Why outcome-based incentive models are critical to the success of VBHC

Christina Åkerman, MD, PhD, EMBA

Affiliate Faculty at Dell Medical School, University of Texas at Austin

Why outcome-based incentive models are critical to the success of VBHC

19 May 2021 | 10min

Quick Takes

  • To successfully drive value-based health care, organizations need to use a stepwise approach and focus on the health outcomes that matter most to patients

  • Shared decision-making is central to identify, refine, and eventually deliver outcomes that will improve the quality of life for an individual

  • Once healthcare providers focus on understanding and incentivizing health outcomes, the cultural shift needed to achieve value-based health care will progress naturally

Successful transformation towards value-based health care (VBHC) involves a change to the organizational culture. This must be done inclusively, with a reward system and outcome-based incentive model that is focused on achieving a common goal: deliver the best health outcomes to patients.

In Part 2 of this interview, Christina Åkerman speaks to us about how to implement such an outcome-based incentive model to ensure the success of VBHC in your organization.

Click here to see Part 1 of this interview: Transforming towards VBHC and improving patient outcomes

Implementing an outcome-based incentive model

HT: You talk about rewards systems and outcome-based incentive models being key to the successful implementation of VBHC, how do you recommend that these models be created and who should be involved in their design?

Christina Åkerman: To me, the only way to design financial rewards systems for the long term is to base them on measuring and reporting health outcomes. This is a stepwise approach.

The first step is to move towards bundled payments as it is essential to integrate budgets across the entire care pathway. This way, you don’t have budgets for certain procedures or specialties.

The goal is to have one integrated budget, and not lots of siloed budgets, which is common today. 

Choosing the right model step by step

Christina Åkerman: There is no single model optimal for all medical conditions or patient segments. The challenge is to choose the relevant model for each and link different models together into a comprehensive system rewarding health outcomes. 

Defining the health outcomes that matter most to the patients you intend to serve is the starting point. With these health outcomes as the common goal for all involved, the next step will be to define a budget that spans across the full cycle of care.

This will influence the culture because once you start thinking along those lines, you will likely come across opportunities to work in a different and more efficient way. For instance, maybe we should not have several hospitals doing the same thing but rather focusing on a specific condition.

There is so much still to discover in this field on how we set up our organizations once we focus on outcomes that matter most to individuals, and establish reward systems that support this model.

Benchmarking your results for shared decision-making

Christina Åkerman: Once you have health outcomes you understand and trust, then you can start benchmarking externally to share what you do well, your own best practices, and also learn from others. When you see that happen, it’s a very powerful way of working. It’s about improving and then defining the best practices to establish the care processes to elevate the standard of care.

You can then use this data to move towards shared decision-making with patients, where together you discuss the optimal treatment pathway for each individual based on the health outcomes that matter most to them. It will be a guided decision where the healthcare provider can say, “This is the treatment and where you could go to have that treatment with the highest probability to reach the outcomes that matter most to you.” 

Trust and transparency established with patients in shared-decision making and between provider and payer in paying for health outcomes will take time to establish.

When I listen to providers and payers who have moved into long-term contracts, both discuss the time it took to develop such contracts. Several iterations will be needed based on learnings along the way.

This is part of a longer-term transformation towards high-value care and health, step by step. Trust and transparency, I would say, are two keywords in moving in this direction.

Bundled payment models – Leading success cases 

HT: Despite the constant evolution of this kind of transformation, are there any health systems, or any examples that you have seen that are successful today?

Christina Åkerman: Yes, bundled payment models covering the full cycle of care and compensating the entire care team rather than paying providers for each discrete service delivered in the care cycle. 

In 2009, the Stockholm County Council, now the Stockholm Region, introduced two bundled payments for primary hip and knee replacements. They had a set price for the continuum of care, which included diagnostics and surgery, follow-up care, prosthetic costs, and the necessary visits, both pre- and post-surgery.

Providers also became financially responsible for complications related to the initial surgery, over a two-year period. If an infection occurred, this period was extended. The complication rate, the re-operation rate, the wait time for surgery, and the cost per patient all dropped substantially when this bundled payment was launched.

This shows that once you have the end results as the common goal and responsibility, then you see major things happening, magic almost. 

Value-driven dialogue

Christina Åkerman: One piece that I find very interesting to note is within the two years following implementation, the value-driven dialogue with the life science industry increased because providers were searching for better outcomes. 

They were starting to discuss with the innovators about the types of implant to use in order to make sure that you actually lower the risk of re-operations and of infections, complications, etc. 

So, they ended up having a much more intense and value-driven dialogue with the life science industry; not only working in their setting of collaboration over the full cycle of care but also engaging with the innovators. Such a dialogue is important because what we use in healthcare is to a large degree, innovations from the life science industry. 

That’s why defining and measuring health outcomes together with payment/reward systems based on the outcomes achieved, actually put all stakeholders on an equal platform, all contributing to the health outcomes that matter most to patients. This is a very important insight into what can be achieved when you start measuring health outcomes and start rewarding the end results.

Case study: University of Texas Musculoskeletal department at Dell Medical School

Christina Åkerman: Another example that comes to mind is at the Musculoskeletal Department at Dell Medical School, the University of Texas in Austin. Treatment for hip and knee osteoarthritis could be joint replacement surgery as mentioned. Interestingly enough, surgery there is performed less frequently than in other orthopedic care settings because they are focused on the end result for the patient and the health outcomes. 

