Transforming global healthcare using value-based payment models

April 10, 2023 | Article | 10-minute read


Life sciences companies stand on a precipice. Global health systems contend they’ve reached the limit of what they can sustainably spend on healthcare, and yet their healthcare investments haven’t led to the improved health outcomes they’re targeting. The Inflation Reduction Act in the U.S., and similar initiatives in Europe, signal that governments are serious about reducing or stabilizing the cost of healthcare. For pharmaceutical and medical devices companies, this means it’s time to be much more deliberate about connecting healthcare to value and connecting therapies to the outcomes patients and health systems care about—at a cost that health systems can bear.


In our global survey of more than 9,500 healthcare consumers and providers from across the U.S., U.K., Sweden, Germany, China and Japan, we uncovered a troubling disconnect between patients and their healthcare providers about the quality of care patients receive: Spanning continents, cultures and health system types, there’s a large gap between how doctors and patients rate their healthcare interactions. Across the board, doctors dramatically overestimate the degree to which their patients feel cared for, heard, grateful, content and empowered. In fact, many healthcare consumers say their most recent healthcare interactions left them more likely to feel frustrated, ignored, disconnected and alone than their doctors would presume. 


Clearly, the link is broken between what consumers value in healthcare and what the system currently provides. Value-based healthcare offers a powerful mechanism for focusing all stakeholders on delivering products and solutions that make people healthier and doing so at a reasonable cost.

Without value-based payment models, there’s no value-based healthcare

For something that’s been talked about for as long as it has, the subject of “value-based healthcare” is frequently misunderstood and misused. The World Economic Forum’s Global Coalition for Value in Healthcare, to which we are contributors, defines it as an approach to healthcare delivery focused on improving outcomes and costs for defined patient segments that receive segment-specific interventions. This means bringing together disparate stakeholders and aligning them around the common purpose of improving the outcomes patients value—and then holding themselves, and each other, accountable for doing so cost effectively. While value-based healthcare has the potential to cure the limitations imposed by our current status quo—from reducing care fragmentation and provider burnout to lowering costs and health inequities—widescale adoption has proven elusive.


In 2019, the World Economic Forum (WEF) launched its Global Coalition for Value in Healthcare, a public-private platform for driving health system transformation by promoting the adoption of value-based healthcare models. Through its work, the coalition developed a framework for delivering value in healthcare using four levers: (1) Informatics that capture, analyze and share patient-specific data, (2) tools with which to generate insights from data, (3) care delivery models that measure performance and encourage continuous improvement and (4) payments based on value rather than volume. Policy and regulations that drive value-based healthcare must also be in place to connect and support these levers. 


To refocus healthcare delivery on the idea of creating value for patients, all four levers must work in tandem. We recently co-authored and served an advisory role for WEF’s comprehensive report on transforming healthcare systems by re-imagining payment models. In it, we argue that value-based healthcare is only possible when payment models and incentives exist to support it—and that payment model reform and care delivery innovation must be lashed together to incentivize care based on value, not volume. 

Creating a value-based healthcare system faces systemic barriers

The prevailing healthcare system ties payment to the volume of healthcare delivered, either using fee-for-service models or diagnosis-related groups. This creates two issues, neither of which benefit patients or health systems. First, volume-based delivery models create massive inefficiency, with the Organization for Economic Cooperation and Development (OECD) estimating that waste accounts for between 20% and 40% of total healthcare spend. And second, they lack a mechanism for connecting healthcare treatments to patient outcomes. Payment systems designed around value, on the other hand, make outcomes measurement a foundational principle, which serves as a powerful lever to incentivize innovation, health equity and care integration.


Make no mistake: Moving to value-based payment models is disruptive. That’s because it affects how healthcare is organized, measured and rewarded. In the legacy healthcare system, the treatment or therapy is the product, and success is measured by how often it’s administered—regardless of its cost or measurable impact on health outcomes. In a healthcare model predicated on value, meanwhile, the product is health, and success is measured by patient outcomes relative to the cost required to achieve them. 


As with any disruptive transformation, the barriers blocking the shift to value-based rewards systems are substantial. They fall into three categories:

  • Financial. Any change of this magnitude is expensive, creating challenges for two primary reasons: (1) The current system is lucrative for many stakeholders, and (2) short-term investments will be seen as cost-increasing measures, even if they save money in the long run.
  • Systemic. The current system disincentivizes care integration, and our fragmented care delivery model disincentivizes payment model innovation—a negative feedback loop that creates change paralysis. At the same time, interdependent stakeholders may have misaligned objectives and incentives, most notably when an organization investing in value-based care may not be the one that directly benefits from cost savings or improved outcomes.
  • Actuarial. To date, there has been widespread disagreement over the meaning of the word “value”—hence, the need to align around the definition we put forward earlier. Inconsistent (or worse: absent) data collection, processes, systems and sharing make it difficult for stakeholders to assess where value is being created or lost within the current healthcare system.

4 principles for introducing value-based payments in healthcare

The barriers to pursuing payment model innovation are daunting, but so is the risk of maintaining the status quo. To pursue intermediate successes in the short term while enabling widespread scale of value-based models in the long, we recommend healthcare stakeholders design their efforts around four principles.

  • Transparency of outcomes and payments. To shift the focus from cost to value, countries should seek to publish both patient outcomes and system-level outcomes metrics. Transparency allows for better assessment of which interventions are actually improving patient health.
  • Policy direction. Rigid reimbursement systems and policy complexity hinder value-based payment models from broader adoption. Policy reform can be an important lever in creating an environment in which value-based payment models can succeed.
  • Education. Physician buy-in is a prerequisite for successful implementation of value-based payment models, but most clinicians lack the information and incentives to transition to value-based payment models. That must change. Additionally, since the public is both patient and ultimate payer, education about the existing payment system and the advantages of reform can be a powerful momentum builder.
  • Standardization of outcomes and payments. Advocates of payment reform must work to standardize things like outcomes measures, payment model elements and expectations to remove implementation friction.

