The VBC Paradox: How Health Systems Can Balance Inpatient Revenue With Value-Based Care Goals
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MedCity News
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Hospital systems often perceive value-based care (VBC) as conflicting with fee-for-service incentives, since reducing avoidable admissions can appear to threaten revenue. However, the article explains that most systems already operate in hybrid payment environments where VBC arrangements, shared savings, and quality incentives are becoming increasingly meaningful. Many avoidable hospitalizations are also inefficient even in an FFS model, straining resources and lowering patient satisfaction. As financial pressures mount from federal policy changes, hospitals may hesitate to invest in VBC infrastructure, making partnerships with external vendors a practical option. Ultimately, VBC is less about reducing all utilization and more about rebalancing it—shifting unnecessary acute care toward proactive, coordinated services that better position hospitals for long-term sustainability.
When the conversation shifts toward value-based care (VBC), hospital systems find themselves in a delicate balancing act. On one hand, VBC strategies compel providers to prioritize preventive, coordinated, and holistic care to improve outcomes and reduce avoidable acute care utilization. On the other, hospital systems are largely embedded in a fee-for-service (FFS) environment, where inpatient admissions and emergency department visits often represent core revenue streams. This begs the question – are value-based care strategies at odds with hospital systems revenue goals?
Value-based care, at first blush, feels more aligned with payer interests than those of a hospital-based health system. Avoidable hospitalizations — many of which stem from poor chronic disease management, fragmented care, or inadequate social support — are costly to payers. Reducing such events is a core target of many VBC arrangements, including bundled payments, accountable care organizations, and condition-specific programs like Medicare’s Enhancing Oncology Model. However, for many hospitals, especially those operating under thin margins, each inpatient admission represents revenue. The fear, then, is that proactive care efforts that reduce admissions might cannibalize income needed to support clinical operations and infrastructure.
But the reality is that the tension is more nuanced than it appears. Executives increasingly view avoidable hospital utilization misaligned with the goals of the system. Additionally, pursuing that goal uses much of the same toolkit that many systems are already leveraging to reshape infrastructure, methodologies, and culture to thrive in a VBC-oriented future.