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A toddler with a fever and cough is brought to a lay health provider in rural Kutch. The provider faces a choice—should she offer an antibiotic? On the one hand, she knows that antibiotic resistance is on the rise because of overuse and that the toddler may recover on his own before resorting to antibiotics. On the other hand, she is eager to oblige a paying customer, a mother who has walked two hours to reach the clinic with the toddler slung to her hip and who, if turned away empty-handed, would take her rupees elsewhere.

Imaging of the heart of an elderly woman shows blockage of a major blood vessel. A cardiologist in Mumbai must decide whether to insert a stent to restore blood flow. While he knows that the clinical research comparing benefits and risks is equivocal, the reassurance this procedure would provide is unquestionable. What’s more, the woman’s family can afford the procedure, one that he has done many times and that has earned him a comfortable lifestyle.

India’s health care providers are facing a crisis of public distrust. At its root is the way health care is paid for. Most care is delivered by the private sector and private providers earn based on the quantity of procedures, tests and consultations delivered, whether those services make patients healthier or not. While patients are aware that this profit motive can lead to excessive and costly care, they typically have neither the knowledge nor confidence to question a provider’s judgment. It is a conflict of interest that pervades the country’s health system, affecting rich and poor, urban and rural alike. In the context of a high-growth industry—spending on health in India will quadruple this decade—there is an urgency to restore trust in health care providers and ensure growing investments will deliver commensurate health outcomes.

The conversation on how to restore trust in providers has focused on reforming the Medical Council of India, whose mandate is to oversee professional and ethical standards. Mired in scandals over the last decade, the Council certainly needs an overhaul to perform its duty. Yet a focus on improving oversight alone ignores the opportunity to change the payment models that are at the root of the problem. This requires aligning the interests of providers and their patients by shifting from pay-for-volume to pay-for-value. Here I explore how health entrepreneurs can undertake this transformation.

Leapfrog flawed health care models

In the 1980s and 1990s, the United States turned to health maintenance organizations (HMOs) to curb inflation of health costs. HMOs thrust insurance companies into health care decision-making, approving whether a procedure, test or hospitalization would be reimbursed. While HMOs were for a time effective in controlling costs, they also created a slow and bureaucratic decision-making process. Insurers were too distant from the patient-doctor experience to make smart decisions on care. Countries like Nigeria have more recently introduced HMOs and are likely to face similar challenges. India has an opportunity to leapfrog managed care models, like HMOs, and advance directly to value-based care. Value-based models can be deployed in a variety of settings—for the urban elite and for the rural poor, in private clinics and in publicly financed facilities.

Build on homegrown innovation

Early innovators in India had designed value-based care before the term existed. For example, value-conscious hospitals have introduced fixed pricing models built on evidence-based packages of care. Whereas à la carte pricing encourages clinicians to order unnecessary procedures and tests, fixed pricing inspires a disciplined stewardship of resources. Narayana Health (NH) goes further to share cost data with doctors, empowering them to continuously optimize the care packages. The result is good health outcomes at increasingly affordable prices. A cardiac surgery that costs $50,000 in the United States and $6,000 at peer hospitals in India, costs less than $3,000 at NH. Dramatic cost reduction has made such procedures affordable to more households. In addition, it has enabled NH to extend services to the poor through its micro-insurance scheme or charitable trust. Such frugal innovation will eventually enable publicly financed health coverage schemes like RSBY to cover more services for more people.

Fixed pricing represents an example of value-based care called “bundled payment.” Indian health providers can expand on existing models in at least two ways. Firstly, providers can include guarantees on quality of care. For example, a package for cardiac surgery could cover the cost of complications that arise post-operatively. This would stimulate innovation on how to reduce complication rates and encourage providers to take responsibility for follow-up care after discharge.

Secondly, providers can apply bundled payments to outpatient care and the treatment of chronic diseases. Take the management of diabetes, for example. A typical diabetes patient with end-stage kidney disease may need access to a general practitioner, a dialysis center and heart and eye doctors. The care is delivered piecemeal and no provider takes a holistic view of the patient’s needs. Health outcomes suffer when there is poor coordination. A health care entrepreneur could combine multidisciplinary services into a single, seamless pathway of care, charge an annual fee, and make assurances on the quality of care delivered. As providers optimize around the cost and quality of the bundle, they will be able to reach even low-income Indians, just as Narayana has done for cardiac care. The hallmark of bundled payment models is a combined focus on an integrated customer experience, health outcomes and value for money.

Collect and use data to optimize value

What an industry measures is a reflection of what it prioritizes. Indian health providers are beginning to digitize their medical records on systems that track medical history and lab results and facilitate revenue management. While these platforms enable a pay-for-volume system, they are insufficient for value-based care. To understand health care value, providers must also measure health outcomes, customer satisfaction and costs. Providers who track and optimize their performance on these metrics will earn the trust of their patients.

Think beyond financial incentives

Money is not the only motivator of health care providers, so a focus on payment transformation may be inappropriately cynical. The psychologist Barry Schwarz warns that over-reliance on incentives erodes moral character by appealing to our greed instead of our virtue. Therefore, payment transformation should be coupled with a cultural movement that cultivates the compassion that drew providers to the profession. A powerful way to do this is to celebrate clinicians who exemplify value-based medicine, who focus on quality regardless of profits.

Indian entrepreneurs who embrace value-based care have the potential to lead the market and restore trust in health care providers. Their success can also illuminate the path forward for peer countries like Nigeria and Kenya, which are grappling with a similar set of challenges.

Photo credit: Satish Krishnamurthy, via Flickr.

Chintan Maru is founder of Janm, an organization that cultivates an ecosystem of startups that tackle India’s health system challenges.