The United States healthcare system has been focused on transactional care, both in its delivery and its payment. Medical providers are paid for the services rendered rather than outcomes delivered. A clinician will get paid the same amount for a given service, regardless of the effect of that service on the patient’s outcome. This is especially clear in volume-driven fields such as orthopaedics, in which the priority is to maximize the number of procedures performed safely, not to optimize health outcomes after surgery.

It is no surprise, therefore, that behavior follows incentive. Healthcare systems have been designed to provide care at maximal efficiency from a volume perspective under the fee-for-service (FFS) payment model. This has resulted in continuously increasing costs of health care as demand for health care services continues to grow. Under the FFS model, providers bill separately for individual services such as appointments, treatments, and tests ordered. This health care model defines success as achieving high profit margins.¹ Because financial incentives are based on volume and the price of each service provided, providers often prioritize the quantity of services over the quality of those services.²

There are clear ramifications to the FFS model; some are apparent and some are less obvious. In an FFS model, the incentive is to increase volume of high-margin services. This results in an enormous investment into processes, technologies, and personnel that aid in this type of “productivity.” Conversely, this limits the investments in necessary services such as preventive care or measurement of health outcomes. As demand for these procedures and interventions increases over time, such a model invariably causes ballooning costs. There are many hidden dangers of such a system, such as burnout. Physicians, providers, and health care staff are pressed to take on more patients and burdened by copious amounts of paperwork, resulting in higher rates of burnout and lower rates of job satisfaction.

The framework of value-based health care discards the fragmented, flawed model of FFS and creates a team-based, integrated approach to health care that focuses on delivering value to the patient. Value-based health care defines success as improving health outcomes for patients.³ Providers are incentivized to treat patient needs effectively rather than providing services, whether appropriate or not. Delivery of care is organized around patient needs and conditions rather than individual providers, and team-based approaches are encouraged. Improving health outcomes requires investment into processes and technology that accurately measure patient outcomes and costs. Unlike FFS, where providers are paid for individual services, value-based health care reimburses providers based on the value of care delivered over an entire care cycle. Providers are then incentivized to focus on services that produce the best outcomes for patients rather than prioritizing treatments based on reimbursement and/or providing unnecessary services that ultimately may not improve patient health.

Because FFS incentivizes the volume and intensity of services, FFS has led to an increase in overall health care utilization and cost over time. Compared to other countries with similar gross domestic product and gross domestic product per capita, data from the Organisation of Economic Co-operation and Development show that the United States spends nearly twice as much on health care per person as compared to other developed countries ($10,637 to $5,527 per person, on average). Despite spending more, the United States ranks last in many measures of health care access and quality, indicating higher rates of preventable mortality. Additionally, the United States also has higher rates of medical, medication, and laboratory errors than other Organisation of Economic Co-operation and Development member countries.⁴ Therefore, the state of the US healthcare system requires change. Current models project that health care expenditures are projected to increase at an average annual rate of 5.6% until 2025 and will encompass 19.9% of gross domestic product by 2025.⁵ Rising health care costs without commensurate gains in health have led to transformation of the healthcare system to one that promotes and rewards value delivered to patients.

Value is defined by outcomes that matter to patients over total costs of care. Attention must be placed on outcomes that matter to patients so that clinicians can successfully deliver necessary and effective care. Outcomes are the result of the
care rendered to patients, families, and populations. Outcomes range from survival to improved function to reduced pain. For example, outcome measures for patients who have undergone total hip arthroplasty include the number of days it will take them to walk after surgery, or if surgery will lead to less pain after surgery than before surgery.⁶ Providers are encouraged to organize interactions around patient conditions such as musculoskeletal pain rather than a clinician’s individual expertise such as orthopaedic surgery. Teams created around a set of patients with shared problems share a core set of critical concerns.⁷ Health care teams that are aligned around common conditions have shared goals, which facilitates measuring outcomes, continuous learning, and increased improvements to delivered care.

Outcome measures can help elucidate areas of success and opportunities for improvement. This insight allows providers to focus on improving ineffective aspects of care and thus enhance the value of care delivered to patients. Value permanently exists within the context of costs spent to deliver certain outcomes. Value can be improved in a variety of ways; for example, by improving outcomes for patients without raising costs, and by maintaining good outcomes while decreasing costs or improving outcomes dramatically for a smaller increase in costs.² Overall, a value-based healthcare system focuses on improved patientcentric outcomes and decreased episode costs.

Currently, most health care organizations and their corresponding budgets are grouped by clinical departments (surgery, medicine), care locations (operating rooms, emergency department), and ancillary departments (pharmacy, radiology, pathology). Using this framework, a patient undergoing total hip arthroplasty, for example, shows up on each department budget. If a particular department wants to lower the cost of care and improve outcomes by using a new process or technology, they must do so either by spending their own resources or with buy-in from the other departments.⁷ This decentralized model of organization slows innovation, inhibits quick adaptation, and makes it difficult to track improvement across cycles of care. Value-based health care moves away from fragmented, decentralized care organized by individual units or departments to integrated care across facilities centered around patient medical needs.

Integrated practice units (IPUs) manage the care of a patient over the entire cycle of care for a particular condition, such as arthritis or low back pain. IPUs are composed of dedicated, multidisciplinary teams within dedicated facilities, if possible, for each service line. Each service line should have a clinical leader, common scheduling and intake processes, and a unified financial structure. Because service lines integrate care for common conditions, it is easier to routinely measure outcomes, costs, care processes, and patient and clinician experience. Health systems that organize care by service lines have demonstrated that they were able to increase margins while improving clinical outcomes such as complication rates and readmission rates.⁸

Accountable for complete care cycles and their related costs, IPUs can be more easily compensated through bundle payments, which is a single reimbursement for all services provided by all members of the clinical team across the entire cycle of care. IPUs, combined with bundle payments, have greater incentive to invest in innovative techniques and technologies if they result in improved outcomes and/or reduced episode costs of care. Thus, IPUs can use the unique factors in their specific patient populations to develop standardized processes that allow each patient to receive consistent and high-quality care. Ultimately, innovative technology plus standardized processes will allow IPUs to assess and reduce episode costs per patient. Adopting this organizational structure allows for a true value-based system of health care.

Traditionally, orthopaedics relied on process metrics and claims data to measure outcomes associated with specific interventions. Examples of process metrics include adherence to evidence-based practice guidelines for administration of perioperative antibiotic prophylaxis or anticoagulation prophylaxis. Claims-based data include data from billing sources that can be used to capture readmission, re-operation, and mortality rates. Although these outcomes are valuable, they do not necessarily indicate whether a patient has benefited from the given intervention or care process. Having outcomes that indicate patient improvement and patient benefit is an essential step to understanding the value of care delivered, as experienced by the patient.