Payment models and value-based care

When it comes to value-based care, payment models can be tough to understand. We’re breaking down what you need to know below.
Value Based Care

The move from the fee-for-service (FFS) payment model to one contingent on the quality and outcomes of care is a lynchpin of the 2010 Affordable Care Act (ACA). In a value-based care model, Alternative Payment Mechanisms – or APMs – play an important role in determining payment; performance incentives; and the importance of clinical data.

Established by the ACA, the Centers for Medicare & Medicaid Innovation Center (CMMI) develops and tests new payment models to support the ACA’s aim of incentivizing patient-centered, value-based care. CMMI has implemented over 50 voluntary APMs in the last decade, and lessons learned from these models are integrated into those that provide care to Medicare part A and B beneficiaries. In these models, providers and healthcare organizations agree to assume responsibility as an Accountable Care Organization (ACO) to manage and coordinate care for a group of patients in APMs within the following models.

Types of Alternative Payment Models

APMs are designed for a variety of care delivery settings, with three general categories of APMs implemented in CMS payment programs today.

Clinical episode models are aligned for integrated delivery systems; population-based models are implemented in ambulatory care and inpatient care; and primary care models align with both ambulatory care and integrated delivery systems.

  • Clinical Episode Payment (CEP) models provide a bundled payment for an episode of care across multiple care settings. CEP models can be structured from a fee-for-service payment architecture, with prospective payments based on a cost performance target. There are performance bonuses for qualifying participants. Alternatively, The Comprehensive Care for Joint Replacement Model provides a retrospective bunded payment for initial hospitalization through recovery for hip and knee replacements.
  • Population-Based Payment (PBP) models can be structured for the total cost of care for a given population, or around a population’s care for a specific health condition. Total cost of care models require that the provider assume both financial and clinical risk, with payments made prospectively. Participants in the Medicare Shared Savings Program (MSSP) include providers, hospitals, and suppliers who agree to form an ACO to coordinate care for an assigned patient population. The Kidney Care Choices Model focuses on beneficiaries with chronic kidney disease, with the goals of managing disease progression; avoiding unplanned in-center hemodialysis treatment; and supporting transplant treatment.
  • Primary Care Payment (PCP) models are structured around ambulatory, outpatient care for a group of attributed patients. Payment structure includes prospective population-based payments; flat fee reimbursement for visits; and a performance bonus for qualifying providers. Primary Care First is designed to increase patient access to primary care, with supports for practices caring for patients with complex chronic needs.

While these models differ in the scope of services provided to patients, they all require organizational commitment and resources for successful implementation. Participating ACOs must have adequate resources that include sufficient staffing for patient engagement; access and interoperability of clinical data; and data analytics to support efficient clinical workflows.

Payment mechanisms

APM models incorporate different mechanisms to determine payment to ACOs in value-based care arrangements. The goal is to ensure that the ACO is properly compensated for providing high-quality care to its patients regardless of need, and that providers are incentivized to meet performance goals. Common mechanisms for determining or adjusting payment are:

  • Attribution/Assignment: This mechanism identifies the beneficiaries associated with an ACO based on selection of provider by the beneficiary, claims data, or by proximity to the ACO regional service area.
  • Risk adjustment: This mechanism relies on hierarchical condition category (HCC) coding to determine the Risk Adjustment Factor (RAF) for individual health status or burden of disease over a specific period. The risk adjustment is critical for identifying high-risk patients, predicting costs, and determining reimbursement levels.
  • Benchmarking: This mechanism a multi-step process that measures an ACO’s effectiveness in controlling spending on an assigned group of beneficiaries against a financial benchmark based on historic costs.
  • Capitation: Refers to a periodic per-enrollee payment for a specific set of healthcare services provided to a defined population. Capitation can be full or partial depending on payment model.
  • Shared savings: Provide an additional payment to the ACO if spending for attributed patients is lower than a specified benchmark – usually total cost of care.
  • Financial risk: This mechanism is a key component of ACO payment. In an upside risk arrangement – or one-sided model – the ACO can retain all or a percentage of any savings they accrue during the performance period relative to a financial benchmark set by the payer. In a downside risk arrangement – or two-sided model – the ACO can share in savings if costs are below the established benchmark.

However, if actual care costs exceed the financial benchmark, the ACO may have to repay all or a portion of the financial losses. The MSSP Basic Track Level A&B is an example of a one-sided risk model where the ACO can retain a percentage of “shared savings” if they meet or exceed a percentage of the minimum savings rate (MSR) and fulfill quality performance standards. ACOs participating in the MSSP are expected to transition to a two-sided model over time, paying CMS a percentage if expenditures for assigned beneficiaries exceed the benchmark.

Adjusting for performance

ACOs in CMS APMs participate in the CMS Quality Payment Program (QPP) as Advanced APMs; Merit-based Incentive Program (MIPs) APMs; and Other Payer Advanced APMs.  Participants in MIPS APMs and Advanced APMs have reduced quality reporting requirements as compared to MIPS clinicians participating in fee for service MIPS.

Advanced APMs are excepted from standard MIPS reporting, report on comparable quality measures, and are eligible for a 5% incentive payment if eligible clinicians receive at least 50% of Medicare Part B payments or see 35% of Medicare patients under a qualifying APM and meet 3 critiera:

  • Use ONC-certified electronic health record (EHR) technology
  • Report on select quality measures
  • Participate in a CMMI Medical Home Model or carry downside risk

MIPS APM participants report on a simplified set of MIPS measures and report on only three performance categories: Quality, Promoting Interoperability, and Improvement Activities. The Cost category is excluded. The standard MIPS payment adjustment of +/-9% applies to MIPS APMs.

Other Payer Advanced APMs are payment arrangements with Medicaid, Medicare Advantage Health Plans, and other commercial and private payers that also meet the criteria for Advanced APMs. Participating ACOs may report to CMS as both Advanced APMs and to additional state or plan quality reporting programs.

Data is key to success in value-based care

A successful transition from FFS to value-based care requires data infrastructure and analytics to understand the relationships between cost, quality, outcomes, patient engagement, and satisfaction. Critical to this is clean, high-quality data across the care continuum that associates the cost of care with the outcomes of that care. This data is essential to drive insights into patient and population health, inform organizational capacity, and control spending and utilization.

For more on value-based care, check out the first and third posts in this series.

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