Wasteful spending happens when we don’t focus on outcomes.

They are starting to have bundled payments set up and those patients who are not seen as good candidates for surgery might instead receive physical therapy, care for depression, or weight loss assistance to help improve their outcomes. As a result, health systems also save resources because they actively have the health outcomes that matter most to patients as the common goal and incentivize the full cycle of care.

Wasteful spending happens when we don’t focus on outcomes. The waste originates not only from harm at the point of care. We can also do a lot of things that are not making any difference to patient outcomes. It might not harm, but it’s not providing any better health outcomes.  This is why it’s so important to define, measure and compare outcomes, improve outcomes, and reward outcomes.

VBHC outcome-based benchmarking

HT: Outcomes that matter most can ultimately vary depending on the individual patient? How then can you decide on the optimal patient recorded outcome to use as the benchmark to compare? 

Christina Åkerman: That’s a very valid question and stresses the importance of defining the unmet needs and the gaps for the patient you intend to serve.

The work we did at the International Consortium for Health Outcomes Measurement (ICHOM) showed that it’s possible, across 44 different countries, to actually find a minimal number of health outcomes that matter most to individuals on a general level such as survival, low complication rates, and high quality of life. These outcomes center around our capabilities to live with chronic conditions, the comfort during treatment, and the calm that we feel around the treatment processes. 

So, there are categories of health outcomes that are important to all of us, one way or another. It doesn’t matter that much where you are in the world. What is important is to ask the patient to report the outcomes in a way that is relevant to the individual’s setting.

And now we are back to shared decision-making because that’s how we understand which health outcomes are the most important for each individual. 

To express it in a simple way, there could be very different outcomes that matter most to a downhill skier with hip and knee osteoarthritis versus a gardener. That’s why it’s important to understand from an individual’s perspective and why shared decision-making is so important.

Once you understand what matters most, then you can use your data and discuss with the individual what treatment will have the highest probability to bring that most wanted health outcome, and where to go for the treatment.

Enhancing the quality of life with shared decision-making

Christina Åkerman: We have TripAdvisor, where you can look for places based on your preferences such as a dog-friendly establishment, being close to the sea, and having a swimming pool or gym.  I find it strange that we do not have the same possibilities when it comes to something as central as our own lives.

For certain patients, it’s extremely important to live a bit longer. Perhaps a grandchild is being born or there is someone graduating or getting married, and for that, you are willing to sacrifice your quality of life.

For others, they may say, “I might live three months shorter. But it’s extremely important for me to be able to stay at home and to not be mentally reduced in any way by medication,”. Then you need to find different treatments that will help achieve these outcomes, respectively.

So that would be my answer, that it’s not fixed.  We have a platform of health outcomes, but for each of us, one might be much more important than the other. And that’s where we need to listen, understand and engage in shared decision-making.

HT: When you say shared decision-making, do you mean between the patient and their caregiver?

Christina Åkerman: Yes, and many people say as a patient you can never decide yourself because the experts are the healthcare professionals, and I’m not arguing against that in any way, but as a patient, you know what matters most to you in a given situation. 

If you have a map in front of you with the important health outcomes that patients generally agree on, I might be able to point to one or two that are most important to me.

If so, I can then have a discussion with my healthcare team and they can suggest the treatment with the highest probability to bring me to that outcome. This way we will get to high-value care.

One step at a time is key to organizational change

HT: Most people wouldn’t have ever had such a conversation with their caregiver so this sounds like a very big shift that needs to go step by step. Do you agree?

Christina Åkerman: Indeed, and as we started this interview, the transformation to high-value care is a step-by-step journey. 

But, once you start working your way through health outcomes and integrating rewards into this, then you say, “Oh, I might need to work in a different way.” And then organizational development and cultural change come very naturally. 

You can’t do it the other way around. If you actually start making a lot of organizational changes to implement VBHC, it will likely not be successful because you do not see the need for them. You do not understand the “why” to reorganize in a different direction.

Key takeaways for healthcare executives transforming to outcome-based incentive models and VBHC

HT: If you were to give a healthcare executive wanting to implement an outcome-based incentive model, what would be your top three recommendations for their starting points?

Christina Åkerman: Start with health outcomes. Then make sure to base your reward systems on those health outcomes, and your culture will follow.

The first step is to define the unmet need and the gaps, and the health outcomes that matter most to patients. Then reward these outcomes achieved and not the inputs or the compliance as we mostly do today. And when you redirect your focus to health outcomes, it will influence your culture.

Because to be able to close the gap of the unmet need and deliver the health outcomes that matter most to patients, you will find new ways of working together, in a much more integrated and solutions-oriented manner. 

Christina Åkerman, MD, PhD, EMBA is Affiliate Faculty at the Dell Medical School at the University of Texas at Austin, Senior Institute Associate, ISC, Harvard Business School, and on the Steering Committee of the Coalition for Health, Ethics and Society at the European Policy Center. Until August 2018, she was the President of the International Consortium for Health Outcomes Measurement. She has also served as Director General for the Medical Products Agency in Sweden, been a Member of the Board of the European Medicines Agency and President of AstraZeneca Philippines.