Fee-for-Service incentives have been known to result in unnecessary utilization of patient services. For that reason, Employer Health Plans, Medicare Advantage, and Standard Medicare quality and value-based incentives have received a welcomed reception. The complexity of these value-based models, however, has contributed to mixed results for providers and health systems. Providers need to be careful in who they partner with and how they set up their models.

The U.S. Department of Health and Human Services Center for Medicare and Medicaid Services (CMS) is continuing its strategy to assist providers in the transition to value-based reimbursement models for Medicare Patient Populations. Physicians and health systems will be faced with increasing pressure to participate in Medicare “Alternative Payment Models” and “Hospital Value-Based Purchasing Programs.” Proactive providers and health systems will embrace this shift by choosing the right advisory services partner in securing additional value-based reimbursement before having to succumb to future loss of fee-for-service revenue.

What is Population Health and What are the Goals of Value-Based Care?

Population Health, as defined by the Center for Disease Control (CDC), “brings significant health concerns into focus and addresses ways that resources can be allocated to overcome the problems that drive poor health conditions in the population.”

The goal of population health is to help coordinate health systems, physicians, post-acute entities, employers, insurance payors, and other organizations to work together to improve the health outcomes of the communities we serve.

The Department of Justice (DOJ) and Federal Trade Commission (FTC) have also developed a population health model called the Clinically Integrated Network (CIN). This model is defined as “an active and ongoing program to evaluate and modify practice patterns by a network’s physician participants and create a high degree of interdependence and cooperation among the physicians [and hospital] to control costs and ensure quality.”


The transition to value-based care revolves around a recalibration of how healthcare is measured and how payments are reimbursed. The traditional model, known as fee-for-service, simply assigns reimbursements based on what services a healthcare organization provides. But in value-based care, reimbursement is contingent upon the quality of the care provided. Because value-based care is tied to patient outcomes, better quality of care results in higher reimbursement.

Quality of Care

The DOJ and the FTC have approved the CIN legal arrangement that allows hospitals, physicians, and post-acute entities to collaborate on improving quality of care on behalf of insurance payors, employers, and employees and beneficiaries. The most successful quality networks are physician led and professionally managed. By partnering physician networks with strong administrative leaders, the highest physician quality services are achieved. The physicians commit “sweat equity” in striving to improve performance. Some examples include physicians serving on committees as well as enhancing their day-to-day clinical services.

Cost Savings

Facing cost saving pressures, physician groups, health systems, post-acute entities, and insurance payors are looking for creative ways to curb spending. At the same time, the government payors and Medicare are doubling down on provider risk contracting. Self-insured employers are also focusing on utilization control as price sensitivity is increasing with their employees and with consumers.

What should a practice or health system consider when enhancing their care models to include value-based care? To help answer that question, we will review how these value-based care models are different, as well as their associated reimbursement contracts and potential benefits.

How is Value-Based Care Different from Fee-for-Service (FFS)?

Value-based programs reward healthcare providers with incentive payments for improving the quality of care they provide to patient populations with employer health plans, Medicare Advantage, and standard Medicare insurance coverage. These programs are part of a larger quality strategy to reform how health care is delivered and paid for. Value-based programs also support the CMS three-part “Triple Aim” as defined by the Institute for Healthcare Improvement:

  • Better quality of care for individuals
  • Better health experience for patient populations
  • Lower cost

Value-based reimbursement is primarily incremental and additional to current fee-for-service reimbursement, so there is rarely a proportional loss of fee-for-service income in return for entering into an incremental value-based reimbursement arrangement. However, the incremental payments under the value-based reimbursement model are not made until the end of a performance period, which is typically a three-month or 12-month period (i.e. paid quarterly or annually).

A baseline of historical costs is determined as a starting point for the value-based reimbursement model savings. These savings are then shared between the payor and provider when costs are reduced below the baseline threshold.

There are two primary methodologies used to reward the providers for high quality services:

  1. “Shared Savings” payments are made for achieving overall cost savings for a defined population. Generally, these savings are split evenly between the insurance payor and the providers.
  2. Quality Initiatives that pay a fixed payment per patient for achievement of specific Quality services.

What are the Types of Value-Based Care Models?

Large Self-Insured Employer Model

The CIN organization provides Administrative, Analytic and Care Management Support to Large Self-Insured Employer Health Plans (typically the largest employers in a given market). The CIN works closely with the Third-Party Administrator and the Broker/Consultant to achieve shared goals and Improve Health Plan Member access to the finest Physician Network, Care Management/Health Coaching Services, and Wellness Incentive Programs available. Within the predominant “open network” model, there is no new health plan to set up and in this case, the SI Employer model operates under existing Employer Health plan. There is no “narrow network” to limit the number of available providers for the employees and beneficiaries. In other words, employees are free to choose their primary care physician, and a “baseline” is established only on Attributed Members to the Physician Network. In this model, the reimbursement method is generally a “Shared Savings” Model, and typically there is no downside (loss) risk if the group fails to reduce costs. The implementation and rollout of the communication plan for this model usually coincides with health plan’s Open Enrollment Period.

