Value-Based Health

Value-Based Health

Around the world healthcare systems are facing mounting challenges and growing costs. The staggering projection for the growth of cost in the US healthcare system are the clearest example of this, but not an exception. Demand is going up dramatically as people get older, as chronic diseases are on the increase and as the emerging economies try to build out their health systems to reach the majority of their population. Going forward the health finance equation is no longer really adding up – we have to drastically improve the value that health systems are delivering at lower costs and incremental improvements within the existing model are not going to be sufficed to realize the required changes.

Unfortunately, the current system is designed to do anything but maximize end-user outcomes and actual value delivered. In healthcare, we have ended up organizing around tools, processes, silos and various management metrics; everything but the individual. The issue is that the existing centralized systems are built around a “push model”. By focusing on the formal institutions of healthcare provisioning we have resulted in a system that is organized around internal processes, tools, technologies, drugs all of its component parts, with limited interest in actual end-user outcomes.

The way we have thought about care in the past has been in terms of access, service volume and equity of care. We do a lot of measurement of quality in health systems, but it is primarily about process compliance not so much about outcomes. Measuring processes is fine but at the end of the day, it is outcomes that matter and the system needs to be measured by that if incentives are to be aligned. As the system has grown and become more complicated with more processes and departments a huge gap has grown between measuring internal processes and their KPIs and the actual outcome of the system. The real cost is that of dealing with a particular medical problem – not just the cost of a specific service delivered – an integrated set of services, where value has to be defined in terms of the patient outcomes achieved relative to the amount of money spent to achieve those outcomes.

Our current approach over-emphasizes the efficiency of the parts rather than sustainable outcomes that lead to reduced cost over time. Through a reductionist approach, we have broken health systems up into ever finer stages and processes for delivering health services, we focus on those specific products and services, measuring there individual performance and costs, in so doing we fail to see that it is not one procedure or one service that defines the outcome for the end user, it is really an integrated system that delivers value. This often goes unrecognized and measure, leading to a misalignment between the system’s metrics of success – and thus the incentive structures in the system – and what people really need from the system, the result of this is a huge amount of wasted resources.


It may seem counterintuitive, that quality of outcomes reduces cost, but the more you value and promote health within an organization the less it costs – the more you focus on the quality of outcomes, the more sustainable the result and the less it costs overall. The more you focus on the efficiency of the individual parts while losing sight of the whole service delivered and how sustainable it is the more the costs will build up over time. Typically discussions of health systems start with that of finance, procedures and how much services will cost, they surprisingly do not start with health itself. Health systems are organized around time, location and illness rather than users; they are often paid according to the number of patients they provide for rather than the quality of the service delivered.

Due to a growing recognition of this dynamic healthcare globally is moving away from a fee for service model towards a value-based care model. That is, patients, pay for results and positive outcomes rather than just services. Today value-based care is widely recognized to align incentives better and achieve better overall outcomes, however, realizing a health system that is truly structured to deliver value to the end-user will require deep structural changes. Value-based care differs from a fee-for-service or capitated approach, in which providers are paid based on the amount of healthcare services they deliver. The “value” in value-based health care is derived from measuring health outcomes against the cost of delivering the outcomes.

While health products are static things that typically are provided to deal with illness, value is something that flows. Ultimately we need to be able to measure the thing that is health – because that is the ultimate source of value – and with advancements in technology, data and the move towards the quantified-self this will increasingly be a reality. The more data we have the greater the opportunity we have to really measure health and value, but the challenge then is to build organizational structures that align the system around that; something we are still far from achieving today.


With our existing system, a huge amount of resources are being wasted due to misalignment of incentives – reorganizing incentives is a critical issue. Today you do not get necessarily rewarded for improving value, in many cases that is not the way you win given the payment system, given the lack of measurement and knowledge about the actual value that is being created by any given institution. As we re-architect the system over time we have to change the basis of competition and what we want in a healthcare system is a system where to win every actor has to be improving end-user value in a demonstrable way.

Often issues that would have been cheap and easy to prevent originally become costly in time. Finance saving for that kind of an issue requires thinking about local incentives so that they are aligned to get the correct outcomes; so that a doctor is actually incentivized to listen to the patient story instead of incentivized to simply do more needless tests. The value-based approach helps to shift the mentality from lack of resources to the alignment of incentives. Value-based care requires a restructuring of the basic locus of the organization so that it pivots around the individual, to achieve this it is required to create new metrics that incentivize actors in the system to focus on those outcomes and align the organization around them.

Because end value is typically not about anyone service, it is about the whole set of services, we have to shift the metric from individual products and services to whole compositions of services that are required to deal with a patient’s needs. The metrics of payment and success have to shift to the whole process, when we focus on the parts and apply our metric of success to them we can get negative synergies, which means the whole process is of less value than the sum of its parts.

A surgeon does not deliver value alone, you can have a great operation for a hip replacement but if you do not do the recovery well, and if you do not do the rehab well, you can completely nullify everything the surgeon did. We can not just pay for the surgery anymore the only way we can deliver real value is by paying for the whole; the whole cycle of care. Right now we have little idea for what the real costs are, we do not have the information to do that but increasingly we will and if we are able to redesign the system from focusing on components to functional outcomes this would achieve quantum leaps in the overall system and the discussion could move from an argument over scarcity of inputs to a one of quality of outputs.


Systems Innovation

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