Confusing Cost with Care
“Value” in healthcare is a loaded word. It is defined subjectively—by patients, clinicians, employers, and policymakers—yet delivered by a highly structured system. Nowhere is this tension more evident than in the United States, which spends more on healthcare than any other developed nation, yet continues to struggle with outcomes, patient experience, workforce satisfaction, and cost containment. Strikingly, our system is often criticized as being both insufficient and extraordinarily wasteful. How can both be true?
I would bet you have noticed occasions in which services are provided not because they empirically improve outcomes, but to allay patient fears, address misconceptions, or respond—consciously or not—to marketing pressure around diagnoses or brand-name drugs. The “everything” culture is incredibly persistent, particularly in high-throughput settings like emergency departments, where patient reassurance and preference—however expensive—often become the default standard of care. These expensive hiccups are worsened by systemic pressures such as tort exposure, and patient “satisfaction” as an accurate tool to measure an individual providers’ bedside manner and clinical prowess without bias from system-level inputs (e.g. diagnostic turn-around times, room cleanliness or even centrally-controlled temperatures).
Initiatives such as Choosing Wisely, and regulations such as the Patient Safety and Quality Improvement Act of 2005 offer high level guidance on system-wide, evidence-based guidance to reduce unnecessary testing and interventions. Still, we see striking and persistent variability in practice patterns, especially in areas requiring rapid judgment or deeply moral and value-laden decisions, such as oncology and end-of-life care. This demonstrates that improving upon this culture of excess must be made at the level of the individual patient and provider - and that we have perhaps missed the mark in developing the health of the overall system to support transparent, informed and honest hard conversations. It also highlights that doing more (and spending more) does not necessarily equate to “better” care, even in patients’ valuations.
This post is my attempt to explain—based on my experience, and echoed by many colleagues—why we are still struggling to strike the right balance. And how baked goods offer a simple analogy to enhance understanding and frame how to move forward, one bite at a time….
In my work in value-based care, I frequently hear value-based revenue described as “icing on the cake”—an accessory or marginal add-on to traditional clinical revenue. I argue instead that value-based care revenue deserves its own classification and its own accounting treatment to give it the emphasis necessary to be recognized as a true agent for systemic change.
To understand why, consider that a traditional fee-for-service (FFS) perspective of revenue looks like a layer cake. In this mindset, value-based opportunities are built upon a FFS chassis, with elements such as pay-for-performance (P4P) or pay for quality (P4Q) considered incremental upgrades - the “icing.” This view is even supported by the mixed results of large-scale value programs out of CMS, which demonstrate inconsistent and incremental improvements in quality and cost across a decade of programs.
However, as the reliance on, or perhaps the revenue capture in these categories increases, they gain importance but are still considered smaller parts of the whole. There is no inherent change to the system, we have simply added onto it. A clear sign that your organization is stuck in this mentality is when providers’ primarily feel that value-based care efforts are “extra work.” After all, excellence in care delivery is assumed to be the baseline expectation in clinical practice and shows up in reimbursement as volume. Why would it be treated differently?
When value-based care becomes a true forcing function, organizations often experience stagnation—or even some degradation—of fee-for-service reimbursement. The base layer of the cake that the system promoting that volume = value will become more unstable, even while service revenue remains the primary source of income. This is not inherently problematic, but navigating these brackish waters requires recognition that traditional revenue strategies such increasing volumes, rewarding productivity and chasing market share in complex procedures not only may not make a difference, but could actually harm performance in cost-sensitive value-based models. When the foundation remains volume-dependent, the upper layers create volatility - not diversification.
The system itself must adapt, and organizations may find themselves asking an uncomfortable question: Has the percentage of revenue tied to value-based arrangements quietly become the new “margin”? If so, value-based revenue is no longer incremental upside - it is the primary buffer against cost volatility, utilization risk, and reimbursement compression.
Building a sustainable value-based enterprise requires deliberate investments in infrastructure, not incidental participation. Read my next post to discover an alternative mentality….the Cupcake model.
