1. Value & Coverage Issue Brief Slides
A Closer Look at Alternative Payment Models

2. Rising Healthcare Costs
2012 U.S. Healthcare Spending
Projected 2022 U.S. Healthcare Spending
$5 Trillion
19.9% GDP

3. High Costs Have Driven Creation of Alternative Payment Models
These models are gradually shifting our nation’s health care delivery and payment systems away from the traditional fee-­for-­service (FFS) model.
Accountable Care Organizations
Bundled Payment Arrangements
Pay-for-Performance Initiatives
Primary Care Medical Homes

4. Traditional Fee-For-Service Model (FFS)
Reimbursement model compensates providers for each service they provide.
Incentivizes providers to increase the volume (and cost) of care—through additional tests, procedures, inpatient stays and outpatient visits—rather than focusing on the quality or value of care provided to patients1
Encourages fragmented and uncoordinated care that further increases health care costs and care inefficiencies2
"What Is Driving U.S. Health Care Spending?." Bipartisan Policy Center. (2012): 8-­9. 4
"Farewell to Fee-­For-­Service?." UnitedHealth Center for Health Reform & Modernization. n.p. (2012): 6.

5. Alternative Payment Models (APM)
Fueled by the inefficiencies of FFS system, payers and providers have experimented with APMs to drive towards value-based care.
United desire among providers, payers, policymakers, and consumers to develop integrated payment and delivery systems that provide higher quality and more cost-­effective care.

6. Accountable Care Organizations
Accountable care organizations (ACOs) are networks of doctors, hospitals, and other health care providers that share responsibility for coordinating care and meeting health care quality and cost metrics for a defined patient population.

7. Foundation of ACOs
The Affordable Care Act codified the ACO model into law, creating the Medicare Shared Savings Program (MSSP), to assess this new framework.1 The private sector has also implemented several ACO variations. As of January 2014, there were 606 public and private ACOs—with more than 360 of them offered through Medicare.2 Medicare ACOs use some variation of a shared savings model with CMS, which financially rewards providers that improve quality on certain metrics while decreasing spending.
"Shared Savings Program." Centers for Medicare & Medicaid Services. n.p. 18 Feb 2014.
Muhlestein, David. "Accountable Care Growth In 2014: A Look Ahead." Health Affairs Blog. Health Affairs. 29 Jan 2014.

8. ACOs by Sponsoring Entity
Physician groups have become the primary sponsor of ACOs, though other organizations, such as non-profit community organizations and practice management companies, have begun to more actively sponsor ACOs.
606 Total
Source: Leavitt Partners Center for Accountable Care Intelligence

9. Medicare ACOs
To earn shared savings, participating ACOs must meet 33 quality measures
Source: Centers for Medicare and Medicaid Services

10. Private Sector ACOs Types of private ACO contracts include:
Shared Savings Contracts (One-­Sided Model), which rewards providers with bonuses for meeting quality measures and reducing health spending, but does not penalize them if they fail to achieve savings;
Shared Risk Payment Model (Two-­Sided Model), which holds providers accountable for both bonuses and penalties;
Partial Capitation, which allows providers experienced in coordinated care to transition towards population-­based alternative payment systems
Most private ACOs use the one-sided risk framework.

11. Private Sector ACOs Differ from Medicare ACOs
Private Plans:
Are more likely to use other APMs, such as bundled payments, retainer agreements, in-­kind services, and payer subsidies1
Have contracts that tend to offer greater flexibility and customization for the providers’ and payers’ respective patient population2
Are more willing to experiment with greater risk in their payment models3
Sometimes enter into contracts that provide incentives for patients to seek care exclusively within the ACO network4
Muhlestein, David. "Continued Growth Of Public And Private Accountable Care Organizations." Health Affairs Blog. Health Affairs, 19 Feb 2013.
Ibid.
"Private Sector ACO Models Gaining Prominence." CEO's Blog. PayerFusion, 11 Sep 2012.
Berenson, Robert, and Burton, Rachel. "Accountable Care Organizations in Medicare and the Private Sector: A Status Update." (2011).

12. ACOs Lack Direct Patient Incentives
ACOs do not provide patients with incentives to reward healthy behavior or stay within the ACO network for their care. Given the critical role that patients play in determining their own health outcomes, some stakeholders argue that the failure to engage patients directly could be ACOs’ biggest weakness.1
1) Mathews, Anna. "Can Accountable-­‐Care Organizations Improve Health Care While Reducing Costs?" Wall Street Journal [New York] 23 January 2012, n. pag.

13. Bundled Payment Arrangements
Payers compensate providers with a single payment for an episode of care, which is defined as a set of services delivered to a patient over a specific time period.
A predetermined payment arrangement with financial and performance accountability for a specific clinical episodes
Defined on parameters of time, services, and settings
Tends to reflect the average costs of the treatments involved in an episode of care, they do not typically vary with the explicit number or mix of services provided to any individual patient.1
1) "Bundle Medicare’s Payments to Health Care Providers." OPTIONS FOR REDUCING THE DEFICIT: 2014 TO Congressional Budget Office, 13 Nov 2013.

