Primary care is critical for supporting population health in the U.S., yet it has long been underfunded within Medicaid. This is a dynamic time for Medicaid, with states facing increased financial pressure under the 2025 budget reconciliation act (P.L. 119-21), while also receiving new funding through the Rural Health Transformation Program. In this evolving policy environment, how states prioritize and pay for primary care will be important to meeting the needs of Medicaid members and supporting an efficient health care system.
One key strategy states are using to strengthen primary care is adopting new payment approaches. The predominant fee-for-service (FFS) payment system does not adequately support comprehensive, patient-centered primary care, prompting many Medicaid agencies and managed care organizations (MCOs) to move toward primary care population-based payment (PC PBP) models. This advanced value-based payment (VBP) approach replaces some or all FFS reimbursement with upfront, per member per month payments for a defined set of primary care services, with accountability tied to quality performance. PC PBP holds promise for better supporting primary care by providing predictable and flexible payments that give practices greater leeway to provide care that best meets patients’ needs.
As state Medicaid programs gain experience developing and implementing PC PBP approaches, lessons on model design are emerging. Previous CHCS blog posts and tools have highlighted basic elements that states need to define when initially designing PC PBP models. This blog post delves deeper into key opportunities and challenges for PC PBP implementation, highlighting priority areas for states to refine model design. Insights were informed by the Medicaid Primary Care Population-Based Payment Learning Collaborative, an initiative led by the Center for Health Care Strategies and supported by The Commonwealth Fund and Arnold Ventures.
Lessons for PC PBP Model Design
The lessons below highlight four key areas for states to consider as they design and refine PC PBP models. Together, they point to practical opportunities for states to strengthen their payment approaches and support broader model adoption across providers and MCOs.
1. Refine Rate-Setting Methods to Meet Program Goals
Medicaid programs continue to explore and refine rate development approaches that adequately compensate providers, move away from FFS, and are sustainable for states to administer. A common way to set PC PBP rates is based on each provider organization’s historic primary care reimbursement. Colorado and Massachusetts both initially used this approach, although Massachusetts is beginning to shift toward setting rates at an aggregate level, based on practice type and average primary care utilization across a region or market.
Each method has tradeoffs that states must consider. Setting rates based on each provider’s historic spending offers steady compensation to providers during the transition to PC PBP. However, this method ties PBP rates to past FFS billing patterns, which may not support new care models and could reinforce existing disparities in service use. This approach may also be administratively burdensome for states to administer long term. In contrast, rates developed at an aggregate level may give practices more flexibility in how they deliver care, as a practice’s pay is less tied to its FFS billing history, and rates may have more granular risk adjustment. This method ideally ties reimbursement to the level of health care need within each practice, but requires robust risk-adjustment methodologies to accurately estimate need. States may also need to gradually introduce aggregate rates to avoid sudden changes in payment levels to individual practices.
Beyond establishing baseline rate-setting methods, states will need to refine methods for updating rates over time. Under PBP, payers frequently require provider organizations to continue submitting claims to track service provision and inform rate setting. However, this approach could disincentivize practices from adopting new care approaches that include non-billable services. For example, if a practice increases care management provided by non-physician staff and reduces in-person physician visits, future rates may decrease, even if outcomes improve. To mitigate this, states might consider collecting information on how care patterns shift under PBP and developing methodologies to hold rates steady when providers meet defined performance standards. Additional state implementation experience and innovation in PC PBP rate setting will be important to determine which approaches best promote fairness, stability, and feasibility.
