Value vs volume

In Chapter 1, we introduced two differing definitions of value-based healthcare (VBHC). One was a broader definition with a societal perspective while the other was focused on the service provider perspective, focusing on individual patient outcomes. In this chapter, we will focus on value-based healthcare that is relevant to health service providers.

Fee-for-services as an additional cost driver of healthcare

The fee-for-service (FFS) model has dominated the healthcare provider payment landscape for a long time. Fee-for-service is generally an arrangement under which a healthcare provider gives a treatment or test to a patient in return for payment per service. The payment is made either from the patient directly, from a third party (such as an insurance company or social insurance fund), or from some combination of the two.

One clear issue in the fee-for-service model has been that it rewards volume and intensity of service. Essentially, the more admissions, testing, procedures, and treatments a provider or hospital delivers, the more money that provider stands to earn. When providing volume is linked to increased earnings for providers, it can create the wrong incentives. Patients might end up receiving a number of unnecessary, wasteful, and even harmful services without getting better health outcomes. The fee-for-service model is generally regarded as an underlying driver for the skyrocketing cost of healthcare over the past decades.

Focusing on outcomes

Value-based healthcare is a concept introduced by Michael E. Porter and Elizabeth O. Teisberg in Redefining Healthcare: Creating Value-Based Competition on Results, as a way to organize healthcare based on meaningful outcomes to patients and maximizing value delivered. Value in this context is defined as “the health outcomes achieved per dollar spent”. This notion has been essentially developed for the American health system, which is profoundly different from the European health systems regarding the source of funding, financing, policies, and principles of care delivery. Yet this concept of value-based healthcare has been developed and adapted to the European setting, for example in Germany, Sweden, the Netherlands, and the UK, with many more exploring the applicability of value-based healthcare in their own health system.

One area where the value-based healthcare concept could be particularly relevant for Europe is for chronic disease management, with a rapidly increasing number of patients as well as costs. The scarcity of healthcare delivery has become apparent in this area. Expanding patient populations requiring continuous care with the same or even a shrinking healthcare budget could benefit most from a health system reform that strives for quality care while containing costs.

In the US, hospitals and other healthcare providers had for a long time delivered fee-for-service medicine. They are now in the midst of navigating significant changes in the way they conduct business and care for their patients. Competition among providers and increasing pressure from public and private payers to lower costs and improve care are driving them away from long-standing volume-based healthcare models, and toward value-based healthcare models. These models seek to more fully align payment and objective measures of clinical quality rather than volume of services. The “value” in value-based healthcare is derived from measuring health outcomes against the cost of delivering the outcomes.


Value-based healthcare, in this context, is a healthcare delivery model in which providers are paid based on patient health outcomes. Therefore, value-based healthcare here refers to the mode of payment and is often used interchangeably with “accountable care”, “population health management”, and “at-risk contracting”. There are many terms used in this field, which can be confusing, and one of the objectives of this chapter is to provide clarification of the key vocabularies and concepts often discussed in value-based healthcare with case examples.

Under such value-based care agreements, providers are rewarded for helping patients improve their health, reduce the effects and incidence of chronic disease, and live healthier lives in an evidence-based way. Value-based care models focus on the patient's treatment and how well healthcare providers can improve their quality of care based on certain metrics, such as reducing hospital readmissions, improving preventative care, and using particular kinds of certified health technology.

Simple concept, complex implementation

The concept of healthcare being based on value instead of volume is easy to grasp and accept. It is preferable that we pay for quality rather than mere volume. Yet how to actually achieve this shift of paying for quality rather than volume remains a major challenge in practice.

The key construct of value-based healthcare is to create a value environment where the long-term outcome for all stakeholders is improved while total costs are contained. The essential components for creating a value-based healthcare service system can be summarized as follows:

  1. Accurately measure outcomes that are meaningful for patients and their associated costs by medical condition

  2. Communicate these outcomes and costs transparently with a performance classification (“benchmarking”)

  3. Organize coordinated care relying on multidisciplinary teams around a patient’s medical profile, and

  4. Develop innovative (bundled) payment schemes to foster joint outcome responsibility and selectively reward high-performing care providers accordingly.

Source: Porter, 2010
Source: Porter, 2010

Source: Porter, 2010

The main concept above still applies to the various provider value-based healthcare endeavors to date. With further refinement under the wing of ICHOM (The International Consortium for Health Outcomes Measurement), the notion of “standard sets” has, moreover, proven important. This is because in order to measure what matters most to the patient, the value is best defined for specific conditions or for specific patient populations. For a given condition, the standardized outcomes, measurement tools, time points, and risk adjustment factors can be made available. For example, ICHOM has to date published 28 standard sets, including diabetes, chronic kidney disease, dementia, cataracts, prostate cancer, and breast cancer. The implementation of these standard sets by condition or patient population enables us to measure, analyze, and improve outcomes achieved in the delivery of care.

Next section
II. Types of provider value-based healthcare