The Affordable Care Act (ACA) fueled unparalleled opportunities for providers, payers, and state and federal agencies to test delivery system innovations for improving health outcomes and patient experience, while lowering costs. Many of these innovations — incubated through federal awards and subsequent philanthropic grants — must now secure more sustainable long-term funding. One promising strategy for doing so is to align with state and federal value-based payment (VBP) efforts.

VBP models shift provider payment away from traditional fee-for-service (FFS) arrangements that reward volume and instead pay for patient outcomes. Many VBP goals are also consistent with the payers’ desire to reduce costs. This could help them justify continued investments in these program innovations. Five key VBP strategies are listed below:

  • Pay for Performance (P4P). In a P4P model, the FFS payment is supplemented by performance incentive payments linked to outcomes, process, or patient experience quality metrics. For example, if quality targets are achieved, the provider receives a bonus. Some models withhold payment until metrics are achieved or claw back payment if they are not.  The Medicare Physician Group Practice Demonstration offers one example of P4P, as do Medicaid P4P models in California and Kansas.
  • Bundled Payments. Bundled payments provide a single reimbursement for a set of services for a specific care intervention or condition within a defined time period, often referred to as an “episode of care.” If providers treat a patient for the episode for less cost than the bundled amount and meet quality standards, they keep the excess payment, but if they spend more than the amount or fail to meet quality standards, they do not receive additional funding.  Bundled payments are becoming popular in the commercial sector, as well as in Medicaid, for example, in Arkansas, Ohio, and Tennessee.
  • Shared Savings. Shared savings programs hold providers accountable for costs and quality by managing patients’ total cost of care. Providers receive a percentage of savings if they reduce costs and meet quality benchmarks. In some models, there is also “downside risk” where providers are required to pay “shared losses” if those losses exceed cost benchmarks. The Medicare Shared Savings Program is a prominent shared savings model and many state Medicaid accountable care organization models also use this payment arrangement.
  • Capitation and Global Payments. Capitated models pay a single PMPM fee to a provider for an individual’s total cost of care. This payment method eliminates FFS and encourages providers to manage all aspects of a patient’s care, not just medical care. Maryland’s all-payer model and Oregon’s Coordinated Care Organizations use global payments.

Providers seeking to sustain health care innovations may look to existing federal and state VBP efforts as an opportunity for doing so. Many state Medicaid programs operate through managed care plans, which could also be a promising avenue for financing one or more of the VBP models discussed above.

This post was originally published on the Moving Health Care Upstream blog, a project of Nemours and the UCLA Center for Healthier Children, Families and Communities.

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