The delicate balance between cost and quality in value-based healthcare


In the wake of the recent US elections, the current administration has indicated a desire to "repeal and replace" the Affordable Care Act (ACA). This is creating regulatory, financial and operational uncertainty.

However, six years following the implementation of the ACA, the industry is shifting toward a different type of business model for healthcare delivery — one that seeks to balance cost and quality in delivering patient-centric, value-based health outcomes. Alternative payment models are emerging, which are designed to hold providers accountable for outcomes in healthcare delivery. At the same time, other stakeholders in the value chain (pharmaceutical companies, medical device manufacturers, payers, employers and individuals) are scrambling to adjust to the new realities of value-based care, driven by the need to contain costs and improve transparency in the quality of care.

For healthcare organizations to be successful within evolving alternate payment models, they must realign their priorities and re-engineer their business models. Ultimately, they will need to transform their culture to deliver value-based outcomes that are transparent to consumers and payers. Healthcare organizations can achieve this objective by focusing on three key goals:

1. Deliver leading-quality outcomes that are transparent to consumers and payers.
2. Exercise disciplined cost management and cost transparency for both consumers and payers in care delivery.
3. Provide an enhanced patient experience that results in patient satisfaction with their providers.

Value needs to be universally defined
Many perceive that the US healthcare system delivers high-quality care. Yet, there is little consensus on how the value of healthcare is defined. The definition may vary depending on who in the system you ask — patient, physician, provider or insurer. In fact, value is a composite of patient experience, quality and cost, delivered with complete transparency. It is about the quality of services consumers receive, how they appreciate what they receive, whether it met their satisfaction and whether it was delivered at a price they could afford.

To reach a level where high clinical quality and outcomes are universal across the industry, healthcare organizations are working to become more transparent about their portfolio of clinical performance.

Cost management should be part of the value equation
Rising healthcare costs, relative to average income and negative margins, are threatening the future of the entire healthcare industry. This is a particular challenge in the fee-for-service US healthcare model, where physicians are rewarded more by the volume of patients they see, tests they order and procedures and operations they ultimately perform. Cost of care delivery varies widely for like services within hospitals and physicians' offices within the same geographical locations, let alone across the country. Additionally, physicians may be reimbursed differentially by insurance companies for identical services simply based on the negotiating power of the providers. In a model that is motivated by business, how does the industry deliver value-based outcomes where patient-centric quality is on equal footing with cost?

Healthcare organizations need to lead the way in value delivery
Transformation of business processes in the industry have historically come from regulators and payers as a reaction to escalating costs. For the most part, compensation models are being driven by the payer, with hospitals and physicians accepting whatever providers deem their services are worth.

To both survive and thrive in the future, healthcare organizations need to assume a leadership role in shifting the culture to focus on delivering value. Compensation models that put providers at risk for demonstration of value will certainly do this. However, these models need to consider that the wear and tear of the human body that leads to disease is distinctly different and has more ramifications than the wear and tear that occurs in an automobile. This means retraining physicians and providers that value is indeed important to the consumer — something that will only happen when the compensation model changes.

Healthcare organizations that find the right balance among patient experience, quality and cost in delivering value-based care will be best positioned to surface as the winners in the market. But the true winners will be the patients who receive better care and, ultimately, live longer and healthier lives.

Yele Aluko, MD, MBA, is an Executive Director in the Americas Advisory Health practice at Ernst & Young LLP. He is based in Charlotte, NC, and can be reached at

The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.

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