Traditionally, healthcare providers are reimbursed based on the number of patients they saw. The problem in this model is that the quality of care delivered isn’t tied together with the financial incentive. If a patient received poor quality of care and has to return to the hospital for additional care, the provider will just get paid again to see the same patient – and this can happen for a theoretically unlimited number of times. You see how the cost in this model can add up quickly.

In value-based care, providers are paid based on patient outcomes. It is up to the provider to provide quality care while containing cost.

The "value" in value-based care refers to patient health outcomes per dollar spent
-- Professor Michael Porter

So how can such payment model be achieved?

Well, there are a number of different implementations of value-based care to make this possible.

In one implementation of value-based care, called bundled payments, a group of providers is paid a single fixed bundle of payment for a pre-defined episode of care.

An example of episode of care is hip and knee replacement surgery.

Let’s say Bob needs to have hip and knee replacement surgery. Over the course of this episode (the entire journey of care from pre-surgery to recovery after surgery), Bob needs to visit a number of care providers and have a number of procedures performed. He needs to see his surgeon, do some bloodwork, do some checkups, have the actual operation, recover for a couple days in hospital, take some antibiotics, and have some follow-up checkups after surgery.

In the previous volume-based model, each provider would have been paid separately each time they cared for Bob. ie. the surgeon would be paid independently every time they saw Bob. Similarly, the staff responsible for Bob's bloodwork would be paid separately from the surgeon , and so on.

In bundled payments, only a fixed, predetermined amount is paid out for all the care Bob needed – usually to the hospital – then the hospital would distribute this bundle amount to each staff. If the surgeon got more, the other staff would get less - because they're paid from the same fixed bundle of payment.

So far, the two care models appear similar in terms of total cost to the healthcare system for Bob’s episode. Now let’s say the surgeon forgot to follow up with Bob for checkups after operation and Bob developed complications and needs to return to the operating room the second time. In volume-based care model, Bob’s surgeon would have been paid again for the second operation. In value-based bundled payment, the surgeon would not be paid extra. The surgeon would have to make up for their mistake without additional revenue. This example highlights the accountability for each member of the care team to provide quality care while containing cost in the value-based care delivery model.

As a result of the financial incentives created by bundled payments that rewards efficiency and better care outcomes, providers are forced to improve care coordination, driving the adoption of ehealth communication tools such as integrated electronic health record systems where providers in different clinical settings can share information easily. Providers are also forced to improve care quality at a reduced cost – driving the adoption of another suite of ehealth innovations such as remote health monitoring tools and better patient education tools, etc.

To further encourage the adoption of ehealth innovations, government and hospitals created value-based purchasing programs. Between 2013 and 2016, the Ontario Buys program has invested $20 million for supporting innovative adoptions in healthcare and another $20 million as part of Ontario Health Innovation Council initiative.

In short, the economic impact of ehealth leads to its adoption, driven by a shift from volume-based to value-based care.