Despite some progress over the last few decades, health services in many countries (no matter how they are structured) continue to be challenged by a common problem of increasing need and demand without the provision of additional resource. These challenges also include unwarranted variation in access, quality, cost and outcomes in the services provided to patients.

Historically efforts to reform healthcare have tended to be based on narrow goals such as improving access to care, changing organisational form, measuring process and containing costs. Given the scale of the current challenge to maintain health services and continue improving population health, there is an urgent need to transform health services in a more fundamental way. One potential solution could be through the delivery of a value-based approach bringing a new focus on the delivery of the best possible outcomes at the lowest cost (see figure one below).

Figure one – Value in healthcare

Looking to value means a move away from our supply-driven healthcare system, which has historically been organised around what clinicians do, and looking towards a more patient-centred system organised around what patients need.

The challenge is then also to change the focus in the system from rewarding the volume and assessing profitability of services provided at an individual organisational level - clinical visits, hospitalisations, procedures, and tests - to the patient outcomes achieved and looking at the costs for the full cycle of care.

Moving to a value-based way of working requires a rethink of how healthcare delivery is organised, contracted for, procured, measured, and reimbursed. In some areas a transformation to value-based healthcare is under way, for example in some areas of the US such as Blue Cross Blue Shield in Massachusetts, areas within Scandinavia, the Netherlands, Canada and NHS Wales (with its prudent healthcare agenda). The early results in some of these areas have been striking improvements in outcomes and efficiency. Value has also now been picked up by industry with some of the main players such as Medtronic seeing the adoption of a value-based approach as a key area of development for the company.

The NHS Perspective

Within the NHS there is an increasing focus on the importance of integrated care and better alignment of organisations in the commissioning of health and care services across the English NHS. The ‘Five Year Forward View’ and the development of new care models are a core part of this focus, seeking to define new approaches to and conditions for provision across populations aligned to the increasing emphasis on patient outcomes and population health.

As a result we are starting to see the development of much larger scale population models for provision (in areas such as Northumberland and Dudley amongst others) which attempt to contract for services in a more co-ordinated way with bundled payments across care pathways and/or populations. This approach is aligned with the aims of the emerging wider regional sustainability and transformation partnerships/accountable care systems.

The implementation of this approach requires the adoption of a more capitated/population-based model of contracting (noting the ACO draft contract issued by NHS England in August 2017), which seeks to manage costs of care for the whole population across a potentially wide array of providers. This can also promote a potential refocus to the value-based approach. However delivering NHS healthcare services under a population-based budget within a contractual framework which incentivises greater efficiency, quality and better outcomes for patients remains a goal which is hard to attain.

What are the obstacles?

There are a number of considerations in managing this value-based shift to the system, including:

How long?

A key area where new capitated contracts should differ from current practice is in the duration of the contract itself. The new approach should look towards longer contract terms of five to ten years (or potentially even longer), enabling all parties to take a longer-term view around investment and innovation (as well as risk). This is important as some of the key patient outcomes which the system will want to shift could take a number of years before the impact of the new way of working is seen and therefore the contract should support this.

This is not to suggest that the new contract cannot accommodate break clauses and benchmarking provisions to ensure that the services remain at the appropriate level, or that the providers cannot be performance managed on quality. Early termination can also be tied into compensation for a provider (where appropriate to reflect their investment into the contract if this is not covered elsewhere) or commissioner as per the current position under the NHS Standard Contract in England.

Risk and gain share: reframing the commissioner/provider relationship

In current English NHS contracting, the use of risk and gain share is becoming more widely adopted. It initiates interesting discussions between health providers and commissioners around where the risk lies in the wider system. It gives the commissioner the chance to work more collaboratively with the budget by using a mechanism where the providers can share in efficiency gains to incentivise more efficient operation and providers and commissioners are incentivised to jointly remodel care delivery to mutual benefit across organisations.

This can be implemented in practice in a number of ways and some examples include the agreement between the parties of a capped risk and/or agreement to share efficiencies between the parties in defined proportions (i.e. the provider is responsible for cost overruns to a defined level with the commissioner taking the risk beyond this level or both parties taking a share in the initial risk of overspend/gain on underspend to a defined level). This should also include setting out clear methodologies as to how efficiencies can be reinvested back into the system – which can be a vital consideration for commissioners if the provider’s operations straddle a number of health economies.

Risk share is just one factor which new contract models will need to address if they want to avoid simply reverting from fee for service back to a ‘block’ single payment contractual approach, which would (1) not incentivise greater engagement between commissioners and providers and (2) could facilitate centralisation under one large provider with removal of wider providers whose value is not rewarded under a more basic model.

Outcomes: defining and delivering

New care models can look to accommodate more focus on true outcome measures rather than measuring inputs and processes around an activity based approach. To achieve this there will need to be clear and measurable performance standards aligned with these outcomes and robust data to support them (see below).

