A framework for guiding efforts to reward value instead of volume

Abstract

The U.S. healthcare system is in the midst of a major shift from fee-for-service to value-based reimbursement models. To date, these new reimbursement models have been focused on quality-contingent bonuses and cost-of-care risk sharing for providers, both of which have yielded only modest success.An analysis of health policy and business strategy literature was performed to identify the mechanisms of how value is rewarded in other industries and to understand the barriers to those mechanisms operating in the healthcare industry. A framework was developed to organize these findings. Rewarding healthcare providers for delivering value can only be achieved by enabling profitability to increase as value increases relative to competitors. Four variables determine a provider’s profitability, each of which is considered as a potential lever to reward value with profit. The lever that offers the greatest potential is quantity (i.e., market share). Ironically, this means rewarding value with volume. The major barriers to value improvements being rewarded with market share are identified, and the profound impact of minimizing or removing those barriers is illustrated using a variety of examples from our healthcare system. Trending reforms that rely on quality-contingent bonuses and cost-of-care risk sharing are limited in the degree of value improvement they will stimulate because they rely on ineffective levers to reward value; instead, reform efforts must focus on removing barriers to rewarding value with market share. The framework presented can be used to predict the impact of any proposed reform.