Understanding the Value-Based Reimbursement Model Landscape

December 11, 2023 - The Centers for Medicare and Medicaid Services (CMS) aims to have all traditional Medicare beneficiaries under a value-based care model by 2030.

Although the pace may be slow, the healthcare industry is shifting away from fee-for-service payments toward value-based reimbursement models. According to the Health Care Payment & Learning Action Network (LAN), over half of healthcare payments in 2022 were made through value-based reimbursement models.

However, transitioning to value-based reimbursement is not easy for all healthcare organizations. These models require extensive data analytics capabilities, population health management programs, and the ability to successfully use electronic health records (EHRs) for documentation and reporting.

Fortunately for providers, alternative payment models come in various shapes and sizes to suit several different needs and competency levels.

According to CMS, alternative payment models are a “specific subcategory of value-based purchasing initiatives that require providers to make fundamental changes in the way they provide care” and they “shift financial incentives further away from volume by linking provider payments to both quality and total cost of care results.”

The broad definition allows for a spectrum of value-based reimbursement arrangements. Providers can select the most appropriate model based on their health IT capabilities and healthcare spending trends and continue to work their way up the continuum to achieve full value-based care.

What are some of the value-based reimbursement options available to providers, and how do they impact potential revenue?

STARTING ON THE PATH TO VALUE-BASED REIMBURSEMENT 

For providers dipping their toes in the value-based care pool, pay-for-performance models offer a straightforward approach to linking claims reimbursement to quality and value. Under these models, providers are typically reimbursed for services using a fee-for-service structure, but they can also qualify for value-based incentive payments or penalties based on quality and cost performance.

For example, providers in Medicare’s Hospital Value-Based Purchasing program receive positive or negative payment adjustments based on the quality of care they deliver. CMS assesses participants using a myriad of measures, such as influenza immunization rates, Medicare spending per beneficiary, and performance on patient experience surveys.

Depending on how hospitals score on the measures relative to their established baselines and if they have improved their performance, providers can either earn financial rewards on top of their fee-for-service payments or receive cuts to their Medicare reimbursement.

Pay-for-performance arrangements do not require as much familiarity with robust health IT and data analytics infrastructure as other alternative payment models, making them popular among small practices that do not have the resources to implement expensive technologies. However, providers must be able to monitor and report clinical quality and cost data.

The model also does not involve financial risk, meaning providers are not liable to repay any financial losses.

TAKING THE NEXT STEP WITH SHARED SAVINGS APMs

Shared savings arrangements offer providers a higher level of financial reward than pay-for-performance models. Providers are reimbursed under a fee-for-service model, but if providers can reduce healthcare spending below an established benchmark set by the payer, they can retain a portion of the savings produced.

Bundled payments are a common example of how shared savings are incorporated in value-based reimbursement models. Under a bundled payment structure, providers are paid a fixed amount for all the services involved in a patient’s episode of care. An episode of care includes the delivery process for a specific condition or care delivered within a defined period of time.

If providers involved in the patient’s episode of care can deliver treatment for less than the set reimbursement amount, they can keep a portion of the difference, depending on their contract with the payer. However, if healthcare costs exceed the set amount, providers lose out on the revenue they would have received from a traditional payment structure.

CMS launched the Bundled Payments for Care Improvement (BPCI) Initiative in 2015, aiming to improve care coordination and reduce healthcare spending by linking reimbursement to care encounters from initiation to up to 90 days of post-acute care.

The BPCI Advanced Model, which launched in October 2018 and is set to end in December 2025, helped reduce Medicare episode payments and achieved savings for surgical episodes but led to a loss for medical episodes.

Shared savings programs can be difficult for providers to initiate and sustain. Providers may need to invest their own resources into the health IT and care delivery systems required to track healthcare spending, quality improvement, and care coordination. Shared savings payments also may not reimburse providers for related services, such as phone calls with patients and other providers, email consultations, and nurse care managers.

In addition, providers are generally assessed based on a historical benchmark. Therefore, once healthcare costs are low, they must remain stable or decrease further for providers to realize shared savings.

Despite some shortcomings, shared savings agreements are better suited for healthcare facilities with high healthcare spending rates, hospital admissions, and resource use. These providers have the most opportunity to improve quality and cost performance; therefore, they are eligible to earn greater shared savings compared to more cost-effective facilities.

EMBRACING SHARED RISK LEADS TO GREATER VALUE-BASED REIMBURSEMENT

Shared savings and shared risk are two sides of the same coin. While providers under shared savings programs can retain a part of the savings, shared risk arrangements require providers who fail to come in below their benchmark to repay the payer for a portion of the financial loss.

Through shared risk models, also known as downside risk models, payers and providers agree upon a set budget and quality performance thresholds. Providers must cover part or all of the healthcare costs if they cannot keep costs lower than the set benchmarks. However, participants in financial risk contracts generally have a greater opportunity to share in potential savings compared to a shared savings-only arrangement.

Many providers enter into shared risk models through accountable care organizations (ACOs). Medicare’s flagship ACO program is the Medicare Shared Savings Program (MSSP). In 2022, the MSSP saved Medicare $1.8 billion, with 63 percent of ACOs earning shared savings payments. This marked the sixth consecutive year of savings and high-quality performance results.

The Next Generation ACO Model was launched in 2016 and allowed providers with experience in care coordination to assume higher levels of financial risk than the MSSP. In the model’s final year (2021), Next Gen ACOs netted $115 million in savings to Medicare.

Downside financial risk that holds providers accountable is a key incentive to improve care quality and reduce avoidable adverse events.

In 2019, CMS started requiring MSSP ACOs to assume some level of downside risk within two performance years. However, to combat declining participation, the agency finalized policies allowing ACOs to stay in upside-only tracks longer.

COMPLETING THE VALUE-BASED CARE JOURNEY WITH CAPITATION PAYMENTS

On the furthest end of the value-based reimbursement spectrum is capitation payments. This alternative payment model requires providers to take on full financial risk for care quality and healthcare spending.

Capitation models prospectively pay providers a fixed amount per patient, per unit of time, whether or not the individual seeks care. If providers generate healthcare savings, they retain all of the payment. But if they cannot reduce costs below the payment amount, they are fully responsible for the loss in revenue. Most capitation models also include value-based incentive payments and penalties based on quality and cost performance.

The alternative payment model has two basic tracks: global and partial capitation. Global capitation arrangements reimburse providers with a single, fixed payment for all the healthcare services given to a patient, including primary care, hospitalizations, and specialist care.

Partial or blended capitation agreements pay providers a single monthly fee that covers a set of services furnished to a patient, such as laboratory services or primary care. All other care is reimbursed using a fee-for-service model.

By providing a fixed payment amount, capitation models can dissuade providers from delivering unnecessary services and procedures—one of the main issues in fee-for-service models.

However, participants in capitation models often face challenges with quality measures and data sharing. Without standardized healthcare data and interoperability, providers experience difficulties acquiring health data and reporting it for payments.

Using the alternative payment model spectrum, providers can find the most appropriate value-based reimbursement structure to maximize revenue. The spectrum also gives providers an actionable plan for transitioning more healthcare payments to value-based care models as the industry moves away from fee-for-service.