As hospitals and health systems chart their course for 2025, value-based care (VBC) remains a focal point. However, it is far from the only priority in a landscape where financial sustainability, workforce fortification and cost reduction demand equal attention. The latest research from Sage Growth Partners highlights the growing tension between these strategic imperatives, with payers emerging as both facilitators and obstacles to progress. While the transition from fee-for-service to VBC continues, questions remain about its long-term viability and effectiveness in improving patient outcomes while securing revenue stability.
The Role of VBC in a Shifting Healthcare Economy
VBC is evolving as both a challenge and an opportunity for hospitals and health systems. Despite the push for value-driven models, participation remains mixed—52% of executives plan to maintain current levels, while 29% are actively expanding VBC contracts and 12% are reconsidering their strategies. This uneven commitment reflects uncertainty about the financial and operational implications of VBC, particularly given the ongoing economic pressures and a potential recession.
Revenue diversification remains a pressing concern, with 44% of providers generating at least one-fifth of their revenue through VBC agreements. However, this leaves a majority still heavily reliant on fee-for-service models. Within the group embracing VBC, a notable 21% earn between 40% and 100% of their revenue from such contracts, raising questions about whether these arrangements enhance financial stability or introduce new vulnerabilities. The success of VBC in achieving sustainable growth hinges on resolving these uncertainties while ensuring patient care does not suffer.
VBC Models and Their Impact on Provider Strategy
The healthcare industry’s transition to VBC remains complex, with various models in play. Sage Growth Partners identifies seven primary VBC arrangements under consideration, including pay-for-performance (P4P), accountable care organisations (ACOs), bundled payments and capitation-based systems. While hospitals and health systems increasingly shift revenue into these models, the payment structures remain largely quality-focused rather than fully risk-adjusted.
The persistence of quality-driven P4P models underscores a fundamental issue: progress toward true value-based reimbursement remains incremental. While these models incentivise better care outcomes, they do not fully address financial sustainability concerns or the long-term viability of risk-sharing agreements. Identifying the most appropriate VBC model for an organisation remains a challenge, with 29% of executives citing it as a significant barrier to adoption. Moving forward, aligning financial incentives with clinical outcomes will be crucial in determining whether VBC can be more than an extension of P4P.
Aligning Payers and Providers for Sustainable VBC Growth
For VBC to succeed, alignment between payers and providers is essential. The Sage report highlights a paradox: while hospitals recognise payer partnerships as a crucial factor in expanding VBC, payer resistance remains a notable challenge. With 26% of executives identifying payer collaboration as a key enabler and 21% pointing to payer pushback as a roadblock, the need for better coordination is evident.
The priorities driving VBC participation further illustrate this complexity. Providers cite improving patient outcomes (41%) and financial sustainability (38%) as primary motivators, yet their overarching strategic initiative remains revenue growth (57%). These competing priorities underscore the difficulty of balancing business needs with patient-centred care. If VBC is to fulfil its promise, stakeholders must find common ground, ensuring that reimbursement structures reflect the true costs and benefits of care delivery.
As hospitals and health systems navigate the evolving healthcare landscape, value-based care remains both a strategic priority and a point of contention. While many providers acknowledge its potential to improve patient outcomes and enhance care coordination, uncertainties surrounding financial viability, payer alignment and model selection continue to impede full-scale adoption. Moving into 2025, the success of VBC will depend on whether providers and payers can bridge these gaps, transforming value-based initiatives from an aspirational goal into a sustainable reality.
Source: HealthLeaders
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