Value-Based Reimbursement Models

Value-Based Reimbursement Models

There’s a reason the healthcare industry is shifting toward value-based reimbursement models and away from volume-based care. Value-based care reimburses healthcare providers based on the quality of care they provide, rather than providing payment for each test or procedure. Value-based care incentivizes the quality of patient care over quantity, outcome-based reimbursement is the goal, benefiting both the patient and the provider.


4 Types of Value-Based Models


In a bundled payment system, a healthcare provider receives a fixed amount for services per episode of care. The amount doesn’t change even if multiple providers treat the patient. The goal is to encourage collaboration and reduce redundant testing. In some instances, costs may be higher than for individually priced tests and procedures. In other cases, the costs will be lower, and the provider will keep the savings.

Research on bundled payment programs has shown reduced costs for both patients and providers. The Altarum Institute found that hospitals participating in a bundled payment reimbursement program from the Centers for Medicare and Medicaid Services (CMS) reduced their costs without sacrificing the quality of patient care.

Shared savings:

In the shared savings model, payers reimburse providers the same as in fee-for-service models, but the pay is based on quality and spending targets. By meeting these targets, providers can share the savings with the payers. But if they spend above the target, they don’t incur penalties from the payer.

Providers can enter a shared savings agreement with Accountable Care Organizations (ACO). These patient-centered networks combine the goals of improving patient care and lowering costs.

Shared risk:

In the shared savings plan, providers share savings, but not risk. Shared risk plans, also known as downside risk models, make the provider accountable to the ACO. The potential for financial rewards is increased, and so are the risks. Spending must stay at or below the target rates, or the provider will need to cover all or part of the extra costs.

The CMS has recently announced new models that require providers to accept greater risk. The Primary Cares Initiative will offer providers two tracks with varying degrees of risk-sharing. Within this plan, Primary Care First is aimed at smaller primary care providers. It includes a 10% shared risk with the potential for greater savings when patients stay healthy and out of the hospital. The second track, Direct Contracting, is designed for larger care providers and allows them to share 50% of savings and losses.

Global capitation:

Global capitation is on the other end of the spectrum of risk-sharing models. It requires the provider to take on 100% of the risk. This model pays providers a designated amount per patient and lets them keep any savings. But this also means the provider sustains all losses. These models generally include value-based incentive payments.

The provider can reduce risk with a partial capitation model. Unlike the global model, in which a single payment covers all services for one patient, in the partial capitation track, providers are paid a single monthly payment to cover certain services for a patient, such as lab work or preventive care. Other care is covered with a fee-for-service.


Value-Based Reimbursement Models Aim to Improve Care

A study from 2017 conducted by Commonwealth Fund found healthcare in the U.S. ranks highest in cost, yet near the bottom in quality among 11 high-income countries. The need to improve care while reducing costs is critical.

The traditional model of volume-based reimbursement, otherwise known as fee-for-service care, is based on the number of services performed by a healthcare provider. Providers are paid based on the number of patients they have and the number of tests and procedures they order. The more tests ordered, the higher the payment.

Value-based care emphasizes high-quality, lower-cost, and preventive patient care. Rather than be reimbursed for each test ordered, providers have incentives to collaborate and reduce redundant care.


Challenges to Value-Based Care

Although value-based care can be advantageous to both provider and patient, it’s not without challenges, especially during the initial transition. Effective management of the new system will help reduce potential losses.

According to the American Medical Association, providers must implement these three requirements to make their move to value-based care successful.

  • Align values: While outcomes are crucial in value-based reimbursement models, rating outcomes can be personal and hard to define. Organizations should understand which outcomes are important to both providers and patients.
  • Measure data smartly: Systems to analyze data can only go so far when the data itself is of poor quality. You need to track the right data to understand your patient population.
  • Prepare for challenges: Switching to a value-based model from a volume-based one is a major change. Be ready to face challenges and head them off as they occur.


The Bottom Line

Value-Based Reimbursement – Are you prepared?  It is well worth the time and effort, and you may also consider a third party, such as a qualified consulting firm, to assist!

Although there will be growing pains, moving to a value-based care system is an important step in improving patient care and provider profitability.   Recent research has shown that value-based care models are successful in the long run. Providers can choose from several models depending on the level of risk they are willing to take. The higher the risk, the higher the potential rewards.

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