Value-Based and Other Alternative Payment Models

The quest for the Triple Aim—improved experience of care, improved health of populations, and reduced cost of care—has led to changes in payment methodology. Payers are moving away from fee-for-service (FFS) volume-driven health care services to value-based and other alternative payment models that incentivize providers on quality, outcomes, and cost containment. Practice viability will be dependent on how well quality, cost, and efficiency are managed and providers’ ability to adapt to a changing environment.

Will the shift away from FFS impact me as a pediatrician, pediatric medical subspecialist or pediatric surgeon?

Some commercial payers and Medicaid managed care organizations have already shifted away from strict FFS payments. In many markets, commercial payers have implemented value-based payment models for adults and have begun to or likely will experiment with value-based payment methodologies for pediatrics. While there is variability from state to state, Medicaid has experimented with a range of value-based or alternative payment models in certain states. Some Medicaid health maintenance organizations have implemented capitated payments or modified FFS payments that reward performance on cost and quality targets.

Although most pediatricians have experience tracking quality or patient satisfaction metrics, general and subspecialty practices may still be primarily paid according to strict FFS arrangements and may have limited experience with value-based, especially risk-based, payment models. Whatever your experience with value-based payment models, it is wise to anticipate and prepare for the shift away from FFS.

How can I prepare for the transition to value-based payment?

Physicians and practices can take various steps to prepare for changes in payment methodologies:

• Stay abreast of payment reforms, including those in the adult sector, and be knowledgeable enough to suggest adaptations for pediatrics.
• Develop a health information technology (HIT) strategy and customize electronic medical records/information technology systems to track, manage and report quality metrics.
• Anticipate responsibility and track performance related to typical pediatric Healthcare Effectiveness Data and Information Set (HEDIS) measures (ie, well-child visits, immunizations, appropriate asthma medication management) as well as other performance metrics that add value (eg, developmental or depression screens)
• Evaluate and consider adopting new technologies (as economically feasible) that can facilitate timely care and increase patient access to your practice. For example, use of telehealth could reduce unnecessary emergency department visits, thereby positively impacting quality and/or cost of care targets.
• Incorporate population health programs and activities, such as outreach to patients for Bright Futures well visits, immunizations, and disease management.
• Investigate what is needed to become a recognized patient-centered medical home, if not already one. Formal recognition may affect contracts, payment, or quality performance ratings.
• Consider your organizational options and alignment. To manage costs and quality across the continuum of care, you should establish good working relationships with other providers and learn steps other providers in your medical geography are taking to provide high-quality, cost-effective care to patients.

What is a risk-based payment model?

There are a variety of value-based payment methodologies being developed by payers for health care services. Risk-based arrangements (ie, budget-based contracting) are predicated on an estimate of what the expected costs to treat a particular condition or patient population should be. This type of arrangement includes capitation, bundled payments, and shared savings/risk arrangements.

While health plans will base expected costs on sophisticated and actuarially sound models, physicians need to be sure to understand how these costs were calculated and that they include the total direct and indirect practice expenses and margin. In a two-sided arrangement, the practice may share in the savings achieved as well as any losses incurred. For example, the practice may share in a percentage of any savings (eg, upside risk); however, if the actual costs of care exceed the target or budgeted costs, the practice may be responsible for a percentage of the difference (eg, downside risk).

How can I evaluate if a risk-based payment model is right for my practice?

As an initial step, the practice should conduct an environmental scan to identify types of APMs implemented in the market area and specifically among pediatric populations. From there, determine how the type of payment model will impact the practice. All APMs transfer some degree of risk to the practice and the degree of that risk will help determine whether the practice will be successful or not.

Success is based on the practice’s ability to control the health care expenses of the patient population so that they do not exceed the budgeted amount. The key to success for a risk-based payment system is to determine expected costs and utilization in your specific practice and to assess whether the practice can come in at or under the projected budget. Further, the practice needs to assess the proposed payment methodologies, such as how prices, quality and cost containment targets are set, the type and timeframe of benchmark data used, and how risk is shared.

Key Steps for a Practice Evaluation

• Obtain from the managed care organization (MCO) their actuarial certification of the current and proposed payment plan.
• Supplement the MCO certification with an independent analysis of your practice utilization, costs, and quality performance.
• Identify all services that are to be included in the budget and what services will be carved out.
• Accurately predict expected utilization. Have the payer provide the number of enrollees and age, sex, and risk of the designated population. Determine the expected utilization by patient profile and Current Procedural Terminology (CPT) code. Look at your current claims data to develop a practice profile to determine current utilization and compare it to the projected utilization.
• Develop an imputed fee schedule to determine potential revenue. Identify what you will be paid for the services you will be providing.
• Determine whether the services covered by the budget can be provided within the budgeted amount. If not within the proposed budget, reconsider participating or look at ways to streamline service delivery to meet the projected budget.

When negotiating a value-based payment arrangement, understand that negotiating is a marathon, not a sprint. Be prepared to devote the necessary time for dialogue with the payer. Consider options, alternatives, and positions that you are willing to compromise. Pay attention to the details but keep the big picture in sight.

Additional AAP Resources 

A New Era in Quality Measurement: The Development and Application of Quality Measures  

Other Resources

AMA Guide to Physician Focused Alternative Payment Models