The question of how to deliver high quality healthcare at a proportionate cost, which is affordable in any given system, is not new. It has been asked, answered, and re-posed many times over, the world over, not least in the context of the NHS. Searching for 'the answer' inevitably involves looking at how other healthcare systems 'do it', and also bringing in questions of what 'high quality' looks like. In a post-Covid world it is increasingly apparent that poorer health and access to healthcare pre-Covid increases the risk of contracting and potentially dying from the virus. In light of this, equalising access to quality health outcomes and tackling health inequalities across all populations is an increasingly urgent priority.

One approach to answering the conundrum, which has been increasingly considered around the world, is value-based healthcare.

Value-based healthcare can be procured or contracted for by healthcare systems, providers and suppliers. It generally requires a legal agreement between healthcare suppliers and providers to align their interests (for example in a medical device or health pathway). This alignment should enable risk-sharing, but the value concept is broader than outcomes-based contracting, as it focuses on three elements – (i) outcomes; (ii) other stakeholder benefits; and (iii) total cost of care.

In the NHS, the current reform proposals suggest a move away from a system of payment by results/activity based payments towards more capitated (potentially block) payment structures. This offers an opportunity for value-based contracting solutions to form part of a strategy to improve population health outcomes while maintaining the cost of care at acceptable levels and incentivising different elements of the system to work together to achieve this. It is also an opportunity to look at the benefits of investing in prevention to limit ever-increasing demand on clinical interventions. However, it is undoubtedly not a 'magic bullet' and there remain questions and barriers to its use which need to be understood and overcome.

What is value-based contracting?

The first point to make is that value-based contracting is not one neat tidy concept that can be packaged and presented ready to go. Research demonstrates a wide array of examples around the world that fall under the umbrella concept, but which are very different from each other. Moreover, by the nature of these contracts as commercial arrangements, there are undoubtedly many more examples that are not made public. For example, a recent US-focused White Paper report by Verpora Limited considering biopharmaceutical contracts noted that while in 2019, 14 relevant value based agreements had been announced, there may be up to three times more entered into but not made known publicly.

Within the NHS, NHS Supply Chain has been working on a project to consider the benefits and practical application of value-based procurement. Its pilot has included eight projects undertaken over the last two years aimed at testing UK-based value based procurement methods in practice. Projects looked at categories in which clinical and financial value could be created including reduction in product consumption, changes in patient pathways from acute to community settings, and infection reduction.

Removing potential barriers

In the UK, there are potential ideological and practical objections to extended use of value-based contracting. However, these can be overcome for those with the appetite and vision to explore the options and invest in making them work.

In the first instance, the sheer range of potential forms may make it easy to dismiss the concept based on a lack of understanding of the possibilities or indeed the assumption that adoption of these methodologies must be immediate 'all or nothing'.

Likewise, descriptions of complex metrics, seemingly time-consuming both to compile and monitor, stoke concerns over frontline healthcare funding being diverted to data and contract management, and progress to improved outcomes being obscured by bureaucracy. There are examples of financial incentive / penalty approaches falling apart mired in protracted contractual disputes, as happened a few years ago in the North West of England. These barriers could be addressed through clarity of the opportunities, investment in a longer-term approach to implementation and an incremental model for putting arrangements in place.

Impact of current NHS reforms

In addition to projects exploring value-based concepts in the UK such as those undertaken by NHS Supply Chain, current NHS reform proposals from the Health and Care Bill 2021 currently before Parliament also provide an increased opportunity to consider value-based approaches. The reforms aim to remove barriers to the continuation and expansion of existing collaboration and integration between different healthcare bodies, and between healthcare bodies and local authorities, and with this, increase population health approaches.

Another current strand of reform focuses on the way that healthcare services are procured. This was discussed in the Provider Selection Regime consultation, which closed at the start of April 2021, proposals from which have been taken forward in the Health and Care Bill. The Bill removes the current procurement of healthcare services regime from the Public Contracts Regulations 2015, replacing it via Regulations. The Provider Selection Regime consultation proposed a new regime specifically created for the NHS, underpinned by a new duty that services are arranged in the best interests of patients, taxpayers and the population. Implicit in the proposals is a shift in emphasis from cost to value, which in turn should support a move to longer-term innovative commissioning strategies that focus on health outcomes and the overarching benefit of improving these for all.

Taken together, the proposals push the door open to consideration of more innovative value based contracting approaches capitalising on the appetite we think is currently building in this direction.

Research and preparation

Value-based contracts will only be successful if the aims at contract stage have been clearly reflected through the procurement process. Only then can there be alignment between the parties and their interests when it comes to contract negotiations such that the right partners are selected and able to make the arrangement work commercially without descent into the sorts of contractual disputes seen previously in some areas. Pre-procurement research must be robust and encompass detailed consideration of the scope of the solution being procured, the real world environment in which it is to operate, and the quality of outcomes being measured. These cannot be surface-level assumptions, rather clinicians delivering care, together with the views and experience of those receiving care, must be an integral part of building the agreement. Likewise, metrics agreed through the contracting process will need to have realistic tolerances built into them to avoid disputes. Standard sets, such as those produced by ICHOM, will also need to be explored.


Collaboration and partnership, even in the face of challenging commercial conditions, will be key to making these arrangements work. Levels of collaboration and commitment within contracting organisations are also an important consideration. Models will only be successful if the outcomes measured and rewarded make sense in a real world context and are fair and achievable in the minds of all concerned, including individual medical professionals and service users. The contracting approach must reinforce and support delivery rather than drive the purpose of the service. This is only possible with clear communication pathways at every level and every stage (from procurement to delivery) and real openness to listening to concerns and overcoming them.

Incremental approach

Objections to value-based approaches may also assume, as indicated above, that implementing them requires an all-or-nothing approach that is excessively complex and too time-consuming to be likely to deliver an overall benefit. However, as stated above, this does not need to be the case. Introducing the approach at small scale and within clearly understood populations and devices to solve clearly understood cost-benefit concerns, is possible. Once the approach has been shown to work, and the contracting mechanisms clearly understood, relationships formed and embedded, and initial results trialled, you move forward to more complex models. Likewise, it is entirely possible to build in a bedding-in period before payment mechanisms / deductions are implemented.

In conclusion, while value-based solutions are not new, there has not previously, at least in the UK, been a massive appetite to implement them or perhaps a clear understanding (via data and clear outcome sets) of what they might offer. However, with increasing understanding, the impact of a post-Covid world and the right backdrop being offered through the current NHS reforms, the time for value-based initiatives to be more widely explored and embraced may have arrived.

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