1. Lecture c – Advanced Alternative Payment Models
Value-Based Care
Volume to Value
Lecture c – Advanced Alternative Payment Models
Welcome to Value-Based Care, Volume to Value. This is Lecture c – Advanced Alternative Payment Models.
This lecture provides an understanding of the details and concepts that underlie Alternative Payment Models in Category 3 and 4 of the HHS Payment Taxonomy and reviews some details of these models, which support the move away from fee-for-service payment models. A focus on state level initiatives in support of payment reform is also reviewed.
This material (Comp 23 Unit 6) was developed by Normandale Community College, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number 90WT0003.
This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 4.0 International License. To view a copy of this license, visit
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2. Volume to Value Learning Objectives
Describe alternative payment models.
Outline state level initiatives for payment reform, including private payer models.
The objectives for this lecture are to:
Describe alternative payment models.
Outline state level initiatives for payment reform, including private payer models.
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3. Terms and Definitions Episode of care Bundled payments Shared-risk
Population
Category 3 and 4 payment models include language that has specific and meaningful definitions within health care. The following definitions provide a common understanding of these terms for a discussion of these health care payment models.
Episodes of care describes a series of separate-but-clinically-related services delivered over a defined period. For example, a knee replacement would qualify as an episode of care. In this instance, the episode includes all the procedures needed, devices used, and medical care provided from the time the person is admitted to the hospital to the time of discharge.
Episodes of care usually begin with a triggering health care event and extend for a limited period of time thereafter. To continue with the knee replacement example, the triggering event would be when the patient arrives at the hospital, and would extend until the patient is discharged.
Grouping together services into episodes of care creates the opportunity for bundled payments. Under bundled payment programs, the providers agree to accept a fixed fee for all of the care provided to a patient. Thus, if the surgeon’s fees are low, the hospital that is paid through a bundled payment may make a profit. On the other hand, if the care results in an infected knee, and the patient stays extra days, the hospital may lose money, due to the cost of care being greater than the negotiated payment.
This arrangement creates a shared-risk between the provider and the payer. In this context, risk refers to the potential to increase or decrease the amount of payment a provider receives. The potential for a health care provider to either lose money or not receive an expected amount in payment is based on outcomes or quality performance.
Finally, the word population requires definition in the context of alternative payment models. Population refers to the group of people who are enrolled in an insurance plan and assigned or attributed to an organization under a contract. This includes both Medicare, Medicaid, and private insurance. This process of assigning individuals is one of the key elements in alternative payment models.
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4. General Features of ACOs
Contract based on an assigned population
Payments based on the performance on negotiated metrics
Shared-risk
In general, Accountable Care Organizations, or ACOs have these broad features.
First, a contract exists between the payer and the ACO. The ACO employees or contracts with providers, and the ACO is accountable for the population of patients who are attributed or assigned to the ACO by the payer.
Second, payments are based on performance on negotiated metrics. The metrics are usually based on total cost of care for the population, as well as quality measures that the providers are responsible for meeting.
Finally, ACOs usually participate under some level of shared-risk, meaning they can lose money if their performance and costs are not aligned.
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5. Overview of Payment Models
6.6 Table: Payment Taxonomy Framework
Category 1:
Fee-for-Service – No link to quality
Category 2:
Fee-for-Service – Link to quality
Category 3:
Alternative Payment Models Built on Fee-for-Service Architecture
Category 4:
Population-Based Payment
Payments are based on volume of services and not limited to quality or efficiency.
At least a portion of payments vary based on the quality of efficiency of health care delivery.
Some payment is linked to the effective management of a population or an episode of care. Payments still triggered by delivery of services, but opportunities for shared savings or two-sided risk.
Payment is not directly triggered by service delivery so volume is not linked to payment. Providers are paid and responsible for the care of a beneficiary for a long period (i.e.  1 year)
Limited in Medicare fee-for-service
Majority of Medicare payments are now linked to quality
Hospital value-based purchasing
Physician Value-based modifier
Readmissions/ Hospital Acquired Condition Reduction program
Accountable Care Organizations
Medical homes
Bundled payments
Comprehensive Primary Care
Comprehensive ESRD
Medicare-Medicaid Financial Alignment Initiative Fee-for-Service Model
Eligible Pioneer Accountable Care Organizations in years 3-5
This lecture focuses on Alternative Payment Models or APMs that are linked to effective management of a population of patients or to an episode of care. These payment models fall into Categories 3 and 4 of the Department of Health and Human Services or HHS Payment Framework Taxonomy, as shown in this table. Category 3 models include alternative payment models built on fee-for-service architecture and Category 4 include population-based payment models.
