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Value-based healthcare-what’s working, what isn’t, and what’s next.


A view from the trenches.

value-based care, healthcare, fee-for-service, CMS, payers


Editor's Note: Welcome to Medical Economics' blog section which features contributions from members of the medical community. These blogs are an opportunity for bloggers to engage with readers about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The opinions expressed here are that of the authors and not Medical Economics.

The ever-escalating crisis of U.S. healthcare costs has stimulated many great and not-so-great ideas about how best to disrupt, transform, or simply improve the relationship between dollars spent and health outcomes achieved. A global outlier, the U.S. spends more on healthcare than any other country, with spending approaching 18 percent of the GDP. Yet our healthcare outcomes are mediocre at best, ranking 31st in life expectancy and 45th in infant mortality.  

A 2006 book by Michael Porter and Elizabeth Olmstead Teisberg, titled Redefining Health Care – Creating Value-Based Competition on Results, is frequently credited as giving rise to the current push towards “value-based healthcare.” In it, value is most often defined (somewhat nebulously) as the ratio of healthcare outcomes to cost.

In every other aspect of our lives we look for value, so the idea of holding healthcare spending to a similar standard is neither novel nor contentious. The challenge is how to execute this idea. Our healthcare system has long rewarded prestige, complexity, effort, and volume over value.

I have been fortunate to practice medicine in both academic and private-practice settings, hold leadership roles at some of the country’s leading pharma and medical device companies, lead a healthcare policy institute, and, most recently, head up an organization building a specific value-based healthcare solution. At different points in my career as a practicing physician, I was rewarded for working in prestigious healthcare delivery systems, performing complex procedures, and using high cost/high tech tools. In practice, I was rarely, if ever, asked to justify costs (to the hospital, to my practice, or to the patient) or prioritize a ‘value-based’ approach. 

This was before it became abundantly obvious that our excessive healthcare spending was a clear and present threat to our nation’s economy. Now, more than a decade after the defining of value-based healthcare, surely things have changed. Or so I thought.

For the last five years or so, I have been working to bring to market a value-based solution in the post-acute care space. To avoid the specter of promotion, I will only say that we have gone to great lengths to prove the value of said solution to the patient, the clinicians, and the healthcare system (writ large). I will ask you to temporarily suspend your disbelief and imagine that such proof of value does indeed exist, and yet adoption is slow. Why?

Some are skeptical. Even the pinnacle of proof of value-the prospective randomized controlled trial with cost as the primary endpoint, conducted by an independent academic clinical research organization-does not immediately move hearts and minds and ledgers, There is and likely always will be a cohort of clinicians and systems that want to know that such study results are representative of what they can expect in their setting, with their patients.This flows from the reality that healthcare is intensely local, that workflows are not standardized, and that utilization of resources varies greatly from place to place and practitioner to practitioner.

So, to prove that study results are representative and transferable, we often find ourselves running small pilots in advance of long-term contracts to prove out (again) the value.

The value-based healthcare system isn’t here yet. One of the biggest prompts for continued investment and development was Medicare’s departure from fee-for-service to a value-based payment system. Medicare’s mandatory Comprehensive Care for Joint Replacement and voluntary Bundled Payments for Care Improvement Initiative programs signaled a departure from familiar fee-for-service payments to a ‘bundled’ payment paradigm. While there were early pronouncements of making such programs mandatory, Medicare backed away from advancing mandatory bundles in favor of elective bundled payment programs. The difference between elective and mandatory participation in such value-based bundled payment programs is enormous for industry participants, as clinicians and hospitals may electively demure from value-based care and return to fee-for-service, with a chilling effect on the business prospects for vendors of value-based solutions. 

Change is hard. The transformation from fee-for-service to value-based care means that workflows will change, and the distribution of funds will be affected.  Any solution that is proven to reduce costs does so by cutting some participants income, or as someone told me recently, "one man's pork is another man's bacon." Removing income obviously creates friction in adoption, as no medical professional or vendor actively seeks to bill less. 

In addition, U.S. healthcare has an associated inertia which rejects change. Without substantial motivation in the form of either an existential threat or a significant financial incentive, change is often delayed or sidetracked. 

Here’s the good news. This friction and inertia can be overcome with the cost savings and aligned financial value created in a bundled payment environment. At an orthopedic meeting in November of 2018, forward-looking surgeons in North Carolina described how they were proactively working with private payers to encourage the construction and utilization of bundled payment programs. They championed the alignment of such a payment mechanism with their goals of providing state-of-the-art care, obtaining excellent outcomes for patients, and driving efficiencies in the provision of such care that also positively contributes to their profitability.  

I am proud to be a champion of value-based care. It is what patients individually need and what the country must collectively have. It is imperative that CMS and private payers unequivocally accelerate their adoption of value-based payment systems to assure that early adopters of value-based care do not become martyrs to it. 


As the president and chief executive officer of Reflexion Health and Digital Health Corp, Dr. Joseph (Joe) Smith’s expertise and passion lies in exploring the intersection of medicine and technology. His background includes serving as the founding chief medical and science officer at the West Health Institute, president of the West Health Policy Center in Washington, D.C., and manager of the West Health Investment Fund. He has also held executive positions at J&J, Boston Scientific, and Guidant Corp. served as a practicing cardiologist for close to 20 years. Dr. Smith holds bachelor’s degree from Johns Hopkins, a PhD from MIT, and an MD from Harvard Medical School.

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