Introducing outcomes is unlikely to be as simple as selecting an off-the-shelf suite of indicators as the commissioners will need to assess which outcomes meet their local priorities, how much of the contract income should be attached to them (frequently 5-15%) and their respective weighting/levels and benchmarking to reflect the desired strategy and behaviours.

There is a growing body of outcome measures available from work carried out internationally on a number of health pathways which can facilitate this process. For example there are the internationally designed outcome sets from the International Consortium for Health Outcome Measures (ICHOM), which can facilitate a more detailed assessment of the outcomes which may be important (based on international clinical expertise) for specific conditions and how they may be measured.

Data: the great enabler for more effective outcomes measurement

One of the challenges that the shift to a more patient centred value-based model presents is whether the healthcare system has been recording the information and data in the right format, which is needed to assess the outcomes or if this will require different systems and approaches to be developed, to ensure you can measure whether or not the provider’s efforts to meet the outcomes are having tangible effects.

If this data is not available currently then the parties can consider a transitional arrangement, which facilitates the creation of the baseline data through the performance period of the contract before the application of the incentives and risk/rewards is commenced in full. This approach can enable both parties to test that the mechanisms operate as intended and that the provider is properly incentivised. They should be linked into a change mechanism which allows adaptation to the outcomes, which are likely to shift both in terms of the measures and metrics behind them over the longer lifetime of the value-based contract.

A new dynamic in the relationship for the parties around the contract

A key factor in the successful operation of a new value-based contract will be the provider’s engagement with the process and the desired changes. Where the contract is introduced via a procurement exercise, the buy-in of the provider can be tested but where this is not the case the position can be more complex.

Many provider organisations will perceive the shift in contracting away from fee for service or more traditional models to be a high risk for them as an organisation. This can be very disruptive and has resulted in legal challenges or referrals to national regulators.

Therefore the commissioners should consider detailing a clear process for engaging and working with the relevant providers both in management and clinical areas (engagement with clinicians to agree a new way of working and outcomes can be a very powerful way to develop wider engagement from provider organisations) – this model may also need to be refined if a procurement process is required.

There is also a need for commissioners and regulators to change their way of working with providers both in:

  1. Moving away from a tightly managed, highly specified input contract into what should be a looser outputs/outcomes driven environment – this would be a move from ‘micro-commissioning’ where the payers define the services and the exact nature and location of delivery (which effectively builds in the existing system and a level of inflexibility to the contract) rather than prescribing the outputs and core metrics, which need to be met/measured and allowing flexibility as to how these are achieved (obviously within legal parameters), and
  2. Considering the internal implications of this approach – for example the team at the commissioner may be tasked with delivering immediate cost savings from the contract award to meet internal targets. This would not really fit with the wider aims of system working which starts to look at how to share risks and deliver wider value for patients across the population rather than extracting short term process savings at the expense of wider quality of provision and patient outcomes.

The value-based approach to contracting for care should be supported across the national regulators (to avoid creating new perverse incentives and cross-regulator disputes which destabilise the system approach to suit individual organisational policy) and the commissioner organisations together - to respond to system wide working with a more perceptive system based response – noting that the impact of small decisions from each of these organisations can have a substantial domino effect on the rest of the system.

What will the organisations delivering value-based contracts look like?

The form of provider organisation to take on these innovative contracts is not pre-set and could be a combination of forms or providers depending upon factors such as the local healthcare system, the scope of the desired health outcomes and the appetite for risk from providers.

Providers could be procured under a competitive process for the contract but, in any event, would want to ensure that they were signing up to realistic outcomes, which they would have the ability to be able to control and influence delivery on and that there was transparency around the data being used to measure this.

Commissioners may also look to secure guarantees and security from new providers or smaller provider organisations where the contract is for a high value in order to have comfort that sufficient value is behind the provider entity.

What next?

The development of value-based contracts and the use of outcomes to incentivise behaviours away from payment for results/activity is increasingly at the forefront of new care models and represents a real opportunity to start to effect a system wide change to operation which supports the aims of the ‘Five Year Forward View’.

The complexity in changing the operational mode of the contract and the collaborative behaviours of providers should not be underestimated and much work will be required to define the outcomes, metrics and performance standards and linking these to the payment mechanism.

Areas such as the change mechanism will be key to ensuring that the longer term arrangements are able to evolve over time with the system relationships and outcomes to meet the demands of the local healthcare system.

Commissioners will also need to consider how a shift to value-based contracting could impact on their role and delivery of their statutory functions: a transition to an outputs/outcomes methodology requires a different way of commissioning to the current input/monitoring/process method.

The value-based approach offers the potential to substantially shift the way the healthcare system works across commissioners and providers to help meet the fundamental challenges faced by the NHS. Unlocking this potential will undoubtedly require systems to work collaboratively together to overcome the clear difficulties and hurdles, but the first signs that this approach can effect real change are beginning to emerge.