Source: CMS, January 2016.
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6. Category 3 and 4 APMs Category 3:
6.7 Table: Category 3 & 4 Payment Models.
Category 3:
Alternative Payment Models Built on Fee-for-Service Architecture
Category 4:
Population-Based Payment
Some payment is linked to the effective management of a population or an episode of care. Payments still triggered by delivery of services, but opportunities for shared savings or two-sided risk.
Payment is not directly triggered by service delivery so volume is not linked to payment. Providers are paid and responsible for the care of a beneficiary for a long period (i.e.  1 year)
Accountable Care Organizations
Medical homes
Bundled payments
Comprehensive Primary Care
Comprehensive ESRD
Medicare-Medicaid Financial Alignment Initiative Fee-for-Service Model
Eligible Pioneer Accountable Care Organizations in years 3-5
As shown in the table above, Category 3 models are still based on a fee-for service-structure. However, they begin to add links to the effective management of a population, or to an episode of care.
Category 3 includes:
Accountable care organizations (ACOs)
Medical homes
Bundled payments
Comprehensive primary care
Comprehensive ESRD
Medicare-Medicaid Financial Alignment Initiative Fee-For-Service Model
Category 4 is the most advanced alternative model. In Category 4, payments are no longer directly triggered by delivery of service. These models finally break the link between volume and payment.
Primary care transformation involves payment initiatives that focus on strengthening and increasing access to primary care to promote health and reduce overall cost. Under these advanced primary care transformation models, clinics get financial support for using a team-based approach that emphasizes prevention, implementing health information technology, and coordinating care across a large number of providers. These models also encourage shared decision making among patients and their providers.
Source: CMS, January 2016.
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7. Care and Payment Chain in ACOs
The following describes the patient assignment, care, and payment chain relative to the ACO model.
A health care payer assigns a patient population to a provider. The payer then calculates the future cost of providing care to this patient population. The payer establishes quality metrics and standards for the patient population. Providers then contract with these payers to provide care and receive payment based on the calculations of expected cost and ability to meet the quality goals. Providers then provide care to the patient population. At the end of the period of the contract, the provider either receives a portion of the savings or is penalized.
The chain of patient population assignment and payment process may seem straight-forward. However, there are some items to note.
First, the size of the patient population matters; if it isn’t large enough, mitigating the risk of random, unpredictable variation becomes difficult. Patient population size is particularly relevant to small health care providers, especially in rural communities where there aren’t large numbers of patients. For rural communities, the risk to providers may be too high to join an ACO.
Second, calculating the future cost of providing care to this group of patients is done through an analysis of the age, gender, disease history, and prior cost of care for the patient population. The payer also calculates an expected increase due to inflation.
Finally, depending on the contract, there are two methods for assigning or attributing populations: Prospective or Retrospective. We’ll look at why this matters next.
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8. Population Attributions – Prospective or Retrospective
This process of assigning a provider responsibility for the care of a particular set of patients is called attribution or assignment.
A key feature of The Center for Medicare and Medicaid Services, or CMS ACOs is that the ACO is responsible for all cost of care whether or not the patient received care from the ACO. Later, we’ll discuss why that’s so important in terms of quality care.
Under prospective patient population assignment, patients are assigned to the provider based on past encounters or past care patterns. People who went to a particular physician in the past are assigned to that physician for the period of the ACO contract going forward. This is the most common method.
The prospective method allows ACOs to inform the patients that they are part of the ACO. Additionally, because the patients are assigned at the beginning of the contract, the provider can more easily track these patients and focus on the quality metrics for that population.
However, a key concern with prospective assignment is that patients don’t necessarily show up at a particular physician or practice just because they did so in the past.
Under the retrospective assignment method, the payer reviews the patient encounters that took place in the past year and calculates the payment based on who actually went to the provider. Retrospective assignment thus has the advantage of measuring what actually happened.
One concern with retrospective attribution is that the providers may not know who is assigned and thus may not implement some of the mechanisms of quality care management that are essential to controlling costs over time. Providers struggle because they don’t have a way to control whether or not their assigned patients receive care at their hospital or clinics, nor do they have control over the quality or cost of care patients receive outside of their facilities. The provider from the payer’s perspective may still be responsible for the costs or outcomes of all care regardless if the assigned patients show up in their clinics or hospitals.
