Value based healthcare
Image by Matheus Ferrero on Unsplash

In an attempt to improve the quality of healthcare services and curb rising costs, a transition towards so-called value based healthcare is set in motion. This new paradigm is all about rewarding healthcare providers for their actual contribution to people’s health, instead of paying them for whatever they do, irrespective of the outcome. This transition calls for institutional innovation, e.g. a shift of risks from insurers to doctors as well as technological innovation towards highly interoperable data systems across the sector. Because of these challenges, and more fundamental objections against the paradigm, it is no wonder that the transition is only moving ahead slowly.


  • The concept of Value Based Healthcare (VBHC) was popularized by Harvard professors Michael Porter and Elizabeth Teisberg in their 2006 book Redefining Healthcare. Their main critique of the healthcare sector was that there was no system of outcomes measurements to monitor the actual value of treatments and hence that a basis for genuine and meaningful competition between providers was missing.
  • The basic idea is to reward healthcare providers for the health gains they deliver instead of simply paying them for the services they provide. Not only does this, in theory, reduce the incentive to provide ever more care (and bigger bills) it only opens doors to cooperation between providers to jointly provide the best (and most cost-efficient) care possible between them.
  • There are roughly two options to organize VBHC. One is to bundle multiple services required by a patient in the case of a specific condition (e.g. tests, treatments, follow-up checks) and to reward a (group of) provider(s) according to the outcomes of this bundle (i.e. a so-called episode of care). The other option is “capitation” and entails healthcare providers taking responsibility for all the health needs of a group of people for a fixed fee per capita. In both options, provider(s) who save costs, while maintaining or improving the outcome, get to keep (a part) of the savings.
  • Countries across the globe have started to experiment with VBHC and introduced policy incentives to stimulate its implementation. While many stakeholders claim to work on this basis (e.g. commercial insurers in the U.S. claim that over 60% of their claims is part of a VBHC contract), in practice change is much slower as VBHC is only introduced in mild forms (with providers taking few to no risks) and mostly related to specific conditions for which the effect of treatments is highly predictable. One organization claims that true VBHC payment systems only account for some 4-6% of the U.S. healthcare system (and the Netherlands is also slow to adopt).
  • Actual proof of cost savings is scarce. A recent meta-study concluded that, within the American Medicare system, value based healthcare only resulted in measurable savings for hip and knee replacements (6% lower costs from 2013 to 2016). CMS (the Medicare administration) claims annual savings of $739 million due to VBHC-like initiatives. Another, non-academic, study concluded that U.S. healthcare payers who implemented VBHC realized 5.6% savings.
  • The Dutch diabetes clinic Diabeter is a much-applauded example of VBHC; an patient-centred model in which all care is organized around the patient (instead of a patient being sent from provider to provider). DIabeter is among the best performing clinics and realizes cost savings as patients spent less time in (expensive) hospitals.


At its core, the shift to Value Based Healthcare is a shift from processes to outcomes and a shift from medical gains in the narrow sense to health gains in the broadest sense (including quality of life as perceived by the patient). Together, these are expected to lead to higher quality of care and lower costs as a result of better cooperation between healthcare providers (e.g. within or between hospitals) and quality-improving and cost-saving innovation.

While it may sound rather simple, the successful introduction of VBHC requires a paradigm shift in the way the healthcare sector deals with the division of tasks between stakeholders. This is especially true for the relation between the payer, typically the state or an insurance company and different kinds of health care providers. In the traditional services-based model, the healthcare provider is free (roughly speaking) to choose whatever test or treatment deemed necessary and costs are reimbursed by the payer. This implies that the risks of additional costs, for instance due to complications or the occurrence of multiple conditions at once (i.e. comorbidity) are solely with the payer. Hence, there is no incentive for doctors to consider the most cost-effective options. In the VBHC model, risks are partially shifted to providers as they are expected to help the patient against a fixed fee, even when additional treatment is necessary. At the same time, they stand to benefit from relatively “easy” patients and smarter and more cost-effective ways of helping patients. The latter relates strongly to the fact that, in the new paradigm, healthcare providers are incentivized to work together to jointly improve quality and lower the costs. That is, fees are defined on a higher level of aggregation than today (e.g. for a pre-defined episode or the entire healthcare needs of a patient per year) and providers need to distribute payments between them and, hence, they have a shared interest in improving quality (to get paid at all) and lowering costs. As part of this institutional paradigm shift, technology can play a crucial role to monitor health outcomes (i.e. both in terms of technologically measurable health and perceived quality of life of the patient) and to coordinate efforts among providers. This implies highly interoperable data systems and willingness to share data among providers and payers.

higher quality of care and lower costs as a result of better cooperation between healthcare providers

Exactly because this requires a paradigm shift, change is far from easy. Healthcare providers are reluctant (and often financially unable) to take on risks that are currently taken by insurers and governments. This is why VBHC programs are still limited to conditions for which risks are well-known and limited and most (or all) care can be provided by a single organization. More complex conditions such as heart failure, are far less likely to see VBHC contracts in the near term. More and better data, and hence better risk assessments, may change this in the future, but there is a bit of a chicken-and-egg dilemma as better data is most likely to result from VBHC programs in the first place (i.e. joint efforts to monitor a patient’s progress across multiple providers and over longer time spans).

There are also several moral objections against the concept of VBHC. One is that it is unclear what “value” actually means, for example, the monistic business concept of value neglects personal values, and who is entitled to define the concept (e.g. a doctor measuring health or the patient experiencing health). Another, often-voiced, concern is that VBHC tends to undermine solidarity in the healthcare system. Healthcare providers will be reluctant to take on high-risk patients whom they are unlikely to cure within the pre-defined budget (e.g. because of likely side-effects). Although this is not allowed in most countries, instances of “patient dumping” have occurred. Moreover, it is probably easier to force insurers to take on customers (as in most countries today) than it will be to force providers to take on patients (as they could, in some cases, argue that they would not be able to cure them). And last, VHBC presupposes a participatory informed subject making rational choices. Although research confirms most patients prefer to participate in their care process, it is still unclear to what extent this is desirable.

In response to these objections, mere cost-savings by reducing overtreatment may not suffice to convince the general public and healthcare providers (some of whom fiercely oppose VBHC for said reasons). A more convincing argument could be that prevention can play a bigger role in the healthcare system when both payers and providers have a shared financial interest in the general well-being (i.e. not getting ill) of “their population. This is certainly true in the case of capitation when providers take on the responsibility for the full medical needs of a group. It will also play a role for lifestyle-related diseases for which providers than have an additional incentive to make sure patients life healthier after they have been treated.


  • Despite the lack of evidence, VBHC is being promoted globally, e.g. in the Netherlands, the EU and China. Even though this may not result in radical cost savings (immediately) it is likely to lead to a surge in data about treatments and their outcomes (including patients’ own assessments) and this could form the basis of better (and possibly cheaper) treatments in the future.
  • VBHC could enable more investments in e-health solutions by healthcare providers (e.g. hospitals) as they could actually benefit from resulting savings (i.e. lower costs or health improvements) that end up with other providers or insurers in the current system.
  • One problem with VBHC is that it (implicitly) relies on the assumption that overtreatment is a significant problem and a major factor in rising healthcare costs. A recent paper argued that the real problem (in the U.S.) is that many pharmaceuticals are too expensive, administrative costs are running out of control and doctors are paid too much (in comparison to other developed economies. Big Pharma is already of out favor with the general public and doctors may face the same problem.