Skip to main content
Home » Connected Health » The Importance of Paying for Value in Health Care
Connected Health

The Importance of Paying for Value in Health Care

The United States spends nearly 18 percent of its gross domestic product on health care. The fee-for-service (FFS) provider payment model for health care is considered one of the major drivers of high costs, because it encourages and incentivizes the use of more (and more expensive) services. FFS promotes the use of more tests, procedures and treatments, some which may not be supported by evidence-based medicine.

Many medical personnel and health systems still earn most of their revenue under this type of arrangement.  It drives volume but not necessarily value, as payments are dependent upon quantity and not quality.

A possible alternative

One solution that has been embraced by some is value-based care. The objective of such models is to align physician and hospital rewards and penalties with cost, quality and outcome measures. Such models and plan designs use either financial incentives or disincentives to promote the use of more cost-effective health care services and consumer choices while reducing any barriers.

Value-based payment contracts are not prevalent, and most are structured based on a shared savings model. Although these types of arrangements vary, they typically incentivize providers to reduce spending for a defined patient population by offering them a percentage of any net savings they realize.

Transitioning from volume-based to value-based payment and health care delivery models has been slow. According to a 2016 Deloitte survey of health systems and medical groups, only three percent provide more than half of all care under value-based contracts.

There are many payment models, and there is no single correct model of value-based care that fits all situations and workforce populations. The choice of which model (or combination of models) to use depends on the capabilities, market position, financial situation and value-based company goals of each organization.

Promising legislation

The Patient Protection and Affordable Care Act (PPACA) attempted to move the health care system toward paying for value. The health law created the Medicare Shared Savings Program, the most well-known and standardized example of this new model. The program allows organizations to choose to participate in accountable care organizations (ACOs) using shared savings/risk payment models and pilots bundled payments.

An ACO is a network of doctors and hospitals that share financial and medical responsibility for providing coordinated care to patients in hopes of limiting unnecessary spending. Because of ACOs, providers are jointly accountable for the health of their patients, giving them financial incentives to cooperate and save money by avoiding unnecessary tests and procedures. By encouraging doctors, hospitals and other health care providers to form networks that coordinate patient care, such providers become eligible for bonuses when they deliver that care efficiently while keeping patients healthy. For ACOs to work effectively, they must seamlessly share information. Those that save money while meeting quality targets keep a portion of the savings. Providers can choose to be at risk of losing money if they want to aim for a bigger reward, or they can enter the program with no risk at all.


ACOs are also appearing in the private sector as health care organizations experiment with a variety of models. Organizations such as Kaiser Permanente, Geisinger Health System and the Cleveland Clinic have been noted for experimenting with value-based models, taking on more financial risk and helping to better control spending.

A team effort

All stakeholders should be exploring opportunities to reduce health care costs, enhance the patient experience and improve the population’s overall health. Employers, brokers, consultants, insurance companies, health plans and government payers need to work together to identify such opportunities.

As the uncertainty around many of the tenets of PPACA remains for the foreseeable future, the health care system continues to struggle to deliver affordable, quality care and overall value to patients while also saving costs for everyone in the system.

Because of unsustainable rising costs, poor health outcomes and poor performance on quality measures, the pressure to reduce costs for all individuals while improving quality and outcomes continues to accelerate. The current system largely fails to financially reward high-quality or coordinated health care across providers.

Without a movement toward value-based care, is there another way to truly manage health-care costs and deliver quality?

Next article