Value-based healthcare: A pathway to affordable and quality care

India’s healthcare system is dealing with increasing challenges like low public health spending, limited insurance coverage, and high out-of-pocket costs for patients. These issues make it hard for many people, especially those with low incomes, to access good healthcare. With the growing population and rising demand for medical services, there is an urgent need for a model that offers both affordable and quality care. Value-Based Healthcare (VBHC) provides a solution by focusing on improving patient outcomes rather than just the number of services provided.

Current state of healthcare in India

Before looking at how VBHC can improve Indian healthcare, it is essential to understand the current state of the system. In FY 2023, the Indian government spent just 2.6 per cent of its GDP on healthcare, which is much lower than the global average. While public healthcare spending rose from 1.6 per cent of GDP in FY21 to 2.1 per cent in FY23 (as per Statista), this is still insufficient for a population of over 1.4 billion. The healthcare system also faces a shortage of medical professionals. According to the Ministry of Health & Family Welfare, India has a doctor-to-population ratio of 1:854, assuming 80 per cent of the country’s 12.68 lakh registered allopathic doctors and 5.65 lakh AYUSH doctors are available.

In addition to these limitations, healthcare costs are rising sharply. Looking at a recent report, healthcare costs in India are growing at an annual rate of 14 per cent, with 62 per cent of healthcare expenses being paid out of pocket (as per ACKO India Health Insurance Index 2024). Even more alarming is the fact that 75 per cent of Indians pay for medical services out of their own pockets, without any form of government or private health insurance (as per the data by ACKO). The financial burden of healthcare, particularly in cases of chronic illness or hospitalisation, often pushes families into debt and poverty.

Moreover, a major issue compounding the financial burden on patients is the limited scope of health insurance coverage. In India, both government and private insurance schemes predominantly cover in-patient department (IPD) treatments, focusing on hospital-based care for severe illnesses. However, out-patient department (OPD) care, which includes essential services like regular check-ups, diagnostics, and treatments for non-communicable diseases (NCDs), is often excluded. This gap in coverage means that patients are left to pay out-of-pocket for most routine healthcare needs, which significantly contributes to the overall cost burden.

For conditions like diabetes, hypertension, and other chronic illnesses, ongoing management is crucial, and yet, the cost of medication, consultations, and routine diagnostics falls directly on the patient. By the time they seek hospital care, many patients are already in advanced stages of their illness, which increases treatment complexity and costs. The absence of comprehensive insurance that includes OPD services ultimately raises the risk of neglecting early treatment and prevention, exacerbating the strain on India’s healthcare system.

What is value-based healthcare?

Value-Based Healthcare (VBHC) is a shift from the traditional fee-for-service model, where providers are paid based on the quantity of care they deliver, to a model that rewards healthcare providers for the quality and efficiency of the care they provide. In this model, payments are tied to health outcomes, with a focus on achieving better patient results, minimising medical errors, and lowering the overall cost of care.

In practical terms, VBHC encourages hospitals, doctors, and other providers to work collaboratively to improve the long-term health of patients, reduce unnecessary tests or procedures, and ensure that treatments are both effective and efficient. This shift is especially important in India, where the healthcare system is already strained by a growing population, limited resources, and rising costs.

The potential impact of VBHC in India

If fully implemented, VBHC could bring significant benefits to India’s healthcare system. Looking at numbers, VBHC could help save nearly 9 lakh lives over the next five years and reduce healthcare costs by Rs 4,000 billion (according to a PwC report). This model holds the potential to drastically improve both the quality and affordability of healthcare, particularly for low-income populations that are often left behind in the current system.

In addition to improving patient outcomes, VBHC could also help tackle some of the inefficiencies that hinder India’s healthcare system. For example, unnecessary procedures and tests not only increase healthcare costs but also expose patients to additional risks. By focusing on outcomes, VBHC encourages providers to avoid such wasteful practices, leading to more cost-effective care and better overall results for patients.

VBHC also has the potential to create a more integrated and collaborative healthcare environment. Under this model, hospitals, doctors, and other healthcare providers are incentivised to work together to ensure that patients receive the right care at the right time. This could help reduce some of the fragmentation that currently exists in India’s healthcare system, where patients often face delays and gaps in care due to poor coordination between different providers.

Challenges to implementing VBHC in India

While the benefits of Value-Based Healthcare (VBHC) are clear, implementing this model in India will face several challenges. One major issue is that the current healthcare system mainly follows a fee-for-service approach, where providers are paid based on the number of services they provide. Moving to a VBHC model will require significant changes in how providers are paid, how care is given, and how healthcare results are measured.

Another challenge is the uneven distribution of healthcare resources across the country. In rural areas, where healthcare infrastructure is often poor, rolling out VBHC could be tough. For example, only about half of rural households have government health insurance, 34 per cent have no health coverage at all, and 61 per cent lack life insurance (as noted in the ‘State of Healthcare in Rural India, 2024’ report). These communities also struggle with limited access to diagnostic facilities and affordable medicines. The doctor-to-population ratio in these areas is not ideal, which means significant investment in healthcare infrastructure and workforce development will be necessary to ensure that rural populations benefit from VBHC.

Concerns also exist about how healthcare providers will adapt to this shift, especially smaller hospitals and clinics that may not have the resources for the needed technology and training. Implementing VBHC will require providers to adopt new ways of measuring patient outcomes, share data openly, and work together more effectively. These changes could present both financial and logistical challenges, especially for those with limited resources.

The role of digital health in VBHC

One of the key enablers of VBHC in India is the rapid growth of the digital health sector. India’s digital health market generated USD 11,861.4 million in revenue in 2023 and is projected to reach USD 52,872 million by 2030, with a compound annual growth rate (CAGR) of 23.8 per cent expected from 2024 to 2030 ( as per Grand View Research). Technologies such as telemedicine, artificial intelligence (AI), and electronic health records (EHRs) will play a critical role in supporting the shift to value-based care by enabling better tracking of patient outcomes, improving diagnostic accuracy, and facilitating remote care.

Telemedicine, in particular, has already shown promise in extending healthcare services to rural and underserved areas. During the COVID-19 pandemic, telemedicine platforms allowed doctors to consult patients remotely, reducing the burden on hospitals and clinics. As the digital health sector continues to grow, telemedicine and other digital tools could help make VBHC more accessible to patients across the country.

AI-powered diagnostics are another area where digital health can support VBHC. By analysing large datasets, AI algorithms can help healthcare providers identify patterns and trends in patient health, enabling earlier diagnosis and more personalised treatment plans. This not only improves patient outcomes but also helps reduce the cost of care by preventing unnecessary procedures or hospitalisations.

For Value-Based Healthcare (VBHC) to succeed in India, strong public-private partnerships (PPPs) are essential. By combining resources and expertise from both sectors, especially in rural areas with limited access to care, private providers can collaborate with government programs to deliver affordable services. VBHC prioritises patient outcomes over service volume, promising to improve health results and reduce costs. However, successful implementation requires significant investments in healthcare infrastructure and the adoption of digital health technologies. With a focus on PPPs and patient-centered care, India can move towards a more inclusive healthcare system for all citizens.