Value-based Payment Models

The healthcare landscape is rapidly changing and a significant factor to this change is the various evolving healthcare payer models. One major impact and driving force is the shift from volume-based care (fee for service) to a value-based reimbursement structure (fee for value). This section will describe payer models and explore how payer models such as value-based reimbursement and bundle payments may intersection with you 1305 Domain 3 Health Systems Interventions work.

The Center for Healthcare Quality and Payment Reform is a national policy center that facilitates improvements in healthcare payment and delivery systems. Their website includes a number of resources that may help provide an overview of healthcare reform, notably:

The Payment Reform Glossary: Definitions and Explanations of the Terminology Used to Describe Methods of Paying for Healthcare Services.

Making the Business Case for Payment and Delivery Reform


Understanding Healthcare Payment Reform Matrix of Payment Reform Activities

In August 2016, member states of NACDD’s Generate, Educate, Activate, Respond (GEAR) Group 3, created Understanding Healthcare Payment Reform - Matrix of Payment Reform Activities.  This summary of national payment reform initiatives related to chronic disease prevention can be used to orient public health professionals to working with healthcare systems.  

Click on the headings below to get more information about them.

Bundled Payment Models (download PDF )

What is a Bundled Payment?

A payment is described as "bundled" when it covers multiple healthcare services, particularly if those services had previously been paid for separately. Bundling is a very generic term and it can apply to many different combinations of services. A bundled payment can involve just one provider or many providers and it can involve two services or dozens of services.

Depending on how they are structured, bundled payments can potentially help achieve one or more of four distinct goals:

  • Bundling multiple services delivered by the same provider into a single payment can encourage greater efficiency in the delivery of care, since the provider will no longer be paid more for delivering more of the services covered by the bundle. This type of bundle can also allow the provider more flexibility to deliver innovative services if the bundled payment no longer limits the provider to delivering services that meet the narrow definitions of the individual services that were previously paid for separately.
  • Bundling services delivered by two or more providers into a single payment can encourage greater coordination among those providers, since the providers have to agree on which services will be delivered and how the payment should be divided among them. This type of bundle can also encourage greater efficiency if one or more of the providers is delivering services that are not essential to a good outcome.
  • Bundling a treatment with any services required to address complications of the treatment can encourage higher quality of care, since the providers will not receive additional compensation for costs incurred in treating complications.
  • Bundling all services associated with a particular procedure or treatment of a particular condition into a single payment can provide greater predictability for purchasers and patients regarding their cost for delivery of that procedure or treatment of that condition and improve their ability to compare costs and value between different providers that deliver the same procedure or treat the same condition.
  • Source: The Center for Healthcare Quality and Payment Reform, The Payment Reform Glossary, First Edition

Bundled Payments for Care Improvement

Bundled Payments for Care Improvement (BPCI) is a demonstration project operated by the Center for Medicare and Medicaid Innovation Center (CMMI) that enables a provider or group of providers to receive a bundled payment for a range of different procedures and conditions. Beginning in 2013, health care organizations across the U.S. were selected to participate in the BPCI. These organizations enter into payment arrangements that include financial and performance accountability for episodes of care. These models may lead to higher quality, more coordinated care at a lower cost to Medicare. Learn more about BPCI

Capitation Models (download PDF )

What is Capitation?

Capitated payment systems are based on a payment per person, rather than a payment per service provided. There are several different types of capitation, ranging from relatively modest per member per month (PMPM) case management payments to primary care physicians involved in patient centered medical homes, to PMPM payments covering all professional services, to PMPM payments covering the total risk for all services: professional, facility, pharmaceutical, clinical laboratory, durable medical equipments, etc. And there are innumerable variations on these basic capitation types, depending on the particular services the parties decide to "carve out" and handle on either a fee-for-service basis or by delegation to a separate benefit management company. Source: American Medical Association 2014

Types of Capitated Models include:

