Value-based purchasing (VBP) uses the purchasing power of employers and groups of insured individuals to create incentives and disincentives for health care providers to deliver high quality, high value care. VBP programs measure and report comparative performance data and adjust provider payments based on performance. These programs establish physician payment reforms, typically using strategies such as pay for performance (P4P), pay for improvement, or pay for reporting. VBP programs can also incorporate other types of payment reform such as shared savings or shared risk, where insurers and providers share savings or losses from coordinated care efforts; or global payment, where providers receive a global budget for patient care plus bonuses and incentives based on cost savings and quality performance1, 2.
Expected Beneficial Outcomes (Rated)
Improved quality of care
Other Potential Beneficial Outcomes
Reduced health care costs
Evidence of Effectiveness
There is some evidence that value-based purchasing (VBP) programs that include pay for performance (P4P) modestly improve health care quality for chronic disease management, when implemented as part of a broader initiative to improve quality of care3, 4; effects have been demonstrated for diabetes and asthma management, but not for heart disease management5. Additional evidence is needed to confirm effects of VBP, especially long-term effects on patient outcomes and system costs5, 6.
Financial incentives such as VBP and P4P may improve health care practice and process outcomes7. In a New York City-based study, small clinical practices that implemented a P4P program have modest improvements in cardiovascular processes and outcomes8. In UK-based studies, P4P programs that included larger bonuses than most US programs and significant investment by hospitals in quality improvement activities are associated with a clinically significant reduction in mortality9, however, the effect may not be maintained over the long-term10.
Research suggests that effective programs engage providers with program design, measures, and performance targets, and set objective achievement and improvement targets so all providers who reach that target receive an incentive. Effective VBP programs also track cost and quality data, strive for measure alignment across programs, and include provider supports (e.g., best practice sharing mechanisms, health information technology and data registries, and infrastructure building). Larger incentives have been associated with greater effects on performance when these incentives do not reduce resources for low quality provider improvement2, 5, 11.
In some circumstances, providers participating in VBP programs have neglected care that is not incentivized by the program’s design. US and UK-based studies suggest that VBP and P4P could also lead providers to select healthy or compliant patients over severely ill or non-compliant patients or encourage gaming or manipulating data to maximize income. Careful design and implementation of VBP programs, including aligning financial incentives with professional values, can help avoid such unintended consequences5, 12.
Value-based purchasing could narrow, widen, or maintain existing disparities in access to and receipt of quality health care5. Programs that explicitly consider disparities, collect race and ethnicity data, focus on conditions that are of higher prevalence among minorities, reward improvements, and support efforts to establish national disparity measures and guidelines are more likely to reduce disparities than programs that do not13.
VBP and P4P have the potential to be cost-effective when programs are well designed and implemented5.
Impact on Disparities
The Centers for Medicare & Medicaid Services (CMS) has linked Medicare’s payment system to a value-based purchasing system for inpatient stays in over 3,500 hospitals in the US14.
A few states have enacted policy reforms that include value-based purchasing, as in Massachusetts, Minnesota, and Vermont15. State agencies and public/private coalitions have also led initiatives to increase value in health care services using value-based purchasing, for example the Massachusetts Group Insurance Commission16, the Minnesota Smart Buy Alliance17, the Washington Health Alliance18, and the Wisconsin Department of Employee Trust Funds19.
AHRQ-VBP guide - Agency for Healthcare Research and Quality (AHRQ). Evaluating the impact of value-based purchasing: A guide for purchasers.
CHQPR-Resources - Center for Healthcare Quality & Payment Reform (CHQPR). Resources, guides, and what's new on CHQPR.
NQF-Ryan 2014 - Ryan A, Tompkins C. Efficiency and value in healthcare: Linking cost and quality measures paper. National Quality Forum (NQF). 2014.
* Journal subscription may be required for access.
1 CHQPR-Glossary - Center for Healthcare Quality & Payment Reform (CHQPR). The payment reform glossary: Definitions and explanations of the terminology used to describe methods of paying for healthcare services, first edition.
2 RAND-Damberg 2014 - Damberg CL, Sorbero ME, Lovejoy SL, et al. Measuring success in health care value-based purchasing programs: Summary and recommendations. Santa Monica: RAND Corporation; 2014.
3 Huang 2013* - Huang J, Yin S, Lin Y, et al. Impact of pay-for-performance on management of diabetes: A systematic review. Journal of Evidence-Based Medicine (JEBM). 2013;6:173-184.
4 de Bruin 2011 - de Bruin SR, Baan CA, Struijs JN. Pay-for-performance in disease management: A systematic review of the literature. BMC Health Services Research. 2011;11(272):1-14.
5 Eijkenaar 2013* - Eijkenaar F, Emmert M, Scheppach M, Schöffski O. Effects of pay for performance in health care: A systematic review of systematic reviews. Health Policy. 2013;110:115-130.
6 Eldridge 2011 - Eldridge GN, Korda H. Value-based purchasing: The evidence. American Journal of Managed Care. 2011;17(3):e310-e313.
7 Cochrane-Flodgren 2011 - Flodgren G, Eccles MP, Shepperd S, et al. An overview of reviews evaluating the effectiveness of financial incentives in changing healthcare professional behaviours and patient outcomes: Review. Cochrane Database of Systematic Reviews. 2011;(7):CD009255.
8 Bardach 2013* - Bardach NS, Wang JJ, De Leon SF, et al. Effect of pay-for-performance incentives on quality of care in small practices with electronic health records: A randomized trial. The Journal of the American Medical Association. 2013;310(10):1051-1059.
9 Sutton 2012 - Sutton M, Nikolova S, Boaden R, et al. Reduced mortality with hospital pay for performance in England. The New England Journal of Medicine. 2012;367:1821-1828.
10 Kristensen 2014 - Kristensen SR, Meacock R, Turner AJ, et al. Long-term effect of hospital pay for performance on mortality in England. The New England Journal of Medicine. 2014;371:540-548.
11 AHRQ-VBP lessons - Meyer JA. Theory and reality of value-based purchasing: Lessons from the pioneer. Agency for Healthcare Research and Quality (AHRQ); 1997.
12 Roland 2014* - Roland M, Campbell S. Successes and failures of pay for performance in the United Kingdom. The New England Journal of Medicine. 2014;370:1944-1949.
13 Chien 2007* - Chien AT, Chin MH, David AM, Casalino LP. Pay for performance, public reporting, and racial disparities in health care: How are programs being designed? Medical Care Research and Review. 2007;64(5):283S-304S.
14 CMS-Hospital VBP - Centers for Medicare & Medicaid Services (CMS). Hospital value-based purchasing.
15 CWF-McCarthy 2009 - McCarthy D, How SK, Schoen C, et al. Aiming higher: Results from a state scorecard on health system performance, 2009. Commonwealth Fund (CWF). 2009.
16 MA-GIC - Massachusetts Executive Office for Administration and Finance. Group Insurance Commission (GIC).
17 MHAG-SMART - Minnesota Health Action Group (MHAG). SMART Buy Alliance.
18 WHA-CC - Washington Health Alliance (WHA). Community checkup.
19 CWF-Alteras 2007 - Alteras T, Silow-Carroll S. Value-driven health care purchasing: Four states that are ahead of the curve. Commonwealth Fund (CWF). 2007.
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