Health care is undergoing remarkable change with the global delivery system transitioning to a value-based system from the fee-for-service approach, which has been in place for the past half century. It is predicted that, in this ever evolving business model, hospitals, health care systems, physician groups, and other health care providers will take on more risk, along with the responsibility for delivering defined services to a specific population at a preset measures of price and quality. As a result, novel care delivery networks and value-based arrangements are emerging in the health care communities. While the rate of revolution varies in different communities, health care organizations must be proactive in order to not lag behind. (1,2)

“Value” in health care is often referred to as the result of quality divided by cost, or the health outcomes achieved per dollar spent. “Value-Based Contracting” is an agreement with a provider that contains alternative payment methodologies, which are based on indicators of value, such as patient health outcomes, efficiency, and quality. This concept is different from volume or fee-for-service based contracting, where payment is made for every unit of service delivered, often without terms related to outcomes, quality, or cost performance. (3)

Regardless of challenges, progressive health care leaders meaning to deliver the value imperative, are moving their organizations forward by adapting to value-based contracting. The anticipated benefits to all stakeholders, viz. patients, health care providers, payers, employers, and the community include the compensation in line with quality and outcomes, improved and efficient administrative delivery, and better access to care. (1)

Health care organizations, for successful establishment in the markets, will need to adapt to value-based contracting sooner. This is because the current level of involvement in contracting varies widely. (4) Furthermore, for a booming transition to value-based arrangements, hospitals and health care systems must be supported with the following three sources: (1,5)

  • Mutual goals and incentives
  • Robust leadership and governance
  • The combined persistence of a value mindset

Numerous financial and operational considerations are available for health care providers entering into value-based care; which include capital requirements, unit costing and tracking (for the evaluation of performance of the contract), financial assessment and planning, and contracting capabilities (expertise and strength of contracting relationships). Vigorous data infrastructure coupled with the technical know-how is necessary in order for providers to meet quality targets while proactively, effectively, and efficiently managing the care of a specific patient population under a value-based contract.i,v

To conclude, appropriate transition to value-based contracts will require planning, new skills, and a new approach to health care delivery implemented along with measured/incremental steps. Without a mutual partnership and communication between hospitals and health care systems, physicians, other providers, and payers, the probability of long-term success with risk contracts will be limited. Only strong health care leaders with a value mindset can help their organizations make a successful transformation. (5,6)

Become an Certified HEOR Professional – Enrol yourself here!


  1. Value-Based Contracting. Health Research & Educational Trust and Kaufman, Hall & Associates, Inc., Chicago: July 2013.
  2. Porter ME, et al. Redefining Health Care: Creating Value-Based Competition on Results. Boston: Harvard Business School Press, May 2006.
  3. Shifting from Fee-for-Service to Value-Based Contracting Model. United Healthcare. 2012.
  4. Gupta S. Value-based contracting for Risk, and the importance of Claims Data. Edifecs.
  5. McClellan M, et al. Implementing value-based insurance products: A collaborative approach to health care transformation. Health Policy Issue Brief. June, 2015
  6. Value-based care in life sciences: The role of digital platforms. Cognizant 20-20 Insights. December, 2017.

Related Posts