How to Actually Use a Value-Based Enterprise (VBE) to Solve Problems in Your Health System
Most healthcare leaders are familiar with value-based care. But fewer understand how to leverage a value-based enterprise (VBE) to address real operational challenges—whether they are strategic system-level goals or targeted clinical problems.
In this conversation, healthcare attorneys Jim Burke and Steve Pratt break down how VBEs can be used to drive quality improvement, reduce costs, and engage physicians in a legally sound way.
What Is a Value-Based Enterprise?
A VBE is a legal and operational framework that allows hospitals to compensate physicians based on outcomes, rather than traditional metrics like time or volume. Under the Stark Law exception and the Anti-Kickback Safe Harbor, VBEs allow hospitals and physicians to align incentives in support of specific care delivery goals.
To establish a VBE, you need:
A clearly defined value-based purpose
One or more value-based activities
A target patient population
An accountable body to provide oversight
Either a formal legal entity or a contractual structure between participants
These elements form the basis for a compliant VBE that can pay for performance, not just process.
How Health Systems Are Using VBEs Today
VBEs can be applied across a wide spectrum—from focused quality improvement projects to broader strategic engagements. Here are the most common applications:
1. Targeted Problem Solving
VBEs can be used to incentivize improvements in specific clinical areas:
Improving block time utilization
Reducing surgical site infections
Promoting evidence-based testing or access site choices
Increasing completion rates of transitional care management visits
These are focused initiatives where hospitals and physicians must collaborate to change behavior and improve care delivery.
2. Service Line Co-Management
Many systems are now converting or restructuring their co-management agreements into VBEs, particularly in high-volume service lines like orthopedics, cardiology, oncology, and general surgery. These models allow more flexibility in compensation and greater physician involvement.
Rather than relying on traditional fair market value opinions, systems are increasingly using rebuttable presumption of reasonableness—a framework supported by IRS guidance and appropriate for tax-exempt entities.
3. Whole-Hospital Clinical Management
In some rural or community settings, health systems are turning over the entire clinical side of operations to physicians under a VBE model. The hospital retains administrative control but empowers physicians to lead clinical decisions, from staffing to protocols to device selection.
Compliance and Data Are Critical
There are two non-negotiables in building a successful VBE:
Reliable, actionable data – Health systems must prove they can measure the metrics they plan to track.
Strong physician leadership – Successful VBEs involve physicians from the start and rely on their engagement to drive change.
Compliance is not built through documentation alone; it depends on executing against the VBE’s stated objectives and measuring results.
Common Pitfalls to Avoid
Assuming VBE means unlimited spending – Compensation must still relate to the value-based activities. Payment must be defensible and appropriate.
Promising unmeasurable metrics – Hospitals must be able to produce credible reports from Day One.
Underutilizing the accountable body – This group or individual is both a compliance requirement and a leadership opportunity.
Making VBEs Financially Sustainable
A well-structured VBE should be designed to:
Improve care quality and coordination
Reduce waste or unnecessary cost
Generate revenue through better performance
Many VBEs focus on areas where hospitals are already at risk—such as Medicare Advantage quality metrics, ACO performance measures, or post-discharge follow-up visits with good reimbursement potential.
How to Get Started
Understand the VBE regulations and their implications
Identify a clinical problem worth solving
Engage a small group of physicians early in the process
Establish baseline data and a clear tracking/reporting strategy
Create a formal governance structure with real accountability
Align compensation with measurable outcomes
“The best VBEs are built before Day One—with clear goals, defined metrics, and physician leadership. Waiting until after launch is a recipe for failure.”
— Jim Burke
