Volume- vs. Value-Based Health Care

January 27, 2011

During these critical times of economic challenge and intense debate over health care reform, finding ways to reduce the cost of health care is central to solving our financial dilemma.  Many feel that both the quality and cost of health care are greatly influenced by how providers are reimbursed because their actions and interactions are understandably tied to their need to earn, protect, and even grow their own incomes.

Reducing the Cost of Care
In an effort to reduce costs, there are five ways commonly discussed for doing so.  Four of them are tied to changes in how services are reimbursed: 1-just lower fees in the current fee-for-service system; 2-transition to a pay-for-performance model where fees are based on quality and value of the service; 3-combining payments for distinct episodes of care (fee-bundling); and 4-creating global payment systems, such as capitation.  The fifth is to simply restrict access to, or ration, certain forms or quantities of care.

Let’s look at and compare the first two of these reimbursement methods and how they influence providers in their role in determining both the quality and cost of health care.

Fee-For-Service Reimbursement
Fee-for-service reimbursement is currently our dominant payment method.  It rewards providers for prescribing more treatment, not less, with the same financial benefit for a superior treatment outcome as for an inferior one.  An inferior one even requires more treatment, which of course can mean more income.  So the more services a provider carries out and the higher the price of those services, the more money that provider makes.

This volume-driven system creates considerable conflict for providers, many of whom understandably develop an economic bias in favor of treatments that pay better, sometimes even if they are unproven, without necessarily even considering what’s best for their patient. That widely held economic bias moves providers toward delivering as much treatment as possible, rather than providing treatment only as needed for recovery.

So to merely reduce fee-for-service reimbursement fees as a major cost-cutting strategy will only provide very short-term savings as neither patients nor providers have any incentive to reduce levels of utilization or to maximize the quality of care.  To the contrary, it is predictable from past experience that reducing those fees will only motivate more treatment to compensate for the lost income from lower fees. Since delivering high quality care is not rewarded financially, it therefore is very often not the provider’s primary objective.

Pay-For-Performance Reimbursement
Alternatively, the intent of a pay-for-performance, or value-based, system is to reward high quality and value in the care provided.  It does this in large part by eliminating providers’ conflict so their financial incentives match their patients’ priorities.  Providers are therefore rewarded for the quality of their work, not its quantity.

There are two fundamental challenges within this system however.  The first is how to accurately define and establish some standard of quality and value and then how to measure its delivery in a reliable, meaningful manner.

If Value = Quality/Cost, then value increases by improving the quality of the outcome, by decreasing the cost of care, or, ideally, both.  The current reality, especially in spine care, is that costs keep rising, rather dramatically in the case of injections and surgery, with little, if any, evidence that patients’ outcomes are improving as a result.  For all the technological innovations in spine care over the last two decades, the value of that care has actually decreased.

So what does a quality outcome look like? Ideally, it is best defined by those seeking care: the patients.  A survey of physicians, low back pain patients, many of whom were out-of-work because of their pain, treating staff members, and third-party payers (including employers) asked which of six treatment objectives they valued most.  Physicians and patients valued pain control most, while the treating staff and payers valued return-to-work the most. Fortunately, these two objectives often improve together.  In fact, pain relief and functional improvement have become fairly standard measures of quality spine care.

What is Effective Care?
There is a second challenge: there is little convincing evidence that most forms of treatment provide any higher quality and savings than others.  Many interventions remain controversial: opioid therapy, epidurals, physical therapy, chiropractic, facet blocks, discectomy, fusion, and kyphoplasty/vertebroplasty.  The evidence supporting the reimbursement for much of this care is unfortunately not convincing.

Perhaps the most important reason these treatments are so controversial is not because they are ineffective, but because we simply don’t know how to determine who will benefit from each and who will not.  Each likely has the potential to provide benefit, but only for certain patients. We just don’t know how to determine who they are.  Some researchers are working on how to best determine this.

Improving Health Care Requires Innovation in Patient Assessment and Classification
As long as we continue to reimburse health care using a fee-for-service, i.e. volume-driven, reimbursement system, we will not substantially improve the quality of care.  This system offers providers no incentive to improve their outcomes nor to find innovative ways to select patients better.  Who cares if the patient will benefit or not, if reimbursement is the same either way?

We must first learn how to make better treatment decisions but, again, there’s no incentive to develop that know-how or innovation until there’s some financial reward for doing so.  The greatest financial reward targets high-priced invasive treatments rather than innovation in how to excel in patient selection for those procedures.  So both quality care and innovation are stifled by fee-for-service.  Regina Herzlinger writes: “it’s only innovation that’s going to control our health care costs: innovation is insurance, in the way health care is delivered and in technology.”  Meanwhile, Clayton Christiansen, in his book “Innovative Prescription”, describes fee-for-service reimbursement as a “perverse regulator” of health care and a strong deterrent to innovation.  Innovation is a key component of health care progress and volume-based reimbursement is obstructing its development.  He also predicts that diagnostic innovation will become the higher paying form of care.

Despite these challenges, both the quality and cost of care can be improved when treatments are provided that predictably deliver sufficient benefit that the patient needs no further care AND is able to function well, long-term, so no, or very little, care is needed again.

It is the availability of high quality, low cost care for back, neck and musculoskeletal pain that SelfCare First wants to bring to the attention of everyone dealing with these conditions: patients, providers, employers, health plans, and even researchers. The data being generated by health plans and employers in terms of cost-savings, both short- and long-term, for the use of MDT is very impressive. You can read more about this in my other blog postings and at our SelfCare First website.

Please visit us and let us know how we can help you, via email or leave your comment or question below.

Dr. Ron

Ronald Donelson, MD, MS

President
SelfCare First, LLC
Blog: blog.selfcarefirst.com

3 Responses to “Volume- vs. Value-Based Health Care”


  1. […] quality care tied to cost savings the “holy grail” of health care.  Such real “value” supports the adage that high quality care is usually also less expensive.  When you then add high […]


  2. Your article is very informative and i am thinking to implement some of the important points let see what type of results they will give


    • Dr. Jhonathan:

      I’m very pleased to hear from you. You are correct that positioning of the head and neck during the night is an important factor in either the persistence of, or the recovery from, neck pain. I quickly reviewed your website. I found your descriptions of your recommended sleeping positions and their explanations to be lacking. They could be substantially improved based on my own and thousands of MDT clinicians who routinely troubleshoot when patients’ pain comes on or worsens either during the night or upon wakening in the morning. There are common patterns and common remedies identified by the mechanical findings of individuals’ MDT exams as to what improves and what worsens their pain. These patterns are found both in their history of pain at night as well as how their pain responds to testing during this mechanical exam.
      I’d be happy to talk with you about this in order to improve your pillows’ pain relieving and preventing effectiveness.
      If you wish, you can find me at: donelson@selfcarefirst.com

      Cheers – Ron Donelson, MD, MS


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