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Value-based care: Going beyond the buzz

Value-Based Care: Going beyond the buzz

*Updated July 2020

According to a January 2020 article from the Harvard T.H. Chan School of Public Health, the U.S. has the world’s most expensive health care system. Health care costs have been steadily rising in the United States since at least 1960, when health care spending accounted for 5 percent of the gross domestic product (GDP). The Centers for Medicare and Medicaid Services (CMS) now project that total U.S. health care costs will increase to nearly 20 percent of all economic spending by 2028.

As a way to help combat rising health care costs, CMS enacted the Medicare Improvements for Patients and Providers Act (MIPPA) in 2008. Though this legislation primarily expanded affordable care access and funding for Medicare beneficiaries, it also paved the way for many later value-based care programs.


What is value-based care?

Value-based care—also sometimes referred to as “pay-for-performance”—is a reimbursement model that rewards hospitals, physicians, and other healthcare providers with payment incentives based on the quality of care that they provide to patients. By rewarding providers based on their care quality and clinical performance, value-based care models help to improve patient outcomes and lower overall healthcare costs.

What is the difference between value-based care and fee-for-service?

Traditional fee-for-service (FFS) models pay providers for the quantity of services they deliver, not the quality. Because of the way this reimbursement model is structured, providers are incentivized to see a higher volume of patients each day and to perform a greater number of tests, treatments, and procedures. This not only means that providers might dedicate less time to each patient, but it also might make them more likely to order unnecessary treatments or tests—a trend that contributes to higher healthcare costs.

Value-based care reimbursement models aim to reverse this method of care delivery by tying provider payments to patient outcomes. By doing so, providers are instead rewarded for quicker recoveries, lower readmission rates, lower infection rates, and fewer medical errors.

Types of value-based care

After the Affordable Care Act (ACA) was passed in 2010, CMS began introducing and expanding upon a wide variety of different value-based programs. Some of these initiatives—like the End-Stage Renal Disease Quality Incentive Program—were designed to improve care quality for a particular patient population, or within a certain care setting. Others were designed to test alternative payment models (APMs) and their effect on care quality on a more global scale.

Below are some of the more well-known examples of value-based programs and initiatives.

What is the Hospital Value-Based Purchasing Program (HVBP)?

The Hospital Value-Based Purchasing Program (HVBP) was one of the first new value-based programs that CMS enacted following the 2010 Affordable Care Act. The program aims to reward acute-care hospitals for the care quality that they provide to Medicare beneficiaries by assessing hospital performance in four different areas:

  • Safety
  • Clinical care
  • Efficiency and cost reduction
  • Care coordination

Each of these performance areas counts towards 25 percent of a hospital’s total value-based purchasing score. CMS uses this score to redistribute Medicare payments accordingly. Hospitals that perform well within the program are awarded an incentive payment for their care quality, and those that do not receive a payment adjustment.

What is the Hospital Readmissions Reduction Program (HRRP)?

The Hospital Readmissions Reduction Program (HRRP) was established by CMS in 2012 as a way to help reduce excess readmissions and, as a result, to help decrease overall healthcare spending. The program works by reducing payments to hospitals with high 30-day readmission rates for the following six conditions or procedures:

Hospitals that report an excess readmission ratio of 1.0000 or higher for each of these six conditions or procedures are penalized and receive a lower Medicare reimbursement as a result. Facilities with an excess readmission ratio of 1.0000 or below are rewarded for their performance by receiving no payment penalty.

What is the Merit-Based Incentive Payment System (MIPS)?

The Merit-Based Incentive Payment System (MIPS) is one of two CMS value-based reimbursement models created under the Quality Payment Program (QPP). This new payment system came into effect in January 2017 and, with it, participating providers received payment adjustments based on four areas:

Each of these performance categories is assigned a predetermined “weight” which is then used to calculate a final performance score. Participating providers who score above the CMS performance benchmark are rewarded with a positive payment adjustment. Providers who score below the performance benchmark are penalized, and those whose MIPS score is equal to the CMS performance benchmark receive no adjustment at all.

What are Accountable care organizations (ACOs)?

Accountable care organizations (ACOs) are networks of physicians, hospitals, and other healthcare providers who work together to provide coordinated, high-quality care to their patients. CMS established these organizations as part of the Medicare Shared Savings Program (MSSP) in 2011. As part of this program, participating ACOs agree to share responsibility—both medical and financial—for an assigned population of Medicare beneficiaries.

CMS has introduced several new ACO models since the MSSP was first established. These programs include:

  • The ACO Investment Model
  • The Advance Payment ACO Model
  • The Next Generation ACO Model, and
  • The Pioneer ACO Model

Although these ACO models are designed in slightly different ways, the basic goal remains the same: to provide the right care at the right time. Coordinating care delivery in this way not only ensures that patients receive the best possible care, but also helps to mitigate the risk of duplicating care services unnecessarily—another trend that contributes to rising healthcare costs.

ACOs that succeed in reducing unnecessary spending and meeting their quality performance targets share in the savings that they earn for the Medicare program, and may be eligible for additional payment bonuses.

Learn more

Interested in learning more about value-based care and how it might continue to impact the healthcare industry? Catch our on-demand webinar: Value-Based Care in 2019 and Beyond. This virtual panel discussion covers topics ranging from provider benefits and challenges to predictions about where the future of value-based care may be headed.

No time to watch the webinar? You can also read our blog about The Future of Value-Based Care: 2019 Survey Results.

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Definitive Healthcare

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