  • Per-member-per-month (PMPM): Capitated payments may take the form of relatively modest per-member-per-month case management payments, e.g., to primary care physicians involved in patient-centered medical homes.
  • Practice capitation: Capitation may involve PMPM payment for services that physician practice itself provides to enrollees.
  • Partial global capitation: In partial global capitation, PMPM payments not only cover services provided by the physician practices itself but also payment for all physician laboratory, diagnostic and other outpatient services that are provided to enrollees who have selected, or been assigned, to the practice. Hospital inpatient services are not, however covered by the capitation payments.
  • Global capitation: Under a global capitation arrangement, PMPM payments cover the total risk for all items and services that are furnished to the enrollees who have selected, or been assigned to, the physician practice: professional services; facility services including hospital in-patient services; pharmaceuticals; clinical laboratory services; durable medical equipment, etc.
  • Source: American Medical Association, Evaluating and Negotiating Emerging Payment Options, 2012

The Centers for Medicare & Medicaid Services (CMS) have a Financial Alignment Initiative which includes a capitated model with some states. Learn more CMS Capitated Model

Fee-for-Service Models (download PDF )

What is Fee-for-Service Payment?

Fee-for-service payment is reimbursement for specific, individual services provided to a patient. Fee for service is fairly easy to understand as a payment method, as each specific service (or procedure or intervention or piece of equipment) provided is billed and paid for. In its most common form, fee-for-service payment in health care differs from payment for goods or services in other sectors of the economy in the way it is priced. In most consumer markets, the list price is determined by what the consumer is willing to pay for an item or service. In health care, the amount paid for services is usually negotiated between insurers and other payers and providers. In the case of government payers, it is based on defined or administered rates often determined by a formula or funding levels. In addition, fee-for-service payments are somewhat constrained by coding guidelines and rules (ie, CPT and ICD-9 soon to be ICD-10) that define what can be billed and paid for.

When analyzed with respect to the 11 delivery system attributes, fee-for- service payment has several benefits. Among them is its emphasis on productivity. Fee for service encourages the delivery of care and maximizing patient visits. As a payment mechanism, it is relatively flexible in that it can be used regardless of the size or organizational structure of a physician's practice, the type of care provided (eg, clinic visit, surgery, therapy session), the place of service (eg, physician's office, nursing home, hospital, surgery center), or the geographical location of care. Fee for service does support accountability for patient care, but it is often limited to the scope of the service a particular physician provides at any point in time.

There are, of course, negative features associated with fee-for-service payment. For one, it offers little or no incentive to deliver efficient care or prevent unnecessary care. In its current form, it is generally limited to face-to-face visits and thereby thwarts activities such as care coordination and management of conditions by phone and/or email.

Because payment is limited to one provider for one interaction, fee for service does little to encourage management of care across settings and among multiple providers.

Source: Five Payment Models-The Pros, the Cons, the Potential, by Janet Silversmith on behalf of the MMA Work Group to Advance Health Care Reform, Minnesota Medical Association, February 2011

Multi-payer Models

A major component of the Affordable Care Act is the emerging new payment and care delivery models which pursue the Triple Aim of improving quality of care, improving health outcomes and reducing waste/controlling costs. To achieve these results, there must be collaboration and broad-based support from the numerous public and private health care payers. Some of the emerging models for care delivery and payment reform include medical homes, advanced primary care and accountable care organizations.

Currently many states are pursuing multi-payer medical home initiatives such as Centers for Medicare & Medicaid Services (CMS) State Innovation Models program, the Comprehensive Primary Care Initiative, and the Multi-payer Advanced Primary Care Practice demonstration. Learn more about these models under the National/State Initiatives Section

Pay for Performance (download PDF )

Under a "pay-for-performance" (P4P) model, a health insurer or other payer compensates physicians according to an evaluation of physician performance, typically as a potential bonus on top of the physician's fee-for-service compensation. The payer bases its evaluation on the data it has on that physician or physician group - most commonly, administrative or claims data which measures the quality and/or cost of care. Patient satisfaction data may also be a factor. Using these data, the payer then rates the physician or physician practice according to the payer's own criteria. Those physicians who meet the payer's targets may receive financial incentives (bonus payments) and some pay-for-performance programs also implement penalties, such as reductions in payments for services if payer's targets are not met. Source: American Medical Association