14. Elements of Episode Payment
Source: Center for Healthcare Quality and Payment Reform, Transitioning to Episode-Based Payment (

15. CMS Bundled Payment Initiative Bundled Payments for Care Improvement (BCPI)
The three-­year project involves four different models of care and payment for participating providers.1 On January 30, 2013, CMS announced that 464 health care organizations would participate.
1) “Bundled Payments for Care Improvement (BPCI) Initiative: General Information." Bundled Payments. Centers for Medicare & Medicaid Services. n.d.
Source: CMS:

16. Issues with Bundled Payments
Compensates treatments for the sick, no incentives for preventive care
Measures of care process quality, actual health outcomes are limited
Coordinating care, tracking the quality of care, and maintaining accountability for costs across providers can be difficult especially if there is not a single health system or hospital organizing a patient’s care

17. Pay-for-Performance (P4P) Initiatives
Payment models aimed at improving the quality, efficiency and the overall value of health care. The most common form of financial incentive in a P4P program is a bonus payment—an amount paid to a provider in addition to his or her usual fee for a particular service once that provider meets certain quality goals.

18. Pay-for-Performance Quality Measures
Providers are reimbursed/incentivized based on performance in these categories.

19. P4P Models of Note
There are numerous P4P initiatives, both in the private and public sectors.
Blue Cross Blue Shield Massachusetts: Alternative Quality Contract
Medicare Premier Hospital Quality Incentive Demonstration

20. P4P Issues
Focus too narrowly on “quality” with very little consideration of cost
Incentives are too low to impact quality
Absence of quantifiable goals for many of the programs1
little evidence regarding the impact of these programs and whether they can be successfully implemented
1) Damberg CL. et al. “Measuring Success in Health Care Value-­‐ Based Purchasing Programs.” RAND Corporation. 4 March 2014.

21. Primary Care Medical Homes
The patient centered medical home (PCMH) model facilitates the coordination of care through a patient’s primary care physician. The PCMH model integrates mental health and specialty services, and involves a team-­based approach consisting of physicians, nurses and medical assistants, pharmacists, nutritionists, social workers and care coordinators.

22. Patient Centered Medical Homes
Enhanced FFS evaluation and management payments
Additional codes for medical home activities within FFS payments
Per member per month medical home activities within FFS payments
Risk-­adjusted, comprehensive per member per month payments1
1) Merrell K, Berenson RA. “Structuring Payment for Medical Homes.” Health Affairs (2010): 852-­858.

23. Patient-Centered Medical Homes
Payment system reforms are necessary for the PCMH model to recognize the additional work physicians and other providers perform in order to coordinate a patient’s care.
Enhanced services include:
Additional support services;
Patient education;
Communication and care coordination among providers (facilitated by health information technology); and
Interactions with patients outside the clinical setting.

24. Private-Sector PCMH Success Stories
Community Care of North Carolina focused its PCMH program on care coordination and primary care, and was able to decrease preventable hospitalizations for asthma by 40 percent and lower emergency visits by 16 percent1
The Group Health Cooperative of Puget Sound reduced emergency visits by 29 percent and hospital admissions by 6 percent2
Geisinger Health Plan program reduced hospital admission rates by 18 percent and readmissions by 36 percent per year3
“Medical Home.” Community Care of North Carolina. n.p., n.d. Web. 25 Feb < management/medical-­‐home/>.
McCarthy D, Mueller K, Tillmann I. “Group health cooperative: reinventing primary care by connecting patients with a medical home.” The Commonwealth Fund. July 2009.
“Medical Home Initiative” Geisinger. n.p., n.d. Web. Feb <

25. Public-Sector PCMH initiatives
The Affordable Care Act supports nationwide medical home demonstration projects administered by the CMS Innovation Center:
Multi-­Payer Advanced Primary Care Practice (MAPCP) Demonstration1
Comprehensive Primary Care (CPC) Initiative2
Both initiatives implement payment models that facilitate the transformation of primary care practices into “medical homes.”
These initiatives encourage practices to use a team-­based approach to care, with the patient at the center, emphasizing prevention, HIT, care coordination and shared decision making among patients and their providers.
“Fact sheet: Multi-­payer advances primary care practice demonstration.” Fact sheets items. Centers for Medicare & Medicaid Services, 5 April Web. 25 Feb <
“Fact sheet: Comprehensive primary care initiatives.” Fact sheets items. Centers for Medicare & Medicaid Services, 22 Aug Web. 25 Feb <

26. Patient-Centered Primary Care Collaborative (PCPCC) and the Milbank Memorial Fund Report
January 2014 Key Findings:
PCMH studies have demonstrated some improvements in cost, utilization, population health, prevention, access to care, and patient satisfaction, while a gap still exists in reporting impact on clinician satisfaction; and
PCMH continues to play a role in strengthening the larger health care system, specifically ACOs.

27. Key Challenges Adequate compensation for providers coordinating care
Strength of the health care workforce for medical home, given shortage of primary care providers

28. Challenges to Alternative Payment Models
Need for financial incentives—compensate providers for improving efficiencies in health care
Alternative Payment Model success may be limited until the Fee For Service model is removed uniformly across the country
APM coordination depends on robust data analytics and HIT infrastructure to work effectively that can be cost-prohibitive
Limitations of current quality measures may pressure reduced uptake of significant health care innovation with higher upfront costs

29. APMs Require a Multi-Stakeholder Approach
Physicians, medical societies, payers (public and private), and patient groups are continuously working to develop payment models that are specifically designed to improve patient care and save taxpayers money.

30. Additional Resources
A Closer Look at Alternative Payment Models: Download the Full PDF
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