From the patient perspective, retrospective assignment may be a benefit because the provider has to assume that every patient might be retrospectively assigned to them, and thus needs to provide high quality care to all. However, from the provider’s point of view, retrospective assignment is a very difficult way to run a business.
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9. Accountability in APMs
Works best for Medicare where people tend to stay in the same payer for years
Works less well for private insurers, where people frequently shift insurance plans.
APMs, as a way to drive quality outcomes, work well for systems like Medicare, where people tend to stay with the same payer for years. Once citizens in the U.S. reach age 65, they’re eligible for Medicare and it becomes their insurance provider. This allows Medicare to track the total cost of care for those people for years.
The situation is somewhat different with private insurance companies, where individuals change their insurance relatively frequently. This impacts the ability to track costs across a population of people over a number of years.
A final note on attribution is that it is a very consumer-friendly policy. If a provider organization wants to ensure that patients continue to get their care from that provider organization, they have to provide high-quality care in a way that makes patients return to them rather than going off to other physicians. It’s also possible for providers to lose an attributed patient to other providers, depending on the payer’s attribution method. For example, in Minnesota’s model if a majority of claims in the past 12 months are at another provider, then an old provider may lose that patient.
From the patient point of view, how the Medicare ACO model is designed is very patient-centered. The patient has the right to go to any Medicare provider, but the ACO is still responsible for the quality of care and cost for that individual.
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10. ACO Model Review
Let’s briefly recap the types of ACO models currently in place.
One of the most widespread is the model called Medicare Shared Savings Program, referred to as MSSP. A MSSP is an initial step into an ACO structure that doesn’t require the provider to accept much risk.
The Medicare Pioneer ACO model is the first ACO program in CMS’s Category 4, which consists of payment models that are farthest from fee-for-service.
The Medicare Advanced Payment ACO Program is a supplementary model designed for small health care organizations or rural health care organizations. This model provides some additional incentives to help these organizations become ACOs.
Medicare Next Generation ACO is a form of ACO designed to increase opportunities for providers to take on further shared risk and to move even farther from fee-for-service. Next generation ACOs are high risk but high reward.
MSSP and Medicare Advance Payment ACO models are lower risk and lower reward than these other models.
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11. What are the Goals for APMs?
Let’s review the timeline goals that CMS is presenting for the adoption of these APMs.
In 2016, 30 percent of CMS payments were being made to providers working under Category 2 APMs. By 2018, the goal is have a full 50 percent of HHS payments going to providers who are working under Categories 3 and 4 payment models.
So how are these models performing?
Image: created for use in lecture CC NC-BY-SA 4.0
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12. MSSP Performance 6.8 Table: Performance Year 2, MSSP ACOs 152 2,619
ACO Performance Category/ Start Date
No. of ACOs
No. of Beneficiaries (thou)
Total (mil)
Benchmark Spending
Benchmark Minus Actual Spending
Earned Shared Savings
Per Capita
Earned Shared Savings as a % of Total Savings
Negative
152
2,619
$25,078
-$683 $0
$9,576.50
-$260.90
$0.00 -
Positive w/in Corridor 89
1,323
$13,231
$168
$10,000.22
$127.35
Shared Savings 86
1,354
$14,190
$777
$341
$10,477.82
$573.62
$524.98
43.9%
Shared Savings (0% Quality) 6 34
$386
$29
$11,441.44
$870.69
Total
333
5,330
$52,885
$291
$9,922.51
$54.69
2012
111
2,016
$20,234
$294
$179
$10,036.73
$145.87
$280.41
43.0%
4/1/2012 26
334
$3,606
$47
$37
$10,474.90
$137.28
$329.15
44.0%
7/1/2012 85
1,672
$16,629
$247
$142
$9,946.52
$147.63
$270.05
42.8%
2013
103
1,773
$17,623
-$7
$95
$9,939.39
-$4.16
$219.53
2014
119
1,541
$15,028 $5
$68
$9,753.62
$3.11
$237.54
49.0%
$251.98
MSSP is a very big program. As of 2016, there are almost 8 million Medicare fee-for-service beneficiaries who are now enrolled or attributed to over 434 Medicare Shared Savings Programs.
MSSPs form when a group of physicians voluntarily work together with Medicare to deliver high quality health care services within Medicare’s Fee-for-Service ACO models. Due to inflation, there is an expectation that health care costs increase over time. For the U.S., the cost of health care tends to go up faster than other costs. In this case, the providers who participate in MSSPs are not expected to provide lower cost care, but it is expected that their cost of care will go up more slowly than financial models would have predicted.