Medicare Advantage

These value-based reimbursement models generally include both shared savings payments, and payments for performing specific quality services and initiatives. This program is limited to the Medicare population who is enrolled with the participating commercial carrier (for example: Blue Cross Blue Shield, United Healthcare, Cigna, Aetna, Humana, etc.). These programs fall under the jurisdiction of the FTC and DOJ model of the CIN, and reimbursement is typically paid both quarterly and annually.

Standard Medicare, Provider Bundling Contracts, Medicare Shared Savings Programs

These value-based programs are offered by CMS. Therefore, they are performed under the “Accountable Care Organization” (ACO) model. The ACO model is very similar to the CIN model; however, CMS does not offer as much flexibility on which quality initiatives are chosen, and when the payments are due to the providers. These programs offer primarily “shared savings” reimbursement incentives and are paid annually.

What are the Benefits of a Value-Based Care Model?

Quality of Care

The value-based care model creates the need for health systems and providers to collaborate and coordinate care for the benefit of the defined patient populations. If performed properly, the model and providers will be able to optimize clinical outcomes resulting in healthier employees, beneficiaries, and subscribers. The ACO and/or CIN can also be set up to educate and coach employees on how to better access their proper care. One major result is a proactive and collaborative approach to providing priority care for the high-risk patients, employees, and beneficiaries within the defined population. As mentioned above, the ultimate goal is to achieve the “Triple Aim” of Healthcare.

Cost Efficiencies

There are several cost benefits of participating in the various value-based care models mentioned above. If we do our work properly, one of the outcomes of this coordinated effort between all the participating organizations is significant cost savings for the physicians, hospitals, and payers, and that’s sometimes surprising to the participating providers. As a result, value-based care models typically result in significant cost savings. One of the important steps taken to properly prepare the large self-insured employers for the value-based care model is called a “Population Health Readiness Assessment.” These assessments will gauge the ability and preparedness of the employer and health system and providers to engage in value-based models. The assessment will also expose the existing inefficiencies and over-utilization of provider services. Examples of some areas of assessment include:

  • Adequacy of the health system employed provider network, the community physician network, and the post-acute network
  • Care management team capabilities and programs
  • The mix of high-risk vs rising risk vs healthy employees and beneficiaries within the defined patient population.

Information Technology and Data Sharing

The success of the value-based reimbursement and care model is highly dependent upon the capabilities of the information technology and data sharing. Ideally, the quality data and patient data are communicated through a dedicated stand-alone Population Health Information Exchange Software, resulting in cross-collaboration and interdependence among the providers. This results in numerous benefits, including avoidance of duplicated procedures/services. This dedicated stand-alone Population Health software system will share information across the continuum of care, so that all utilization & Care Management efforts are reported weekly among the ACO/CIN Care Management team, the Third-Party Administrator, and the Hospital’s Case Management team. The data is then reported monthly to the Physician Network Leadership & Hospital Partner, and the ACO/CIN network committees (for example: Contracting and Finance, Quality, and Physician Participation, as well as the Board of Directors Meeting). Finally, the quality data is reported quarterly through the Joint Operating Committee Meetings between the Employer and Insurance Payors and the Providers.

Higher Incremental Reimbursement

One of the primary outcomes of higher quality of care is a reduction of unnecessary utilization and controlling the cost of healthcare. This results in the achievement of significant health plan cost savings and the associated incremental value-based contracts reimbursement. The cost savings are designed to be achieved while increasing the quality of care, and generally result in additional value-based reimbursement and remuneration to the providers for their services over the past quarter or year. An effective value-based reimbursement program will align all stakeholder organizations to pursue higher quality, lower costs, and increased incentive payments to the providers.

Moving Forward

Value-based care and its associated incremental reimbursement is gaining momentum, and the federal government is committed to increasing rewards, incentives, and reimbursement for improving the quality of care given to defined populations in a given market. As mentioned, CMS will continue its strategy to assist providers in the transition to value-based reimbursement models, and therefore the sooner providers and health systems embrace this shift and secure for themselves the additional value-based reimbursement, the less vulnerable they will be and the least likely they will be to succumb to future losses of fee-for-service revenue.

Our Population Health Services team at LBMC can help you learn how to improve the quality of care provided to your employees and patients in your community, and how to qualify for additional value-based reimbursement and incentives. Contact us to learn more.