The Five Conceptual Templates for Value-Based Reimbursement

The healthcare industry is in the middle of a payment structure overhaul. The conventional fee-for-service (FFS) reimbursement model is slowly being replaced by an assortment of value-based reimbursement (VBR) models aimed at encouraging healthcare providers to deliver the best quality care at the most reasonable cost, thus improving the overall value of care. In January 2015, the Department of Health and Human Services (HHS) announced its intention to link 50% of all traditional Medicare payments to value-based reimbursement models by the end of 2018. In April 2015, the Medicare Access and Chip Reauthorization Act (MACRA) established the Quality Payment Program (QPP), which introduced the Merit-based Incentive Payment System (MIPS) and the Alternative Payment Model (APM) reimbursement structures. These new payment structures were designed to measure and pay eligible clinicians (ECs) based on Quality, Resource Use, Clinical Practice Improvement, and Promoting Interoperability (formerly known as Meaningful Use of EHR Technology, and most recently known as Advancing Care Information). What followed was the creation of a number of alternative payment models strategically designed to incentivize providers with shared savings, bonuses, and other financial rewards to focus on quality and efficiency. The Centers for Medicare and Medicaid Services (CMS) has led the way in transitioning to these alternative payment models, and private payers and commercial insurers have followed.

There are five conceptual “templates” for value-based care reimbursement, each consisting of multiple models specific to specialty, episode, and patient population, and each having different levels of associated financial risk.


The pay-for-coordination reimbursement model prospectively pays primary care physicians (PCPs) a monthly fee to lead and to coordinate a partnership of health care between providers, care managers, specialists, Medicare patients and their families. The model is designed to reduce costs and to incentivize PCPs to better coordinate and oversee a patient’s continuum of care, focusing on preventative care, on monitoring tests and procedures, and on closing care “gaps.” PCPs are required to develop a unified care plan to ensure the efficiency and quality of patient care. The Patient-centered Medical Home (PCMH) model is an example of this type of reimbursement model.

Pay-for-Performance (P4P)

The pay-for-performance model offers a direct and simple approach to reimbursement, linking payments to quality and value. Providers are reimbursed using the fee-for-service structure, however, they are incentivized to meet certain quality and efficiency performance measures. Depending on how well they “score,” providers can earn financial bonuses, or they may see a negative reimbursement payment adjustment for poor performance. Some examples of pay-for-performance models are the Physician Value-based Modifier (PVBM), the Hospital Readmission Reduction (HRR) program and the Skilled Nursing Facility Value-based Program (SNFVBP).

The conventional fee-for-service (FFS) reimbursement model is slowly being replaced by an assortment of value-based reimbursement (VBR) models aimed at encouraging healthcare providers to deliver the best quality care at the most reasonable cost, thus improving the overall value of care.

Bundled Payment or Episode-of-Care Payment

In the bundled payment model, healthcare providers receive a fixed reimbursement for the multiple services provided to beneficiaries during a specific episode of care (i.e., a hip or knee replacement, and any complications or rehabilitation needed post-surgery) or a defined period of time (i.e., 90 days from the initial encounter). As CMS suggests, “Payment rewards the quantity of services offered rather than the quality of care furnished.” However, CMS also explains that “research has shown that bundled payments can align incentives for providers—hospitals, post-acute care providers, physicians, and other practitioners—allowing them to work closely together across all specialties and settings.” Participants are paid either retrospectively or prospectively, and CMS will share with providers a percentage of any realized net savings. Some examples of this model are the Bundled Payments for Care Improvement—Advanced (BPCI--Advanced) model and the Comprehensive Care for Joint Replacement (CJR) model.

Shared Savings Program (Upside and Downside Risk)

In the shared savings model, physicians form entity groups and provide population health management through a coordinated, team approach to care. CMS initiated the shared savings payment strategy, specifically the Medicare Shared Savings Program (MSSP), to encourage groups of doctors, hospitals, and other healthcare providers to voluntarily form Accountable Care Organizations (ACOs) to provide cost-effective care delivery, coordination, and experiences. The MSSP has four options, or “Tracks,” available, each having different levels of shared risk arrangements and financial rewards. The greater the financial risks assumed by the ACO, the greater the percentage of shared savings the ACO can receive when meeting quality and efficiency benchmarks. Bonuses are also given for exceptional performance. The goal is for each ACO to progressively take on more risk as it gains more experience functioning as an alternative payment model. In addition to the MSSP ACO model, another example is the Comprehensive ESRD Care (CEC) Model.

Capitation (partial or full/global)

Also referred to as the All-Inclusive Population-Based Payment (AIPBP), the capitation model assigns patients a per member, per month (PMPM) payment, or annual payment, that providers receive prospectively to deliver a set of services (partial), or all services (full/global), for a defined amount of time. Providers assume full financial risk for care quality and healthcare spending, keeping any realized savings and assuming responsibility for any losses in revenue if costs exceed the PMPM payment. Most capitation models also include incentive payments/penalties based on quality performance measures. The Next Generation ACO (Next Gen) model is an example, having an optional AIPBP payment mechanism in year two of the program.

Value-based reimbursement models are moving the healthcare industry toward payment for quality, rather than payment for quantity of care provided, and these models are a significant part of the CMS Quality Strategy vision of improving health delivery by “using incentives to improve care; tying payment to value through new payment models; and changing how care is given through better teamwork, better coordination across healthcare settings, more attention to population health, and putting the power of healthcare information at work” (CMS). There are still hurdles to overcome in the transition from fee-for-service to value-based reimbursement, but value-based care is here to stay, establishing its foothold in the healthcare industry, incentivizing cost-efficiency and quality, and creating structures that reward physicians for coordinated, appropriate, and effective care.


North Texas Clinically Integrated Network, Inc. (dba TXCIN) is a non-profit ACO that began in late 2014. A small group of independent physicians aligned to initiate clinical integration and value-based contracting. Partnering with RevelationMD and its state-of-the art information platform, TXCIN has become one of the largest, independent networks of physicians in North Texas.


Belliveau, Jacqueline. “Understanding the Value-Based Reimbursement Model Landscape.” RevCycle Intelligence. Accessed 4-23-18.

Gruessner, Vera. “How Payers Should Prepare for Value-based Reimbursement.” HealthPayer Intelligence. Accessed April 23, 2018.

Neergaard, Lauren. “Medicare begins paying doctors to coordinate chronic care for seniors.” January 11, 2015.

Spitzer, Julie. “CMS renames ‘meaningful use’ to ‘promoting interoperability’ and changes ensue.” Beckers Hospital Review. April 25th, 2018.


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