In 2014, of the total $97 billion Medicare budget, the total shared savings equaled almost $780 million. Eighty-six of these ACOs generated savings, and of the $780 million in savings, the ACOs received $341 million.
Sources: Introcaso, D. & Berger, G., 2015.
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13. Medicare Advance Payment ACO Program Performance
The Advance Payment Model is designed for physician-based and rural providers who have come together voluntarily to give coordinated high quality care to the Medicare patients they serve. This special program is designed to encourage small and rural providers to make the necessary investment into the infrastructure, including Health Information Technology and changes in work flow, needed to support the care coordination models that would allow them to successfully be part of an ACO.
Source: CMS, 2016
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14. Pioneer ACOs Performance
The Pioneer ACO model was first introduced in Initially nationwide there were 32 applicants for the Pioneer ACO program. In 2016, 9 of the initial 32 remain.
The savings so far have been small. Specifically, these organizations have saved 0.02 percent of the Medicare budget.
Source: CMS, 2016
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15. Next Generation ACOs Source: CMS, 2016
Next Generation (NextGen) ACOs are based on the rules for ACOs that are emerging as of There are 21 ACOs participating in this model. As the model is new, performance results are not available.
However, some of the differences with this model may drive future performance.
First, there is even greater risk and greater reward than what was achieved in the Pioneer ACOs. There are more mechanisms to link the beneficiaries to the ACO. This is important because a problem with the ACOs is that Medicare beneficiaries don’t necessarily go to the providers that they were assigned to by the ACO contract.
Second, the model offers benefits to the provider organization to help them form a stronger bond with the patients who are in the ACO. This bond is important because, in the end, the provider organization is responsible for all the costs incurred in the care of those patients.
Finally, there are several features that CMS refers to as benefit enhancement tools, which help the ACO improve engagement with the patients they’ve been assigned. First, under the Next Gen ACOs, Medicare patients have greater access to home visits, telehealth services, and skilled nursing facility services, and CMS will pay more for these services. Second, there are opportunities to receive a reward payment. So the ACO itself can give patients a little extra payment for coming into and staying within the ACO.
Source: CMS, 2016
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16. CPC+ Comprehensive Primary Care Plus Category 3 model
Announced spring of 2016
20 regions in the country; 5000 practices in two tracks
Category 3 model
Built on FFS with incentive payments based on quality and utilization measures
Includes payment for care management
Health IT core component
CEHRT use required
Track 2 providers prove vendor support of Health IT needs, including reporting
HHS announced the Comprehensive Primary Care Plus (CPC+) Program in the spring of This is a multi-payer program, and the first step in implementation was to assess interest from payers in order to define 20 regions across the country. After that practices will be able to apply to participate and there are anticipated to be 2500 in each of two tracks for a total of 5000 practices. The program is scheduled to launch in January This is an APM Category 3, built on FFS with incentive payments based on quality and utilization measures. In addition there is a per member per month care management payment to offset costs of coordinating care. Health IT is a core component of the program, and the use of CEHRT is required in both tracks. In addition, Track Two providers need to include a letter of support from their Health IT vendor(s) that indicates that the vendor will support the practice around reporting and other Health IT needs.
Source: CMS, 2016
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17. What about States and Private Insurers?
Value-based contracts account for over 40% of payments in commercial market in 2014
States face issues similar to Medicare ACOs
Cost reductions not coming as quickly as hoped
Patients mostly unaware of ACOs
CMS may be the largest payer of health care in the U.S., but they aren’t the only payer. Therefore, to change the value equation in U.S. health care, it can’t be limited to the federal government as a payer. State and private insurers are also rapidly adopting ACO-like models as a way to pay health care providers.
In the commercial market (private insurance companies), value-based contracts cover over 40 percent of payments made. Private insurers are also contracting with their providers in these risk-based contracts, which are based on trying to control costs and achieve quality measures.
However, there are issues similar to those the federal government has experienced in trying to push the health care market to alternative payment model adoption. First, expected cost reductions are being realized as quickly as hoped. Second, most patients remain largely unaware of accountable care organizations. This lack of broad patient understanding has a large effect on the way people in the U.S. consume care.
