Blog » Value-Based Payment May Not Be Optional, But It Offers Options

Value-Based Payment May Not Be Optional, But It Offers Options

Created Apr 17 2018, 08:30 AM by Lippincott Solutions
  • Center for Medicare & Medicaid Services
  • Medicare reimbursement
  • VBP
  • American Hospital Association
  • value-based purchasing

The health care industry’s transition to a value-based payment landscape is alive and well, according to a recent Trendwatch report from the American Hospital Association (AHA).

“Hospitals and health systems — influenced by both policy and market forces — are increasingly moving away from fee-for-service payments towards value-based arrangements,” the AHA advises.

Value-based payment (or value-based purchasing — the terminology is synonymous and depends mostly on whether you are taking the payer or the provider perspective) is any payment arrangement in which reimbursement is affected by factors other than the volume of service provided. These factors can include treatment cost, quality, and patient experience.

Similarly broad, the value-based payment landscape isn’t a single destination, either, the AHA points out. Hospitals and health systems can choose from several different types of value-based payment arrangements. What they end up participating in, the AHA reports, is largely based on the level of financial risk they can, and are willing to, take on.


Here’s a look at the range of value-based payment models AHA says hospitals are engaging in through commercial payers, Medicare, and Medicaid:

  • Shared Savings. In shared-savings models, providers that decrease spending for certain populations earn a percentage of any net savings. This model is very low risk for participating providers.
  • Pay for Performance. Pay-for-performance set-ups award financial bonuses or penalties, usually as part of fee-for-service payments, to providers depending on their performance in areas including quality, cost, or patient experience. Medicare’s Hospital Readmissions Reduction program is an example of this low-risk model. 
  • Bundled/Episode-based Payment. The bundled payment structure provides health care organizations with a single payment expected to cover an entire episode of care for a certain population, such as patients undergoing joint replacement. The AHA categorizes bundled payments as medium risk for providers. 
  • Shared Savings & Losses. Shared savings/losses programs assign financial bonuses or penalties to providers based on a provider’s spending for certain patient populations. Consequently, this value-based payment model is considered medium-high risk.
  • Global Budget/Partial or Full Capitation. Under capitation, providers received a fixed sum for each patient that covers a period of time. This is the highest risk value-based payment structure, according to the AHA report.


The riskier the value-based payment model, the more expansive the competencies needed for a hospital to succeed, the AHA advises. These include provider contracting and network management, clinical and care management, risk and financial management, and analytics. The culture of the health care organization, too, plays a role.

As does timing. According to the AHA, a health care organization’s value-based destination may change over time, with subsequent changes in policy, market, and organizational forces.

Value-based payment is not a one-size-fits all structure.

“There is no single model that will work for every organization,” the AHA report explains. “Hospital and health system leaders should assess the personnel, infrastructure, and other capabilities required for success in each model when considering the most appropriate path for their organization.”


An independent, three-year study by the Rockburn Institute in partnership with Wolters Kluwer has found that hospitals using Lippincott Solutions’ evidence-based decision support resources at the point-of-care saw considerably higher CMS performance measures – including an average higher VBP performance score.

How much higher were their scores than national CMS averages?  What is the connection between higher VBP scores and increased reimbursements? 

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