Chapter 3: Funding models in healthcare services

Hanan Khalil

Value-based payment models aim to enhance value within health systems through several mechanisms. Initially, they transfer financial accountability and a portion of the financial risk to providers, incentivising the adoption of more cost-effective treatment approaches. Rather than remuneration based on the volume of services rendered, these models mean providers receive predetermined payments for specific care episodes, chronic conditions or comprehensive patient care. Consequently, providers face potential losses if care expenditures surpass the established price threshold, yet they may also save money if costs remain below this threshold. The extent of financial accountability and risk borne by providers varies depending on the design of the value-based payment model (Gray, 2017).

Furthermore, value-based payment models often integrate payments across multiple providers, promoting collaboration among healthcare professionals. The level of care coordination or integration varies depending on the breadth of the payment model. Some payment models, such as bundled payments, involve providers from diverse care sectors and inherently encourage improved care coordination; this isn’t necessarily the case in other models focusing solely on one provider group. In such instances, promoting care integration may require alternative strategies such as enhancing data infrastructure or establishing new professional roles (Lindner & Lorenzoni, 2023).

Value-based payment models typically incorporate a quality component that ties payment to provider performance based on predetermined benchmarks. This serves to incentivise providers for delivering high-quality care and mitigate the risk of under-provision of care, which may inadvertently occur in innovative payment models incentivising cost containment (Lindner & Lorenzoni, 2023).