5 considerations for improving value and access and care-delivery models

There’s a tension at the heart of the push toward value-based healthcare, namely: For all the pieces to click into place, much of how we “do” healthcare must change. For life sciences companies, it may be tempting to see value-based healthcare as a topic for payers, providers and bureaucrats. But waiting around for the world’s governments to “reform healthcare” would be misguided. We recommend instead that life sciences companies engage and look to pilot value-based projects with highly targeted patient segments, in single markets, taking into account the following five considerations:


  • Design for someone, not everyone. Focus on a subset of patients who share a common set of healthcare challenges, deeply understand their needs and develop hypotheses for how your company’s products or solutions can contribute to the outcomes these patients care about. 

    This was the case with the medical devices manufacturer Medtronic and the diabetes management company Diabeter, which Medtronic owns. Diabeter was founded not on the grandiose mission of curing diabetes but on the much more limited mission of enabling a complications-free life for children and young adults with Type 1 diabetes. The company has since expanded to managing patients of all ages through its “integrated practice unit” of six centers, which share a common IT platform that measures patient outcomes, costs and other metrics daily. Integrated practice units consider the patient needs across the entire value chain, not just the treatment itself. 

    Recently, Diabeter secured a 10-year value-based partnership with the Netherlands’ largest health insurer based on a bundled payment for all patients and both short- and long-term savings sharing. The initiative has dramatically improved outcomes for Diabeter patients, led to the lowest rate of hospital admissions in the Netherlands and contributed to greater health equity by delivering comparable outcomes across all socioeconomic groups. 
  • Choose the right partner(s). Seek out partners whose access to data, experience, therapies or patient groups complements your own, and then align around your common objectives and drive trust among stakeholders. 

    This is the challenge the medical devices manufacturer Philips faced when it set out to increase utilization of two of its products, both of which have been shown to enable demonstrably better outcomes, but which were nonetheless being underused by customers. To accomplish this, the company created a risk-sharing agreement with a data-driven regional U.S. hospital customer and then drove trust and adoption by educating staff on how to optimize interventions using their devices and sharing real-world evidence on outcomes. 

    As a result, the hospital significantly lowered its procedure supply costs, increased its rate of same-day discharges by double digits, and reduced incidents of serious side effects and need for costly additional procedures. Philips used the program to create a compelling real-world evidence story showing both the clinical and financial benefit of its products.
  • Design the payment model. Decide which patient outcomes your partnership will target and align on what you aspire to achieve through the partnership.

    This is what Novartis did when it faced the challenge of working with multiple health technology assessment (HTA) bodies to secure market access and design payment models for a first-in-class, one-time gene therapy. Without an established methodology for assessing the value of a one-time therapy offering lifelong effectiveness, Novartis employed novel methodological approaches and engaged early with HTA bodies to share data and answer questions.

    By expressing the price of its one-time therapy on an annualized basis, Novartis enabled regulators to compare its therapy with existing chronic treatments based on lifetime value. This alleviated concerns over the treatment’s novelty and opened the door to a variety of value-based payment models. These, which differed by country, linked payment to agreed-upon outcomes and allowed Novartis’ therapy to fit comfortably within a “chronic therapy” model. This life-saving treatment is now reimbursed in more than 30 countries and has been administered to more than 2,500 patients.
  • Implement the model. The goal of any value-based payment model is to drive behaviors that will improve the outcomes being measured using the most efficient allocation of resources. 

    Research shows that traditional medical interventions affect health outcomes by only between 10% and 20%, with genetics and social and behavioral drivers doing the rest. Knowing this, Novo Nordisk set out to create a care pathway for patients with Type 2 diabetes that went beyond traditional treatments. Knowing that a frequent complaint about preventive health spending is that the return on investment takes too long to materialize, the company searched for innovative ways to share the risk.

    Eventually, Novo Nordisk partnered with city administrators in Denmark, who engaged third-party investors to fund early interventions for newly diagnosed diabetes patients to prevent complications and disease progression. Together, the investor, the city, providers and Novo Nordisk agreed to implement the care pathways and assess long-term blood sugar levels as the outcome by which to measure value. The investor funds the upfront cost of interventions across the care pathway, which is co-designed with a Danish diabetes center, and receives a share of costs savings if it’s successful after a three-year runway. Despite not yet reaching the three-year mark, early successes, including cost-savings and complications avoidance, have spurred additional budget allocations for similar investments at larger scale.
  • Assess, improve and scale. When a pharma or medtech company implements a successful value-based payment model, the next step is to explore scaling it to larger geographies, patient segments and conditions.

    This is what Takeda, the global pharmaceutical company, did when it created a disease-specific, value-based framework prior to the launch of a new product for the treatment of hereditary angioedema. This framework is designed to be used in multiple healthcare systems to address payer uncertainty and aid value-based contracting selection. The exercise expanded global patient access, leading to improved patient-reported outcomes, earlier patient access to treatment and reduced waste thanks to appropriate dosing.

Life sciences: Don’t wait for healthcare systems to magically transform themselves

To transform global health, nearly everything about how we currently fund and deliver healthcare must change. Yet, no healthcare system can be re-designed in one fell swoop. For companies committed to building a healthier world by focusing healthcare delivery on patient value, our message is this: Think big, start small and start now.

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