An Introduction to Value-Based Payment Models

Pearl | November 30, 2016 | Payers, Healthcare Reform, Pearls, Population Health, Practice Models

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For many physicians and practices, their introduction to “value based” contracts will come in the form of understanding Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). However, if you are getting paid on a “pay for performance” basis from the commercial payers, you are already participating in value-based contracts.

The “value-based purchasing” model evolved from work done by the University of Michigan Center for Value-Based Insurance Design, a non-profit that was established in 2005 to develop, evaluate, and promote value-based insurance initiatives. Their initial research studied the impact of healthcare costs and paying for care “events,” rather than outcomes. Eventually value-based reform helped to shape the Patient Protection and Affordable Care Act (the ACA) signed into law in 2010.

So what does all that mean to you? The bottom line is that “payers” — insurance companies, employers, and now consumers themselves — are looking for more value for the money they spend on healthcare.

What Is Value Anyway?

When payers talk about “value,” they are essentially looking at cost and the utilization of services, procedures, and medications that contribute to that cost. They are therefore interested in minimizing any redundancy in care delivery by improving patient care coordination in order to better manage care across the entire spectrum of a patient’s care team.

The basis for assessing “value” is the “Triple Aim” framework of:

1. Improving the patient experience of care (including quality and satisfaction);

2. Improving the health of populations;

3. And reducing the per capita cost of health care.

How can the Triple Aim be achieved? That’s where incentives (and penalties) in contracting can help to drive change. Financial rewards are put in place to help to push providers to make changes for how care is delivered.

These changes often come in the form of providers transitioning to value-based care models such as Patient-Centered Medical Homes (PCMHs), Patient-Centered Specialty Care (PCSP), Accountable Care Organizations (ACOs), and Clinically Integrated Networks (CINs). These models are set up under a framework where care is better coordinated, duplication of testing is minimized, and care is less fragmented and better managed, according to evidence-based guidelines.

In the past, “value-based contracts” were negotiated only with larger entities. Today, we are seeing payers roll performance-based contracts out across their networks, most predominantly under managed Medicaid plans where participating providers need to meet certain targets and measures (most typically related to HEDIS measures) and across Blue Cross Blue Shield plans, such as Highmark’s True Performance initiative and Anthem’s Blue Distinction Total Care.

In addition to incentive-based contracts, we are also seeing penalties, the most prevalent of which appear to be in the form of grading providers into “tiers” based on efficiency and quality metrics, usually sourced from claims data. How you score can result in patients being responsible for a lower or higher cost share to receive care from you. For example, under some employer plans, those employees that choose to go to highly-rated physicians (or designated medical homes) may have no copay at all vs. seeking care from lower-rated physicians which may result in a $50 copay or more. If you are not aware of your payer “ranking,” look yourself up in their online physician directories. You may be surprised by what you find.


And then there is MACRA.. As many know by now, MACRA is CMS’ new program that consolidates together the Physician Quality Reporting System (PQRS), Value-based Modifier (VBM), and Meaningful Use (MU) into one program. There are two tracks — the Merit-based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (APMs).

The MIPS track is where PQRS, VBM, and MU are consolidated and will affect most physicians.. This combination determines an overall score based on four performance categories:

• Quality

• Resource use

• Clinical practice improvement activities

• Meaningful use of certified electronic health records (EHR) technology

Physicians must score well or face cuts to their payments. Higher performing providers receive higher payments.

The Alternative Payment Models (APMs) support practices and organizations that participate in special value-based programs like ACOs and other innovation center programs, where participants are required to take on a certain amount of financial risk, have payments based on quality measures not unlike MIPS, and requires the use of certified EHR technology. Advanced APMs are similar to APMs, but require that participants adopt a medical home model.

What Can You Do To Prepare?

Those entities and practices that manage quality and risk effectively will be well positioned to navigate the healthcare delivery system of the future. For independent physicians, working toward patient centered recognition programs (such as NCQA’s PCMH and patient centered specialty practice programs), aligning with CINs (either through hospital systems or well-run independent physician organizations), and working with ACOs, will help practices learn to transition to workflows that track performance, ensure better outcomes, and harness technology to best place physicians to take advantage of these contracts.

What is clear is that value-based purchasing is here to stay and contracts and expectations are only becoming more complex. For practices that means understanding where you fit into a payer’s network, understanding your grades and ensuring that you improve them (where you are reasonably able to do so), understanding payers’ contracts and the terms under which you are participating, and aligning with entities that have the administrative knowhow and expertise to effectively minimize risk and develop better opportunities for shared savings back to providers.

Susanne Madden, MBA, is founder and CEO of The Verden Group, a consulting and business intelligence firm that specializes in practice management, physician education, and healthcare policy. She is also COO, National Breastfeeding Center, and cofounder, Patient Centered Solutions. She can be reached at [email protected] or by visiting