Value-based payments: putting quality over quantity in healthcare?

What are value-based payments? How do they differ from fee-for-service payments? Discover answers to these questions and more in this article providing an introduction to value-based payments.

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Value-based payments versus traditional fee-for-service payments

Historically, primary healthcare providers in the USA have received fee-for-service reimbursement payments from payers such as the Centers for Medicare and Medicaid Services (CMS; MD, USA): for every healthcare service that is provided to an individual patient, providers receive a fixed monetary sum back from healthcare payers to cover these costs.

However, the cost–effectiveness of such fee-for-service payments has been frequently called into question as they can be associated with high healthcare costs and wasteful spending on unnecessary services that do not equate with valuable outcomes for patients.

Value-based payments and programs have thus emerged in an attempt to curb healthcare spending whilst simultaneously increasing the value of services provided to patients [1–2]. Healthcare payers monitor the health outcomes of patients – through patient-reported outcomes, real-world evidence and other means – and utilize these to determine the value derived for individual patients receiving a service. This information is then used to determine the size of payment made by payers to providers, incentivizing providers to restrict the provision of unnecessary, high-cost healthcare services and instead focus on services that are deemed most valuable for patients.

Simply, value-based payments aim to balance quality and cost in healthcare, to weed out spending on low-quality, high-cost healthcare services and ensure that interventions that are delivered actually improve health outcomes of individual patients and patient populations – think ‘quality over quantity’.

As Richard Gliklich, CEO of OM1, Inc. (MA, USA), explained in an interview with The Evidence Base®: “[Value-based contracting] has emerged as an approach to flattening the ever-rising cost curve in healthcare; it is important because an increasing number of payers – including the CMS – are experimenting with value-based models to better manage healthcare costs.”

Value-based payment models

Bundled payments

Under bundled payment models, instead of primary healthcare providers receiving reimbursement payments for each individual service they provide as part of their performing a healthcare intervention, such as a knee replacement – as they would under traditional fee-for-service models – providers receive one fixed ‘bundled’ fee for performing all services required to complete the intervention [3].

Bundled payments seek to incentivize providers to perform services efficiently and cost effectively.


Pay-for-performance schemes are often implemented in conjunction with fee-for-service payments, to make the latter more value-based. These payments reward healthcare providers with added bonuses if they achieve specific targets set by payers for quality and costs of care. Though a step in the right direction of restricting the provision of unnecessary healthcare services, bonuses awarded under pay-for-performance models have proved insufficient for achieving full practice reform.

Shared savings and shared risk

Under the shared savings scheme, payers set providers specific budgets for costs associated with healthcare delivery. If primary healthcare providers’ total care costs come in under budget, they may share in these under-budget savings [4].

By extension, ‘shared risk’ is less a payment model than an additional measure implemented in conjunction with shared savings models, to further incentivize efficient, cost effective healthcare delivery. With shared risk, if the predetermined healthcare cost budget is exceeded, healthcare providers are required to cover, out of pocket, these additional costs.

Accountable care organizations

Shared savings programs can create opportunities for healthcare providers to volunteer to participate in accountable care organizations [4]; only patients covered by Original Medicare in the USA are eligible to receive care from physicians at accountable care organizations [5].

At accountable care organizations, local healthcare providers and hospitals work together to provide patients with coordinated care; patients’ healthcare information, such as their electronic healthcare record data, is shared between providers to limit repeat procedure performance and provide complete medical histories to save time.

If coordinating providers at accountable care organizations succeed in delivering high-quality care under their set budgets, they may share in the savings achieved for the Medicare program [6].


[1] Conrad DA. The theory of value-based payment incentives and their application to health care. Health Serv Res. 50; Suppl 2:2057–2089 (2015).

[2] Centers for Medicare and Medicaid Services. Value-based programs. 
[Accessed 03/30/2020]

[3] Centers for Medicare and Medicaid Services. Bundled Payments for Care Improvement (BPCI) Initiative. 
[Accessed 03/30/2020]

[4] Centers for Medicare and Medicaid Services. Shared Savings Program.
[Accessed 03/30/2020]

[5] Accountable care organizations.
[Accessed 03/30/2020]

[6] Centers for Medicare and Medicaid Services. Accountable care organizations. 
[Accessed 03/30/2020]   

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