The P4P models are designed to use quality of care measures that include patient access to care, use of electronic systems within and/or across practices, and patient experience of care. In addition, process and outcome measures in priority areas of prevention, cardiovascular, diabetes are tracked using standardized national measures such as those endorsed by the National Quality Forum (NQF) including NQF 18 and NQF 59. Also in a 2008 study published in American Journal of Managed Care it was stated that payers should design P4P programs with an emphasis on measures that have high economic value, for example blood pressure.

P4P and Centers for Medicare and Medicaid Services (CMS) - As part of the Affordable Care Act, the Medicare Physician Quality Reporting System (PQRS) up until 2014 provide financial incentives to physicians for reporting quality data to CMS. In 2015 the incentive payments were eliminated, and physicians who now do not satisfactorily report quality data will see their payments from Medicare reduced.

Example Pay-for-Performance

Bridges to Excellence: The Colorado Business Group on Health

In 2006, a number of Colorado health plans and employers joined together to implement the Bridges to Excellence (BTE) diabetes and cardiac programs. Under the leadership of the Colorado Business Group on Health, these groups agreed to recognize and reward physicians who voluntarily applied to this national organization and who could demonstrate that most of their patients could meet rigorous standards for metrics on blood pressure, cholesterol, blood sugar and other vital statistics. Physicians are eligible for a per member per year bonus when they become BTE Recognized. When the Colorado program started, only four physicians had sought recognition. By December 2011, 670 recognitions to 334 physicians have been awarded. Since 2006, CBGH has observed that for diabetes, BTE recognized physicians have lower cost and lower utilization, consistent with BTE national findings.

Value-based Reimbursement Models (download PDF )

There are various value-based models and terminology including value-based payments and value-based purchasing. Value-based payment is a generic term used to describe a payment model where the amount of payment for a service depends in some way on the quality and cost of the service that is delivered. Value-based purchasing is a generic term used to indicate that a purchaser is contracting for healthcare services in ways that are designed to improve quality, reduce costs, or both. Value-based purchasing may include the use of some form of value-based payment.

Source: The Center for Healthcare Quality and Payment Reform, The Payment Reform Glossary, First Edition

What is Value-Based Payment (VBP)?

The goal of any VBP program is to shift from volume-based/fee-for-service payments to payments that are more closely related to outcomes. An example is pay-for-performance programs that reward improvements in quality metrics and outcomes.

VBP programs have been largely prompted by public payers (Medicare) and now further driven by many private payers. The Medicare VBP program is intended to provide comparative performance information to physicians as part of Medicare's efforts to improve the quality and efficiency of medical care. This is hoped to be achieved by providing meaningful (meaningful use) and actionable information to physicians so they can improve the care they furnish, and by moving toward physician reimbursement that rewards value rather than volume. The program contains two primary components - the Quality and Resource Use Reports (QRURs, also referred to as Physician Feedback Reports) and the value based payment (VBP) modifier. The VBP program aligns with the Physician Quality Reporting System (PQRS). Learn more about CMS Value-based Payment

The American College of Physicians provides a good overview of Medicare's Value-based Payment .

What is Value-based Purchasing?

Value-based purchasing is a demand side strategy to measure, report, and reward excellence in health care delivery. Value-based purchasing involves the actions of coalitions, employer purchasers, public sector purchasers, health plans, and individual consumers in making decisions that take into consideration access, price, quality, efficiency, and alignment of incentives. Effective health care services and high performing health care providers are rewarded with improved reputations through public reporting, enhanced payments through differential reimbursements, and increased market share through purchaser, payer, and/or consumer selection.

Source: National Business Coalition on Health's Value-based Purchasing Council