What is meant by value-based healthcare?

Let’s start with the million dollar question: What makes you happy?

The answer will likely vary widely among us, depending on the values we hold individually. Some of us value being together with family above anything else. Some of us value traveling and exploring the world. Some of us may value dedicating ourselves to a company while others see pursuing art as their life’s work.

Because value is different across individuals, societies, and countries, it is also challenging to measure.


One universal fact is that most of us value health. We take care of ourselves through exercise and nutrition, we ensure that babies get the care that they need and grow as they should, we appreciate clean water and air, and we demand that the health system works when we get ill or injured.

But it is not the volume of healthcare, the prescriptions of various medicines, or the number of clinic visits that contribute to our health and well-being. So when we think of “value” and “values” in terms of pursuing health, we need to clarify what exactly we mean, or else we can’t measure it.

Value also depends a lot on “for whom”. Is it the value for an individual? The sick patient? The health practitioner? The healthcare provider organization? The state system? The same questions can be asked for the costs. Are we talking about costs to the patient, to the clinic, or to taxpayers?

Defining value-based healthcare

Value-based healthcare (VBHC) is discussed as an idea to improve our healthcare systems, but there is no universally agreed, single definition. This has been one of the major obstacles in this field, and one of the course objectives is to clarify what we mean by value-based healthcare.

Value-based healthcare is often discussed as a concept to improve resource allocation. This is because value measures the benefit over the cost. In the case of value-based healthcare, this means the health benefit achieved versus the money spent.

Cost effectiveness, or overall value for money (VfM), is maximized by achieving the greatest impact on individual and population-level health through the health system, given the resources spent. Improving the economy, efficiency, and effectiveness of the health system are intermediate steps which help maximize cost-effectiveness. Value for money can be assessed using the criteria of economy, efficiency, and effectiveness, but another pillar – equity – is sometimes added and used to ensure that VfM analysis accounts for the importance of reaching the most neglected and vulnerable demographics. The so-called 4E approach (economy, efficiency, effectiveness, and equity) highlights the importance of fairness, and this approach to value for money warns against taking easy options, ignoring difficult to reach populations, or avoiding problems which are difficult to tackle. This is in line with the values of Nordic countries, which regard equity as an integral component.


The 4E terms – economy, efficiency, effectiveness, and equity − are used to mean four different things in this context. This is slightly different from some economic theories that consider economy and efficiency as both ways to increase the goal of productivity. In examining value for money it is important to distinguish between economy, referring to minimizing costs, and efficiency, which relates to getting more for those costs. Technical efficiency refers to producing goods and services at the lowest cost, while allocative efficiency refers to the distribution and allocation of resources in society. This is why the latter is relevant to equity.

A paper that looked into which policies increase value for money in healthcare showed that policies aimed at increasing the scope of goods and services covered by basic (primary) healthcare coverage help achieve better value for money by increasing life expectancy and moderating health spending growth. The results also indicated that the use of health technology assessment to provide evidence related to new technologies, as well as policies aimed at offering a higher degree of user choice for basic coverage, are both likely to magnify life expectancy gains and moderate spending on healthcare growth at the same time.

The societal definition of value-based healthcare

Regarding the various ways to understand value-based healthcare, we see two main extremes in how it is defined. First, there is the more societal view of value-based healthcare. This follows the UK National Health Service, where the value for money concept has been applied actively over the years in every sector including the Ministry of Finance, the national health system, and international development.

Defining Value-based Healthcare by Hurst et al. provides the definition of value-based healthcare below:

“Value-based healthcare is the equitable, sustainable and transparent use of the available resources to achieve better outcomes and experiences for every person.”

Here value-based healthcare is a comprehensive concept founded on four value pillars:

  • Appropriate care in order to achieve patients’ personal goals (personal value)

  • Achievement of best possible outcomes with available resources (technical value)

  • Fair resource distribution across all patient groups (allocative value)

  • Contribution of healthcare to social participation and connectedness (societal value)

Source: European Union, 2019.

Source: European Union, 2019.

Provider-based definition of value-based healthcare

At the other extreme, there is a provider-based view as defined by International Consortium for Health Outcomes Measurement (ICHOM), an international non-profit organisation:

“Value is defined as the outcomes that patients experience relative to the cost of delivering those outcomes. Value-based healthcare, or VBHC, is healthcare that delivers the best possible outcomes to patients for the lowest possible cost.”

Moreover, ICHOM describes value-based healthcare as follows:

“We believe that choice and competition in healthcare should be based on value. By restructuring care-delivery around outcomes, and promoting superior outcomes with financial incentives, healthcare systems will improve quality and curb inefficiencies. This will benefit every stakeholder across the healthcare spectrum. In a value-based world:

  • patients are able to choose providers based on informed expectations of outcomes and the associated costs;

  • providers that deliver superior outcomes at competitive costs thrive, while others improve or lose market share;

  • payers negotiate contracts based on results and encourage innovation to achieve those results; and

  • suppliers succeed by marketing their products on value, showing improved patient outcomes relative to costs.”

Note that while the above definition of value-based healthcare puts the patients at the centre, it only focuses on the patients that can access and pay for the services. This is why this latter definition of value-based healthcare is frequently criticised for not taking equity into account. Value-based healthcare is applied at the level of the healthcare service provider and the patients who utilize the services. This distinguishes it from the aforementioned broader societal view on value-based healthcare.

Source: Essenburgh

Source: Essenburgh

Next section
III. Background for understanding value-based healthcare