What Is Value-Based Care? Plus 7 Types of Value-Based Care Models

what is value-based care

Quality over quantity—it’s true for winter coats, car parts, and, as most people believe, healthcare.

And yet, the American healthcare system has long been set up to maximize quantity. With the fee-for-service model, which dominates the U.S. healthcare system today, the more services doctors provide, the more money they (and the hospitals or clinics they work for) get.

With value-based care, the concept is to reward clinicians and health systems for outcomes (low blood pressure, low readmission rates, greater mobility), not services (shots, sutures, scans). The “value” in the term is judged by weighing health outcomes against the cost of achieving them.

Read on to learn more about what value-based care is, the various types of value-based care models, and the benefits of value-based care.

What are the main components of value-based care? 

To measure the value of care, value-based care models tend to look at three main components: quality, cost, and equity.

Per the National Academy of Medicine, “quality” care can be described as safe, timely, effective, efficient, equitable, and patient-centered—aka “STEEP.” (Of course, measuring healthcare quality isn’t quite so simple—at Carrum Health, for example, we analyze more than 50 data elements when evaluating the quality of the centers of excellence and individual providers included in our network.)

“Cost” refers to how, in a value-based care model, providers are financially rewarded for avoiding unnecessary and expensive services like emergency room visits. For instance, in the current state of the U.S. healthcare system, more than a third of total knee arthroplasty surgeries were found to be inappropriate, between 20 to 40% of back surgeries aimed at reducing lower back pain fail, and coronary stents are used way more than they should be.

That’s a lot of money to be spending on surgeries and procedures that aren’t needed—or, worse, don’t even work. Value-based care models aim to avoid these types of issues.

(Read more about the current spending hot spots in healthcare.)

Lastly, “equity” means working to shore up disparities in care that contribute to worse outcomes in marginalized populations. For example, this could include financial incentives for providers who help make high-quality care more accessible and affordable for people of color, low-income populations, and other underrepresented groups.

Health equity efforts are particularly critical in the U.S., where racial and ethnic minority groups experience a lower life expectancy and higher rates of conditions including diabetes, hypertension, obesity, asthma, and heart disease, according to the Centers for Disease Control and Prevention. Black Americans in particular, for example, have a maternal mortality rate 2.6 times higher than their white counterparts—a gap that’s only been growing, as the CDC has tracked.

What are some value-based care models? 

Here are some of the most common value-based care models:

  • Accountable care organizations: These are groups of providers who join forces to deliver coordinated, quality care to patients. All parties can be financially rewarded by working together to reduce costs. There are various types of ACOs, such as “integrated delivery systems” (like Kaiser Permanente) and “multispecialty group practices” (like Mayo Clinic and Cleveland Clinics).
  • Bundled payments: An alternative payment method, bundled payment models involve paying a single, predetermined amount for all the services related to a specific episode of care over a defined period. This model encourages providers to work together to improve coordination and efficiency throughout the entire episode of care, from diagnosis through recovery. This standardization of bundled payments simplifies administration and implementation.

    Read more about Carrum Health’s bundled payments.
  • Capitation: Providers shoulder financial responsibility for patients’ well-being. Rather than having insurance companies reimburse providers for each service, members pay an annual fee, which is pooled and used to support their health and, ideally, prevent disease.
  • Episode-Based Payments: This is another alternative payment method that is similar to bundled payments but has more flexibility and room for customization with the types of services included in the bundle (which also means there is less standardization).
  • Medical homes: A patient-centered medical home isn’t a physical place, per se, but rather a team approach to patient care typically led by a primary care physician. In this approach, all providers—which could include physician assistants, nurses, pharmacists, and social workers—generally have access to a patient’s electronic medical records with the aim of reducing redundancies and costs.
  • Performance-based payment:  This approach is still tied to the fee-for-service model, but it encourages providers to deliver value-based care by providing reimbursement or bonuses for high-quality, efficient care. On the flip side, providers can be penalized for failing to meet various performance metrics.
  • Shared savings: This strategy sets a specific care and care delivery budget for a set patient population. If providers fall below the budget, they’re offered a percentage of the savings. If they exceed the budget, they’re responsible for the extra costs.

What are the benefits of value-based care?

Ultimately, patients, providers, and payers can reap the rewards of value-based care.

For one, the focus on preventive care helps patients avoid unnecessary costs and care. Rather than seeing—and paying for—multiple specialists for Type 2 diabetes, for example, value-based care is designed to help people avoid the condition in the first place. This approach naturally improves patient satisfaction, too.

As another example, if a patient consults with a doctor about back surgery for chronic back pain, a provider taking a value-based approach would first direct the patient toward less invasive, less risky, less expensive, and often just as effective options like physical therapy. Or, a hip replacement patient may be discharged home rather than to a costly rehab facility, where they can be virtually monitored and supported by loved ones to yield similar, if not better, outcomes.

For payers, value-based care can minimize risk and help control costs by establishing a healthier patient population– the less expensive procedures and complex conditions to manage, the better for everyone involved.

More broadly, a society full of people who are spending less money on healthcare and less time in paper gowns—ideally, because they’re healthier to begin with and not going through unnecessary procedures—is likely to be happier, healthier, and more productive. So, while transitioning to value-based care takes time, upfront costs, and buy-in from all parties, its potential to improve individual and population health and well-being is a future worth pursuing.