What Is Value-Based Healthcare Anyway?
· Value Based Healthcare · 8 min read · By Dr Jason I Broch
The Problem with the Activity Model
Internationally, healthcare has operated by similar rules, whether through state purchase and provision (such as the NHS), private insurance, or more hybrid systems. Typically, there is a payer and a provider.
Even in insurance-based systems, where the payer could be a private entity, there is a cost to the state — either through tax deductions or payment for uninsured individuals, such as Medicaid or Medicare. The result is that healthcare providers have ended up in cycles of ever-increasing activity, requiring ever-increasing funding.
Whilst payers may put in place some control-type initiatives around only funding certain procedures or gateways, there has been a fundamental separation of accountability between the provision of care and the funding of it. As activity ramps up, cost to payers and the state increases. Continuous increases as a percentage of GDP cannot be sustainable — though there is obviously much political debate about what the appropriate amount is.
Nonetheless, there is strong evidence that increasing activity does not necessarily result in increased quality or better outcomes. Any spending must be justified and value for money.
The question, therefore, is: how can incentives drive better quality of care rather than just quantity, as well as driving the right type of provision? The answer is Value-Based Healthcare (VBH).
What Value-Based Healthcare Actually Means
The basis of VBH is that healthcare activity is driven by the illness of a population and kept under control by the wellness of a population. If contracting for healthcare is based on achieving good outcomes for a population, then the incentives effectively push systems towards keeping people as well as possible — because they are managing the risk associated with people becoming unwell.
An outcomes-based contract could take the form of an agreed amount of money to care for a population, with a potential risk-share agreement related to achieving specific outcomes, or partly related to activity levels.
This approach has to be data-informed. Payers and providers need a robust understanding of the inherent risk and priority areas affecting the populations they serve.
Defining the Population
The first step is really understanding what is meant by 'population'. Theoretically, a population could be defined purely by a geographic area — but there are a number of issues with this approach.
First, the needs of members of that area will vary widely, making it very difficult to define specific interventions to improve outcomes. It is also the case that confining to a geographic area could mean that socio-economic status has a disproportionate impact. For example, there may be over-activity in affluent areas and unmet need in more deprived areas. A focus on outcomes should seek to address inequalities, not entrench them.
Another way of defining populations is by disease or condition. Although this may focus attention on good medical care, there is a risk that it results in an over-medicalised approach when it is known that social determinants of health are paramount.
Population segmentation models offer a more nuanced approach, breaking down populations in different ways to understand risk, cost, and wellness. Examples include the Bridges to Health segmentation model and others used across integrated care systems. The goal is to understand not just who is unwell, but who is at risk of becoming unwell — and why.
Why This Matters Now
The NHS is under sustained pressure. Activity is rising, funding is constrained, and the traditional volume-based model is showing its limits. Value-Based Healthcare is not a silver bullet — it requires significant investment in data infrastructure, new contractual frameworks, and a genuine shift in how providers and payers relate to one another.
But the direction of travel is clear. Health systems that succeed in the coming decade will be those that move from managing illness to managing risk — from reactive provision to proactive stewardship of population health. Value-Based Healthcare provides the conceptual and contractual framework to make that shift real.