A Look Inside the Four Most Common Value-Based Care Arrangements
Payers have several different value-based care arrangements they can offer, including pay-for-performance programs, bundled payment models, and capitation.
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- A simple explanation of value-based care is rewarding quality over quantity. However, value-based care arrangements differ in how they determine payments and the level of risk that is assumed. As healthcare organizations warm up to the idea of value-based care, CMS and commercial payers must choose which kind of arrangements they will offer to their provider partners.
Value-based care models often fall into one of four categories: performance-based programs, bundled payments, capitation models, and shared savings programs. In the following article, HealthPayerIntelligence explains how payers reimburse providers under each arrangement.
Performance-based arrangements
Performance-based models, also called pay-for-performance, tie financial incentives to quality using set performance measures. Providers can earn bonus payments or higher reimbursement rates for meeting certain quality targets. Providers may also be penalized for not meeting the targets.
One popular performance-based arrangement is the Hospital Value-Based Purchasing (VBP) Program. The program provides incentive payments to acute care hospitals that improve inpatient care quality in areas like mortality and complications, patient safety, patient experience, healthcare-associated infection, and efficiency and cost reduction.
The Hospital VBP Program withholds 2 percent of participating hospitals’ Medicare reimbursement and uses it to distribute incentive payments to hospitals that meet the performance measures.
The Hospital Readmissions Reduction Program (HRRP) is another performance-based program, which cuts reimbursement rates for hospitals with high readmission rates.
Bundled payment models
Bundled payment arrangements pay providers a single payment for all the services required to treat a patient undergoing a specific episode of care. Bundled payments offer an alternative model to reimbursing multiple providers for each individual treatment, test, or procedure. As a result, providers are rewarded for coordinating care, reducing unnecessary or duplicative tests and treatments, and preventing complications and errors.
In terms of financial risk, bundled payments fall in the middle of fee-for-service, which requires minimal risk for providers, and full capitation, in which providers take on most of the risk.
CMS currently operates the Bundled Payments for Care Improvement Advanced (BPCI Advanced) Model. The voluntary model prioritizes provider engagement, patient and caregiver engagement, care delivery, data analysis, and financial accountability.
Under the BPCI Advanced model, hospitals are held accountable for the costs and outcomes of 90-day episodes of care. Episode payments are compared to the episode initiator’s risk-adjusted target price. Participants receive a reconciliation payment if the episode payment is below the target price but must repay Medicare a portion of the losses if the episode payment is above the target price.
Shared savings & risk-based contracts
Shared savings programs and risk-based contracts are often intertwined. In shared savings models, providers receive a portion of the savings generated if they meet quality and cost targets. The payer will establish a target price, incentivizing providers to reduce unnecessary care, limit spending, and improve care quality.
Providers can participate in the Medicare Shared Savings Program (MSSP) by joining or establishing an accountable care organization (ACO). When ACOs generate savings for Medicare, they can share in those savings. The highest risk option in the MSSP allows ACOs to share in 75 percent of shared savings or losses.
In risk-based arrangements, providers can assume upside risk, downside risk, or both—known as two-sided risk. In upside-risk models, providers can share savings if their spending is below the given target, but they are not penalized if they exceed the threshold. In downside-risk models, providers share financial risk with payers, meaning they may face reimbursement cuts or have to refund their payers if their spending is higher than the target.
Capitation models
Capitated payment arrangements pay providers a risk-adjusted, fixed payment per patient per period of time, regardless of the services provided. Capitation rates are based on local costs and the average utilization of healthcare services.
Health plans often establish a risk pool as a percentage of the capitation payment. Money in the risk pool is withheld from providers until the end of the fiscal year. Providers will receive these funds if they meet their payer’s value-based care measures. If providers do not meet the standards, the payer keeps the funds.
Capitation aims to lower healthcare costs and encourage providers to prioritize preventive care and care management.
Medicare Advantage is based on a capitated payment system. CMS pays the private program a capitated amount to cover care for each beneficiary. Through risk adjustment, CMS determines payment rates to reflect the characteristics and anticipated costs of care for a plan’s beneficiary population.
