The Evolution of Value-Based Payment and Care Models

New payment models are shifting the way care is delivered in the aim to improve quality and reduce costs.

By Kara Witalis, Principal, Via Healthcare Consulting

Passed in 2010, the Patient Protection and Affordable Care Act (ACA) set out to better align compensation and quality (i.e., value) by implementing new payment models for how and what healthcare providers are reimbursed by the Centers for Medicare & Medicaid Services (CMS).

The aim of the legislation is to move from a volume-based payment model, in which hospitals and physicians are paid for their amount (volume) of work, to a value-based care model, in which payment is based on the value of the services provided.

Under the volume-based model, the quality and clinical appropriateness of those services were assumed to be part of what was delivered and were either self-monitored or monitored and controlled through the medical staff. Unfortunately, the volume-based payment approach perpetuates a “more is better” phenomenon (i.e., the more services, the better) that, in turn, drives up costs without necessarily improving care quality or the health of the patient.   

Value-based care models (also referred to as alternate payment models, or APMs) on the other hand tie provider payment directly to demonstrated quality, efficiency, and effectiveness standards and expectations.

Today, there are over 50 APMs initiated by CMS, and even more by private insurers. A few examples of APMs include accountable care organizations (ACOs), primary care medical-homes, bundled payments for episodes of care, and full and partial capitation (in which providers are paid a set per member fee to provide care services over a specific time period). 

These models are the catalyst to changing the way care is delivered in our country – giving greater attention to population health, public health, preventive care, team-based care, greater coordination across patient care settings, and increased use of data in clinical decision-making, benchmarking, and monitoring. As such, the term “value-based care” is used in two contexts – reimbursement and care delivery.

Alternative Payment Models

Exploring the Landscape of Value-Based Payment and Care Models

Nearly all APMs contain expectations around quality, efficiency, and financial risk. Success in these models requires data collection, monitoring, and reporting and the use of data to guide clinical decision- making. Providers choose (or negotiate) a model based on what might fit their organization’s tolerance for risk and change, system capabilities and resource availability, and needs of their unique communities and populations.

Quality

Contracts include benchmarks with minimum acceptable outcomes and tiered goals for quality, efficiency, and improvements in population health, among other areas. In some contracts, providers must meet or exceed certain quality metrics in order to move forward into cost savings or other reimbursement calculations. Contractual benchmarks can sometimes use murky or ambiguous language like “appropriate” or “achievable” in the context of types or levels of care. Administrators and physicians should work closely together to ensure contract terms match with not only what is measurable, but also what the physicians determine to be clinically appropriate and reasonably achievable.

Care Coordination  

Better quality, better health outcomes, and greater efficiencies (that reduce unnecessary cost) result from better coordination and integration across providers and care settings. To that aim, value-based care stresses team-based approaches and sharing patient data so that care can be coordinated among all the physicians, hospitals, and healthcare providers involved in a patient’s care. In an ACO, providers partner together to deliver coordinated care to all patients in their network. In patient-centered medical homes, the primary care provider is the center of the care coordination efforts.

Financial Risk

As part of the contractual agreement between payer and provider, most valued-based payment models require providers to assume some level of financial risk (the risk of losing money if contractual targets are not met) as a way of having their own “skin in the game” to deliver efficient, quality care. For example, in capitation, bundled and global payments, the provider (or group of providers) receives one payment to cover all the services for a patient or population during a specific time period. If care costs are less than expected, the provider shares in the cost savings. In upside risk models, providers can share in savings and are not financially penalized if costs exceed payment. In downside risk models, providers are responsible for some of the loss if spending is more than the benchmark.

The Journey to Value

Ensuring Patient-Centeredness in Value-Based Care Transformation

Value-based care delivery and payment models are still an evolving approach for many healthcare providers. The provider infrastructure has been built over decades on the volume-based model. The shift to the new models requires significant modifications to inter- and intra-organizational integrations, workflows, and partnership, and data collection and reporting and accounting systems. When pursuing value-based care and contracting, each organization needs to determine where it is on the continuum of this shift, and where it intends to go in the long term. 

When implemented with the appropriate resources and managed effectively, value-based care should be a win-win-win for all stakeholders. Payer organizations save money because the cost of care is reduced, providers may share in those savings and further their mission to provide quality health care to their communities, and patients reap the greatest rewards – better health.

 

Questions for Boards to Consider:

1. Why is it important for our health system to consider or implement value-based care models? What challenges are being addressed?
2. How will our mission be impacted in the move to value-based care?
3. How will our community members benefit from value-based care?
4. What new care challenges might emerge from this shift to value?
5. Does our health system have the necessary resources and infrastructure (e.g., data analytics, team-based models) in place to support a transition to value-based care?