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18. State Innovation Models
Through the State Innovation Models (SIM) Initiative, CMS is providing support to state-led multi-payer projects to explore APM options to improve quality and decrease costs for people covered under Medicare, Medicaid and the Children’s Health Insurance Program (CHIP). In these models, the majority of patients receive care that is patient-centered and coordinated across care settings. For example, if someone is suffering from schizophrenia (a behavioral health concern), and also has diabetes (a medical condition), a large effort to coordinate care exists so that the physician knows what the psychiatrist is doing and the psychiatrist knows what the physician is doing.
A growing number of states are focusing on the integration of physical health, behavioral health, and long-term services and supports under the umbrella of managed care. States expanding the scope of Medicaid managed care face a number of specific challenges, including the procurement and contracting for Medicaid health plans, the need for effective oversight of contracts and performance, and implications of the new CMS Rule regulating Medicaid and CHIP managed care which was released in May 2016.
Source: CMS, October 5, 2015
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19. Volume to Value Lecture c - Summary
Rapid rise of APMs
Ambitious goals by CMS
Variety of models range from very limited risk/reward to 100% non-FFS
Jury still out on ACOs
This concludes lecture c of Volume to Value.
In summary, this lecture provided an understanding of some of the details and concepts that underlie Alternative Payment Models in Category 3 and 4 of the HHS Payment Taxonomy.
These Alternative payment models, especially through ACO models, are catching on quickly for both CMS and private sector programs.
CMS has ambitious goals: 50 percent of Medicare providers with risk contracts by 2018.
A variety of models range from very limited risk and reward to 100 percent non-fee-for-service.
It is not yet clear whether accountable care organizations will have a big effect on bending the cost curve.
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20. Volume to Value Lecture c – References 1
Advance Payment ACO Model. (February 19, 2016). Centers for Medicare & Medicaid Services. Retrieved from
Comprehensive Primary Care Plus (February 19, 2016). Centers for Medicare & Medicaid Services. Retrieved from
Defining an Episode Logic for the Medicare Physician Resource Use Measurement Program: Background Paper for the November 10, 2009 Listening Session. (March 19, 2016). Centers for Medicare & Medicaid Services. Retrieved from
Earl, J. (2015, December 16). Four considerations when moving to value-based payment. Retrieved from
Health Reform Minnesota: About. (2015, July 20). State of Minnesota. Retrieved from
Introcaso, D., & Berger, G. (2015, September 24). MSSP Year Two: Medicare ACOs Show Muted Success. Retrieved from
Next Generation ACO Model: Frequently Asked Questions (FAQ). (April 5, 2016). Centers for Medicare & Medicaid Services. Retrieved from
No audio.
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21. Volume to Value Lecture c – References 2
Shared Savings Program. (November 2, 2015). Centers for Medicare & Medicaid Services. Retrieved from
Smith, V. K., Ph.D., Gifford, K., Ellis, E., Rudowitz, R., Snyder, L., & Hinton, E. (2015, October). Medicaid Reforms to Expand Coverage, Control Costs and Improve Care: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2015 and 2016 (Publication No. 8785). Retrieved from
State Innovation Models Initiative: General Information. (October 05, 2015). Centers for Medicare & Medicaid Services. Retrieved from
Tables and Charts
6.6 Table: Payment Taxonomy Framework. (2015, January 26). Centers for Medicare & Medicaid Services. Retrieved from
6.7 Table: Category 3 & 4 Payment Models. (2015, January 26). Centers for Medicare & Medicaid Services. Retrieved from
6.8 Table: Introcaso, D., & Berger, G. (2015, September 24). MSSP Year Two: Medicare ACOs Show Muted Success. Retrieved from
No audio.
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22. Volume to Value Lecture c – References 3
Image
Slide 7: Care and Payment Chain in ACOs, created for use in program
Slide 8: Prospective and Retrospective Population Attribution, created for use in program
Slide 10: Category 3 & 4 ACO Model Review, created for use in program
Slide 11: Timeline for APM Adoption, created for use in program
Slide 13: Advance Payment ACO Model [Digital image]. (February 19, 2016). Centers for Medicare & Medicaid Services. Retrieved from
Slide 14: Pioneer ACO Model [Digital image]. (April 22, 2016). Centers for Medicare & Medicaid Services. Retrieved from
Slide 15: Next Generation ACO Model [Digital Image] (May 5, 2016). Centers for Medicare & Medicaid Services. Retrieved from
Slide 18: Round One Awards [Digital image]. (October 5, 2015). Centers for Medicare & Medicaid Services. Retrieved from
No audio.
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23. Volume to Value Lecture c
This material was developed by Normandale Community College, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number 90WT0003
No audio.
Health Information Technology Workforce Curriculum Version 4.0