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Value-Based Purchasing: Making Good Health Good Business


By Andrew Olson, Enrique Martinez-Vidal

Value-based purchasing models can make good health good business by creating a sustainable business opportunity for broad investments in health, including the social determinants.

The United States has comparatively poor health outcomes. Those outcomes are a function of how we fund health in the United States. We primarily pay for healthcare services through insurance arrangements, while we invest in health through other means. The system of investing in health is larger, the funding flows are substantially more complicated, and the financial benefits of good health accrue through more complicated allocations than they might otherwise or currently do. While investments in health reduce long-term healthcare services costs, the benefits do not accrue to the same party making those investments. Health departments, human service agencies, and the social sector – often short on investment dollars – see little financial benefit from saving insurers money by investing in health. Meanwhile, health insurance is a regulated business. Current regulation ties profitability to the cost of healthcare services not investments in health. Bad health, creating a high volume of healthcare services costs, is good business for insurers and certainly more profitable than proactively investing in good health, for the most part. This situation leaves no single party clearly positioned to invest in and benefit from venturing investments in health. Broad health risk-factors such as the social determinants of health go unfunded and the cost of the system funding health remains high.

To drive broad investments in health, we make three recommendations that range from immediate next steps broadly available to a moonshot that can change how we fund health and make good health good business for generations to come. Arguably, all are available within the current legislated regulatory authority.

1. Make good health good business by funding what works

The current regulatory framework allows governments to move aggressively to implement managed-care programs and to use appropriately designed value-based purchasing programs to enable long-term investments in health.

2. Make good health good business through consumer information

Consumers drive business and insurance purchasers rarely understand the link between their health and their insurance purchasing decisions. Building on existing systems, governments can lead or facilitate embedding information in the purchasing process to change consumer behavior. If consumers, including governments, knew the impact their choices had on health, they would be better positioned to push the market to make good health good business.

3. Make good health good business by changing the funding model

With all insurance profitability tied to historical healthcare service costs, there will continue to be problems with finding the most cost-effective balance between paying for healthcare services and making broader investments in health, including investments to address the social determinants of health. By breaking that link, and tying funding to other measures, the system of funding health can turn our existing healthcare services cost into a business opportunity for insurers.

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