2. Support a Wide Range of Provider Types to Participate
To enable widespread adoption of PC PBP models, states need to design models that accommodate a range of practices — including differences in structures (e.g., independent practices vs. large health systems), geographies (e.g., rural vs. urban), and populations (e.g., children vs. adults). These factors can impact a practice’s financial stability, care delivery approach, and overall capacity to succeed under VBP models. In response, states are increasingly exploring how to tailor PC PBP model parameters — such as rate setting, cost and quality incentives, and care delivery requirements — to appropriately and flexibly support different practice types. For example, Colorado is seeking to implement Access Stabilization Payments to provide enhanced payments to pediatric, rural, and small practices, with the goal of maintaining access to care where it is most at risk. Additionally, many states tie VBP incentives to care delivery standards for practices. States may consider how to adjust or tier standards to meet the needs of different provider types. Massachusetts and Ohio, for instance, have developed pediatric-specific care delivery standards within their primary care VBP models. Some states are also planning to use Rural Health Transformation Program funding to help rural providers build the capabilities needed to succeed in VBP models (e.g., data sharing and analytic capabilities) and develop VBP models appropriate for rural providers.
3. Layer PC PBP and Broader Cost Savings Models
Increasingly, states and other payers are aligning different VBP models or incentive structures (e.g., PC PBP and total cost of care incentives) to further spur changes in health care delivery. While PC PBP may give primary care practices more flexibility to deliver care that best meets patient needs, this approach on its own may not create a strong incentive to coordinate care beyond the practice. It may also be more fiscally feasible for states to increase investment in primary care when paired with broader cost-savings incentives.
To this end, many states and plans are layering upfront primary care payments with incentives tied to broader health care cost savings, or are planning to do so. This may include exploring total cost of care arrangements or a subset of inpatient and specialist costs that primary care can impact. For example, Massachusetts’ PC PBP model operates within a broader accountable care organization that includes accountability for total cost of care. Similarly, one approach New Mexico is advancing through its tiered primary care payment reform approach is PC PBP layered with shared savings opportunities for broader health care costs. These types of arrangements recognize that different primary care incentive structures can reinforce each other and create more compelling incentives for achieving state goals of both high-quality care and controlling health care costs.
4. Enhance Guidance and Accountability for MCO Adoption
States with Medicaid managed care programs give MCOs varying levels of flexibility to adopt and design VBP approaches. While some states require MCO participation in state-designed models, many provide financial incentives for VBP adoption with limited guidance on model design. This flexibility can be valuable — allowing plans to pilot innovative payment approaches — but stronger guidance and accountability for PC PBP adoption are likely needed to spread this approach. The most straightforward way to advance PC PBP adoption is to require plans to implement a specific model as states have done through authorities such as state-directed payment or 1115 waivers. That said, these approaches may not be politically or administratively feasible for all states. In such cases, Medicaid agencies may instead consider the following complementary strategies to increase PC PBP model adoption in managed care:
- Develop detailed guidance on PC PBP model parameters. Even if states do not require MCOs to adopt a specific VBP model, providing guidance on PC PBP model design can support buy-in and provide a roadmap to PC PBP development. States can engage MCOs, providers, and other stakeholders to understand the existing state VBP landscape and develop detailed guidance on model parameters appropriate for state needs. For example, Oregon’s multi-payer Primary Care Payment Reform Collaborative created PC PBP design guidance that includes recommendations such as a hierarchy of factors to guide patient attribution to providers and a list of common service billing codes to include in a PC PBP model.
- Enhance incentives for PC PBP model adoption. Many states currently set VBP targets in managed care contracts and tie targets to MCO financial incentives. States can refine these incentives to accelerate MCO adoption of PC PBP models. For example, states may reduce overall VBP targets and instead focus incentives on MCO adoption of fewer, but more meaningful models, including PC PBP. To accomplish this, states can set explicit targets for HCPLAN Category 4 or PC PBP model implementation and remove targets for less advanced VBP approaches, such as pay-for-performance. States may also consider requiring more detailed reporting on MCO VBP payment methodologies to understand if state goals are being met.
Looking Ahead
Medicaid programs continue to refine their approaches to designing and implementing PC PBP models. Insights from early Medicaid PC PBP implementation efforts suggest directions that other states may consider as they embark on primary care payment reform. As states move to adopt more advanced value-based primary care models, ongoing iteration and shared learning will be essential to driving meaningful and sustainable primary care transformation.
