Funding value-based commissioning in a healthcare perfect storm

Article written by James Poskitt , KPMG NZ Director

On Friday we released Navigating the Storm , our report on global lessons for a more efficient and equitable healthcare system in Aotearoa. During a period of economic constraint, health leaders are facing growing demand, fuelled by the impact of the COVID-19 pandemic, complicated by the effect of long-standing labour shortages starting to bite - all the whilst navigating the early stages of the biggest period of reform the sector has ever experienced. The perfect storm. Our report looks at six core components for a more equitable future, one of which is Value-Based Commissioning.

Effective commissioning is essential to weathering this storm.

Value-based commissioning is an evolution of approaches that are focused on outcomes and person-centred services. Traditional commissioning often focuses on process and activity measures, whereas value-based commissioning shifts the focus to the results achieved for patients and populations.

Establishing the right financial incentives is a key to driving value. We can’t expect better results if we continue to fund primarily on volumes and price, and nor can we rely on high-trust contracting to deliver the right outcomes.

It’s difficult to achieve balance whilst grappling with rising costs, increasing demand, and limited resources. Innovative financing models that prioritise high-quality care and ensure efficient resource allocation is critical to aligning financial incentives with health outcomes - the focus must be on achieving the best possible outcomes for patients within available resources.

Funding and financing models

• Use of private sector funding is one option, but is not commonly employed in the health sector. Public-private partnerships, for example, can leverage private sector expertise and investment to develop and deliver healthcare services, reducing the burden on public resources. Social impact bonds, where private investors fund interventions with an expectation of a financial return based on achieved outcomes, can also bring new resources into the healthcare system.
• Pay-for-performance models involve linking a portion of the provider's payment to specific quality or outcome targets. Providers receive financial rewards or face penalties based on their ability to meet these targets, and are thereby incentivised to focus on improving outcomes. This promotes a culture of accountability, where providers are motivated to continuously improve their performance and achieve desired outcomes.
• Bundled payments or episode-based payments are where providers receive a fixed payment for a specific aspect of care, such as a surgical procedure or the management of a chronic condition. The payment covers all the services and interventions required and providers are responsible for managing within the allocated budget and quality standards. This encourages providers to coordinate care, reduce unnecessary tests or procedures, and improve transitions, resulting in better patient outcomes and cost savings.
• Shared savings or shared risk arrangements involve sharing financial gains or losses based on the performance of a defined population or group of patients. If providers effectively manage the health of the population and achieve cost savings while maintaining or improving outcomes, they share in the savings. Conversely, if costs exceed predetermined benchmarks, providers may be responsible for sharing the financial risk. This fosters a sense of financial responsibility and encourages providers to work collaboratively.
• Alternative payment models such as capitation or global budgets can be coupled with financial incentives. Capitation involves paying providers an agreed amount per patient, irrespective of the services delivered to that patient. This incentivizes preventive care, as providers have a financial interest in keeping patients healthy and avoiding expensive interventions. Global budgets provide an agreed amount of funding to a healthcare organisation or system to cover the cost of providing care to a specified population or geographic area. This approach encourages providers to carefully manage resources and control costs to ensure they stay within the allocated budget.

These approaches won’t work in every situation and still come with risk, requiring difficult decision-making and trade-offs. But, with effective governance, accountability, and robust monitoring, these approaches provide a valuable toolkit to help commissioners weather the storm.