchasing in Health Care
SCP Health, “5 Innovative Ways to Improve Patient Care, Cost Efficiency”