The value equation: realising value based-health care’s disruptive potential

Value-based health care (VBHC), heralded for its transformative potential in shifting from volume to value, is now enmeshed within Australian healthcare quality, safety and efficiency conversations as well as implementation strategies.¹ But is it living up to its transformative potential for system-wide reform? There remain limitations due to system structures, but also due to varying conceptions of ‘value’ within VBHC circles.

To structural elements, the recently released final report of the Special Commission of Inquiry into Healthcare Funding in New South Wales (NSW) provides detailed challenges for VBHC and related reform efforts, as well as opportunities by way of recommendations.² Importantly, ‘NSW’ could easily be replaced with any other state or indeed ‘Australia’ and the report findings and recommendations would stand.

Summarised key challenges as they relate to VBHC:

Summarised key opportunities/outcomes as they relate to VBHC:

To continually advance Australia as one of the highest performing healthcare systems globally all Australian states, not just NSW, and the Commonwealth must reflect on the challenges and opportunities outlined in the NSW Special Inquiry. To some extent this is occurring in parallel, for example at the Commonwealth level through key recommendations of the Strengthening Medicare Taskforce.³ But efforts must be coordinated and cooperative, particularly between the federal and state levels. The COVID-19 pandemic brought with it extraordinarily broadened levels of cooperation between the jurisdictions. Building on that momentum for system reform is imperative. Furthermore, the post-election folding in of the Health and Aged Care and the National Disability Insurance Scheme portfolios under the same Minister could offer prescient appreciation of the whole-of-system approach needed to truly realise VBHCs potential.

In Australia (at least) VBHC has, I argue, tested and to some extent divided empirical conceptions of ‘value’ and this is holding back its advancement. VBHC as envisioned by Porter and Teisberg⁴ dominates in certain Australian policy and delivery environments (state Departments of Health, district or delivery bodies, private health insurance) with value defined as health outcomes achieved per dollar spent. However, traditional applied health economic approaches (for example in health technology assessment approaches) bring important differences to conceptions of value, as summarised below. While VBHC has been influential globally, particularly in clinical and policy circles, it does sit at odds with broader approaches in health economics in several important ways (Table 1).

At the unit of analysis, VBHC’s condition-specific approach may overlook opportunity costs (opportunity cost neglect) and equity considerations that are central in economic evaluations across diseases, demographics, and system levels.⁵ In their definition of value, Porter and Teisberg’s model uses a more provider-centric, operational definition of value, while economics emphasises societal value-maximising health benefits across the system, accounting for preferences, equity, and trade-offs. For outcomes, Patient-reported Outcomes Measures used in VBHC do not easily translate into Quality-Adjusted Life Years or similar empirical measures, limiting their use in cost-utility analyses and broader prioritisation. VBHC offers actionable insights for providers, such is its appeal, but lacks tools for policymakers needing to prioritise across diverse health services or populations. At worst VBHC risks widening health disparities if implemented without safeguards, as it prioritises efficient outcomes over equitable access.

To harmonise the two, and to realise VBHCs disruptive potential, our health system(s) and actors within it, must bridge these misalignments, experiment with hybrid models that integrate VBHC’s focus on outcomes with health economic principles, ensuring care is not just high value at the bedside, but also fair and efficient at the population and system level.