The benefits of VBHC are yet to be realised
It has been 20 years since Michael Porter and Elizabeth Teisberg’s 2006 book, Redefining Health Care, was first published and, while value-based health care (VBHC) long predates this seminal work, in many ways it signalled the advent of the health funding odyssey that has ensued over the past two decades and which now envelopes all of us in the industry. Its aim was to define a model that delivers a high quality and affordable healthcare system, one of society’s greatest challenges. As Michael Porter and Thomas Lee wrote more than a decade ago:
“Around the world, every health care system is struggling with rising costs and uneven quality…Health care leaders and policy makers have tried countless incremental fixes—attacking fraud, reducing errors, enforcing practice guidelines, making patients better “consumers,” implementing electronic medical records—but none have had much impact…It’s time for a fundamentally new strategy… At its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost…We must shift the focus from the volume and profitability of services provided—physician visits, hospitalizations, procedures, and tests—to the patient outcomes achieved.”
Porter and Lee, The strategy that will fix health care, Harvard Business Review, October 2013
Yet the promise of VBHC as a key plank in “The strategy that will fix health care” remains unfulfilled and these observations still resonate strongly today.
Challenges: Political will in public systems, fragmentation in private systems
Many of us globally are looking to VBHC to bend the proverbial cost curve and to incentivise meaningful traction in population health. So why, despite support, does the promise of VBHC remain largely unfulfilled?
Healthcare – both public and private – is political kryptonite and government policy has yet to stem its inexorable cost growth. It is remarkable that the sole reason that the US has experienced any net positive job growth since 2024 is healthcare employment – this in a market where VBHC pilots were supported through the 2010 Affordable Care Act and where a growing proportion of funding is now subject to value-based contracts.
In fragmented private systems, delivering VBHC is inherently complex and requires both hard and soft skills that are often alien to both insurers and providers. This has been one of the key drivers of vertical integration in the industry, where a single entity holds both the funding and provision levers. However, while the potential for success is greater in single payer, vertically-integrated systems, it is far from guaranteed.
Provider engagement is key to VBHC
Health funds are faced with a broad spectrum of critical considerations, from clinical coding and data standardisation to consensus on metrics that represent value and the contractual agreements and incentives that codify these measures. However, in private healthcare systems there is one inescapable reality that health funds face – their dependence on partnerships with willing and capable providers. Their engagement with providers must be the starting point and the foundation on which VBHC is built.
Yet, all too often, relationships with providers are fraught and adversarial, borne of mutual distrust and seen as a zero-sum game where leverage is key. When all seek to maximise their self-interest in healthcare, a “tragedy of the commons” is inevitable.
A mindset shift is therefore essential.
Broad and deep engagement with a range of providers, including hospitals and doctor groups, to better understand their motivations, objectives and capabilities is a necessary precursor. Common ground here is within reach. Doctors generally embrace collaborative care models built around patients where outcomes and value are paramount rather than models built around departments where reimbursement is based on the volume and complexity of activity they generate. With the doctors onside, VBHC is possible.
The transition to VBHC for hospital operators is both risky and complex, especially in a business with high fixed costs and substantial capital expenditure requirements.
Yet the transition to VBHC for hospital operators is both risky and complex, especially in a business with high fixed costs and substantial capital expenditure requirements and where few have assets outside of the hospital walls that would enable delivery of population health models. Provider coalitions, or accountable care organisations, can overcome such barriers, though this introduces further complexity.
If, as a health fund, you are seeking to promote the transition to VBHC, you must therefore step up and support (in cash and in kind) providers to make the transition. Partnerships with early adopters can catalyse broader industry change, especially if you can develop and promulgate independent, tangible evidence on the benefits to patients, to clinicians and to sustainability.
Facilitating the transition to VBHC
For health funds, facilitating the transition to VBHC will take your leadership, your long-term organisational commitment and your investment in enablers, especially data analytics sophistication. It also takes a dedicated team, beyond those responsible for contracting, to engage with providers. You would do well to hire from the provider community people that understand the providers’ perspective and business and who can engender trust through engagement. Model co-design and collaboration is essential. Providers should be the evangelists for change within their profession – their advocacy will be far more persuasive to sceptics than yours.
Business as usual is no longer sufficient
As a health fund experiencing unprecedented and accelerating cost pressures, ask yourself three questions:
- Have you invested sufficiently in data analytics and clinical and commercial expertise to understand and incentivise value in healthcare?
- Are your relationships with providers founded on trust, mutual understanding and deep bilateral engagement, or are they transactional, adversarial and detached?
- Will you lead the transition to an affordable and high-quality healthcare system, or will you be shackled to a model increasingly characterised by unsustainable cost growth, premium increases and product value diminution?
To learn more about how we can help you to make the funding model transition to VBHC, get in touch.
Author
The promise of VBHC as a key plank in “The strategy that will fix health care” remains unfulfilled and these observations still resonate strongly today.