Is it ok to optimize value-based reimbursement from quality-based initiatives and value-based contracting incentives? Of course. So, why isn’t this being talked about in the hallways of the typical health system, or physician group? The answer is simple; oftentimes there is a misunderstanding by the managed care contracting executive that it’s not ok to talk about it.  Well, it is! While the Department of Justice and the Federal Trade Commission frown on the mission or vision of a value-based organization being tied to utilization, market share, or revenue, it is certainly appropriate to pursue reimbursement for the purpose of reinvesting in the mission of improving the quality of healthcare in the community.

The old adage “no margin, no mission,” applies to value-based reimbursement. If the optimum reimbursements are not being received from the value-based contract, then there will be a lack of optimum resources for investing in population health. There are three primary types of value-based contracting models you should be pursuing to optimize your value-based reimbursement. They are:

  1. Employer Health Plans
  2. Medicare Advantage Payor Agreements
  3. Standard Medicare Advanced Payment Models (APM)

All three of these value-based agreements have received a welcomed reception by providers and payors alike. However, providers must be cautious, as there is a great deal of complexity in dealing with some of these value-based models. And this complexity has contributed to mixed results for some providers and health systems. So, care should be taken in the setup and management of value-based contracting models.

In speaking of Medicare Standard value-based contracts, the Centers for Medicare and Medicaid Services (CMS) is continuing its strategy to assist providers in adding value-based reimbursement models for Medicare patient populations. With their July 7, 2022 announcement, CMS is expanding access to Accountable Care Organizations to address beneficiaries’ social needs and underserved populations. So, physicians and health systems will be faced with increasing pressure to participate in these Medicare “Alternative Payment Models.” Proactive providers and health systems should embrace this shift and secure the additional value-based reimbursement before having to succumb to future loss of fee-for-service revenue.

With all of this in mind, health systems and physician groups need to be thinking about value-based care contracting and reimbursement strategy. Here are some things to consider:

What are the Benefits of Value-Based Contracting?

Some benefits of value-based contracting include improved quality of care, cost efficiencies, and the resulting reimbursement. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have developed a value-based care model to accomplish both improved quality of care and

adequate reimbursement in pursuit of this mission. The model is called the Clinically Integrated Network (CIN), and it 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.” Did you catch that? Controlling costs is a part of the mission of the CIN, and providers are being offered a substantial reimbursement opportunity to share in the savings.  Here are a few benefits of optimizing your value-based strategy and resources:


One of the primary outcomes of higher quality of care is a reduction of unnecessary utilization and therefore a reduction of the overall cost of care. The achievement of significant cost savings within value-based contracts will result in incremental provider reimbursement through shared savings to the providers for their services. The most effective value-based reimbursement programs will seek to align all stakeholder organizations to pursue their mutual goals of higher quality, lower costs, and result in increased incentive payments to the providers.

Quality of Care

The value-based care agreement 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 Accountable Care Organization and/or Clinically Integrated Organization can educate and coach employees on how to better access their proper care, and 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. The ultimate goal is to achieve the “Triple Aim” of healthcare.

Cost Efficiencies

As they face the pressure of cost increases, 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 adding to the pressure by doubling down on provider risk contracting. Self-insured employers are also focusing on cost and utilization control as price sensitivity is increasing with their employees and with consumers. So, there are several cost benefits of participating in these various value-based care arrangements. If done properly, one of the outcomes of this coordinated effort between the participating organizations is significant cost savings.

For example, some provider organizations will explore a cost savings opportunity in collaboration with the Health System’s Employee Health Plan. The collaborating group will identify these potential cost savings by conducting a “Health Plan Assessment” on the Health System’s Employee Health Plan.  This assessment can be performed in a few weeks and is a collaboration between the providers, the health plan’s Third-Party Administrator, the Broker Consultant, and the Analytics Services organization.

How are Value-Based Contracting Models Structured?

Value-based programs reward healthcare providers with incentive payments for improving the quality of care they provide to patient populations within employer health plans, Medicare Advantage, and standard Medicare insurance coverage. These programs are part of a larger

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
  • Cost efficiencies

And surprisingly to some, value-based reimbursement is primarily incremental to fee-for-service reimbursement, so there is rarely a 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 typically not made until the end of a performance period, which is usually a three-month or 12-month period (i.e. paid quarterly or annually).

A baseline of historical cost 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 pay a fixed payment per patient visit for achievement of specific Quality services.

Moving Forward

One of the important first steps needed to properly identify value-based cost savings opportunities is to conduct a “Value-Based Contracting Readiness Assessment.” This assessment will gauge the ability and preparedness of the collaborating providers to engage in value-based contracting arrangements with the payors.

Some areas of this assessment include:

  • Uncovering reimbursement opportunities within existing value-based contracts.
  • Recommending other value-based contracting opportunities that would increase appropriate reimbursement.
  • Reviewing value-based contracting personnel resources, committees, and task forces.
  • Reviewing fee-for-service contracts to expose all value-based payment opportunities.
  • Reviewing Accountable Care Organization (ACO) membership contracts, including payor agreements, physician participation agreements, operating agreement between the ACO and the provider member group, and incentive distribution models.
  • Reviewing Clinically Integrated Network (CIN) membership contracts, including payor agreements, physician participation agreements, operating agreement between the CIN and the provider member group, and incentive distribution models.

In conclusion, 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. And as mentioned above, CMS will continue its strategy to assist providers in the transition to value-based reimbursement models. Therefore, the sooner providers embrace this shift and secure for themselves the additional value-based reimbursement, the less vulnerable they will be as they succumb to future losses of fee-for-service revenue.

So, do the homework, prepare, and carefully develop the value-based contracting and reimbursement strategy, and implement it effectively. And yes, it is appropriate to succeed in improving reimbursement to acquire the financial resources to accomplish the mission of improving the quality of care provided to the citizens of the community.

Content provided by LBMC’s Population Health Services professional, Marc Miller.

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.