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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Value Based Purchasing – The Ultimate Guide for 2024

Key take-aways

  • E-procurement optimizes online acquiring of goods/services, originating from 1980s electronic data interchange.
  • The process involves steps like e-sourcing, e-tendering, and online auctioning/ordering.
  • Implementation ensures financial savings, shortened purchasing cycles, and enhanced inventory control/transparency.

Value based purchasing is a term that is not often encountered by many procurement experts

It is a term that is shrouded with mystery, which is why we are dedicating this article to explaining what value based purchasing is all about and what it can bring to your procurement process.

After reading this article, you’ll now have more knowledge about value based purchasing.

What is Value Based Purchasing?

Value based purchasing is often used among medical personnel and staff. In a nutshell, value based purchasing is pretty much any payment model that offers financial incentives to physicians, medical groups, hospitals, and other healthcare providers for meeting certain performance goals or measures. This was established as a way of rewarding clinic and hospital staff for great performance in terms of longer survival and quality service and treatment for patients. 

Among professional medical societies, the idea of value based purchasing is now considered as a part of an incentive program designed to reward hard workers in the medical field. It is often connected to the idea of value based care, which is a type of reimbursement that rewards healthcare providers with incentives based on the quality of care they provide to patients.

Essentially, value based care models revolve around the patient’s treatment and how well a coordinated care team can improve patient outcomes based on certain metrics, such as reducing hospital readmissions, improving preventative care, and using particular kinds of certified health technology.

What is the Goal for Value Based Purchasing?

On paper, the methodology of VBP is simple: pay providers for quality and value, not just volume. Hold healthcare organizations accountable for both the quality and cost of the care they deliver and reward the best-performing providers.

The goal of VBP is to facilitate a high level of care that is both safe and efficient. To reduce medical errors, lower the rate of accidents, achieve better patient outcomes, and maximize financial rewards. In an ideal world, clinics and hospitals will operate at optimal effectiveness and efficiency – resulting in lower prices for both patient and payor.

Organizations work hard, month after month, to achieve this noble “value proposition”.  But the everyday reality of succeeding for their organization in a Value-Based Purchasing program is far from simple.

Value-based care goals come with their own elaborate set of rules, metrics, benchmarks, reimbursement adjustment tables, and a million other things. The delay between capturing data and applying benchmarks to a provider’s reimbursement is significant. It’s all too easy for care providers to become immersed in the administrative minutiae of VBP and lose track of the program’s highest goal – better value for patients.

Therefore, whether you’re a front-line staffer or a top-level executive, it’s important to circle back to one basic question: “Does what we’re doing truly improve value?”. If the answer is “No” or, (as is often the case), unclear – then it’s time to evaluate the effectiveness of the task, process, or tool on a fundamental level.

How Does Value Based Purchasing Work?

Keep in mind that value based purchasing works in procuring services aimed towards the medical field, hence the reason why we are going to use medical terms and facts for this part. This is a whole different type of procurement at work!

As mentioned above, value based care models reimburse healthcare providers (or penalize them) based on quality and cost of care. For example, consider a hospital that works under HVBP. The CMS would evaluate the hospital based on numerous criteria, such as immunization rates for certain diseases, Medicare spending per beneficiary,  and even patient feedback on their experience at the hospital.

Then, depending on how the hospital scores for population health management, compared to established baselines, the CMS will either reimburse the hospital on top of their typical fee-for-service payments, or penalize their Medicare revenue.

One way the Affordable Care Act seeks to reduce health care costs is by encouraging doctors, hospitals and other health care providers to form networks that coordinate patient care and become eligible for bonuses when they deliver that care more efficiently.

The law encourages the formation of accountable care organizations (ACOs) in the Medicare program, where providers make more if they keep their patients healthy. 

Another reimbursement model growing in popularity is shared savings, specifically bundled payments. Under this structure, healthcare providers receive a fixed amount of money to treat a patient either for a specific condition or procedure (ex: 

Pneumonia or an appendectomy) or within a certain period of time (ex: 60 or 90 days). If the provider is able to treat the patient for less than the fixed amount provided, then they are entitled to a share of the surplus, per the terms of their contract. If the cost exceeds the fixed amount, then the provider misses out on the opportunity for reimbursement they could have had under traditional reimbursement models.


In essence, value-based purchasing in healthcare procurement aligns financial incentives with performance metrics to encourage high-quality, cost-efficient care.

This article clarifies the concept, emphasizing the need to prioritize patient value amid the complexity of reimbursement models. Continuous evaluation ensures that efforts contribute to the fundamental goal of improving patient outcomes in an evolving healthcare landscape.

Frequentlyasked questions

What is value based purchasing?

Value based purchasing is a form of procurement that is based around an incentive program that is aimed towards medical professionals.

Why is value based purchasing important?

It is important for medical personnel to receive a form of compensation for all their hard work. This is what value based purchasing is aimed for.

What distinguishes value-based purchasing (VBP) from traditional procurement in healthcare?

Traditional procurement often revolves around obtaining goods and services at the best price, while value-based purchasing in healthcare prioritizes quality and patient outcomes. VBP aligns financial incentives with performance metrics, encouraging healthcare providers to deliver high-quality, cost-efficient care, ultimately improving the value provided to patients.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics