Payment Evolution

April 26, 2024

Sustainable Value-Based Care Transformation Needs an Enterprise Approach

Many health care delivery organizations have a difficult time defining what value-based care (VBC) looks like for them. Even more challenging is developing a thoughtful plan around VBC and how that plan complements other enterprise strategic initiatives. Too often VBC plans are created in a vacuum, and as a result, either the implementation becomes a “VBC department initiative” or, even worse, it doesn’t happen at all, and well–thought-out plans end up sitting on a shelf. So how can your organization avoid wondering what could have been and, instead, create and implement an enterprise-wide VBC transformation? This blog post will explore an approach to enterprise value-based care that creates internal alignment, as well as review best-practices organizations use to accelerate VBC success.

Why enterprise alignment is necessary

Traditionally, organizations built their care delivery and operating models based on the financial models prevalent in their market, which were mostly fee-for-service (FFS) driven. Today, payment models are evolving, but providers find it difficult to transform their care delivery and operating models in the face of new market forces. Organizations that are successful in their value transformation are able to create alignment between their care delivery, operating and financial models. The organizations that fail inadvertently open the door to new competitors and/or continue to experience financial struggles.


The creation of an enterprise VBC strategic plan that is synergistic to other enterprise plans (like your strategic, annual operating and long-term financial plans) is not only critical to value-based care success but also to your overall enterprise sustainability. See below for what to consider when trying to create alignment with these three enterprise plans and your VBC strategy.

Strategic plan alignment

Many enterprise-wide strategic plans are focused on opportunities to grow volume and gain market share and include service line–specific tactics on how to achieve these goals. Given this, one might think that a traditional strategic plan focused on volume growth contradicts a VBC strategic plan that may seek to limit unnecessary utilization. The reality is that most VBC strategic plans include tactics to drive domestic utilization and improve margin on volume. For example, the 2023 Impact of Change® forecast from Sg2, a Vizient company, predicts ALOS will rise more than 6% over the next 10 years. As inpatient acuity rises, VBC tactics such as accurate risk stratification, transitional care management, and preferred post-acute networks can help reduce your hospital’s LOS and improve your direct margin per inpatient admission.

Additionally, key growth levers—including expanding tertiary share, growing managed lives and optimizing network integrity—enable success as health systems reduce potentially avoidable admissions and optimize site of care shifts.


Annual operating plan alignment

Annual operating plans (AOPs) are guided by the strategic plan but offer a more tactical approach to strategy execution within a fiscal year and operate under the constraints of the fiscal year budget. These days, almost every provider’s AOP has a large emphasis on both labor and nonlabor expense reduction.

  • Labor: The term “new normal” is used a lot to describe the health care delivery workforce environment, as premium pay—while beginning to trend down—remains well above pre-pandemic levels. Solving the workforce equation requires a combination of both supply and skill-mix driven strategies, and VBC can enable both. The way care is delivered in a value-based environment often is described as the way providers and clinicians want to practice medicine, so it can be a great tool in getting a leg up on clinical recruitment efforts and improving clinical workforce retention. From a labor skill-mix perspective, VBC promotes both the adoption of team-based care and appropriate use of advanced practice providers.
  • Nonlabor: As unit costs on all types of supplies have risen due to economic inflation, providers are continually evaluating efforts to reduce clinical variation and streamline their supply chains. Incorporating VBC physician alignment strategies—such as bundled payments, all payer gainsharing or clinical variation reduction initiatives—under broader value-based entity arrangements into your annual operating plan can help your organization achieve its nonlabor budgetary goals. And, as we always say, the very first VBC strategy you should undertake is to get your own house in order by rightsizing internal costs.
Long-range financial plan alignment

Long-range financial plans (LRFPs) are a great tool for combining investments from the strategic plan with the realities of the AOP to help an organization understand potential capital shortfalls or changes to important financial KPIs like days cash on hand. Creating alignment with your LRFP involves understanding how your VBC strategies may impact existing revenue streams, create new revenue streams, change contribution margins and create capital avoidance.

It is well-known that alternative payment models (APMs) can create net-new revenue opportunities, but too often it is assumed APMs come as a trade-off to FFS revenue streams in the form of reduced utilization or reduced unit costs. Having a thoughtful financial planning and payer contracting strategy can help your organization mitigate these potential trade-offs by quantifying tangential impacts such as reduced out-of-network utilization and any backfill opportunities that may exist. It’s also important to have a firm understanding of how any VBC strategies may impact direct margin and build that impact into your LRFP. For example, organizations that are successful in post-acute strategies and adopt skilled nursing facility (SNF) three-day waivers are often able to reduce LOS and increase their aggregate inpatient direct margin.

Finally, successfully implementing a value transformation strategy can avoid what were traditionally considered necessary capital investments. As initiatives like at-home care management or at-home primary care become core to VBC plans, we expect the shift to at-home care to accelerate and potentially decrease the need for traditional brick-and-mortar investments, though there will be varying impacts across care sites (like at-home SNF care and acute hospital care-at-home).

Best practices for creating VBC strategy and enterprise plan alignment

How can your organization create alignment between your VBC strategy and other enterprise-wide plans? The answer lies in creating the right organizational structure and governance. Some best practices to ensure your VBC strategies aren’t viewed as a “pilot” but instead as the new operating model of the future include:

  • Form a committee structure for your overall VBC strategy that includes those responsible for the strategic plan (chief strategy officer), annual operating plan (chief operating officer/chief medical officer) and LRFP (chief financial officer).
  • Use subcommittees for VBC initiatives that include all initiative-specific SMEs from service lines (both clinical and administrative leaders), nursing, information technology and other departments as necessary.
  • Deploy VBC KPIs into enterprise scorecards and ensure they are adequately weighted to incentivize performance.

Given today’s challenging health care environment, the stakes are too high to fail at your value transformation efforts. Given how much time it can take to create VBC organizational alignment the time to act is now—or your VBC strategy may be at risk of collecting dust on the shelf. The current operating model has shown its limitations in today’s environment. Therefore, failing to integrate your value transformation efforts into the core tenets of your operations not only limits organizational agility but may put the future viability of your organization at risk as well.

Learn how Vizient’s Value Transformation & Payer-Provider Alignment practice can help position your organization for select value-based care undertakings, and connect with us today!

RingwoodBill.jpg (Original)
Associate Principal
Bill works on Sg2’s Consulting team, specializing in financial planning and forecasting for value-based care, physician alignment, managed care contracting and payer strategy initiatives. With 15 years of health care provider, payer and consultancy experience, he brings a unique strategic perspective to his clients that is rooted in financial rigor. He also has significant experience in network development, medical group operations, physician compensation, service line strategy and transaction advisory.