Value-Based Payments 101: Aims to Provide Better Healthcare for Individuals, Improved Population Health, and Lower Costs.

One of the most interesting recent changes in today’s healthcare market is the shift to value-based payments.


Depending on your role within your healthcare organization, you may not know the meaning of that term. If so, this article is for you! If you’re already well-versed in value-based payment bundling, check back later because we’ll be diving into trends and specifics in future articles.

In the traditional fee-for-service (FFS) model, Medicare reimburses providers for each service they perform—essentially rewarding quantity over quality. A patient with a single root injury or illness might be treated several times, by several providers, at several facilities, over several days, for that same health problem. Because reimbursements for care are siloed in this model, it is entirely possible, and even likely, that none of these providers would talk to one another about this single patient they are treating for a single problem. When care isn’t coordinated, it is at risk of being inefficient and incomplete.

Enter the Centers for Medicare and Medicaid Services (CMS) and its concept of value-based payments. The idea is to compensate healthcare providers for the quality of care they provide rather than the quantity. CMS developed value-based programs to support its goals of better healthcare for individuals, improved population health, and lower costs.

In the value-based payment model, payments for related services are bundled, meaning that a single payment will be made to all the providers who participate in a single, clinically defined episode of care, such as a knee replacement. Bundling the payments for such services not only increases the predictability of medical costs, it also encourages coordination and improved initial delivery of care. Providers must reduce unnecessary services and avoid complications to maximize their reimbursement dollars.
CMS launched value-based payments with five initial programs, the first three of which began in 2012:

  • 1. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
  • 2. Hospital Value-Based Purchasing (VBP) Program
  • 3. Hospital Readmission Reduction Program (HRRP)
  • 4. Hospital Acquired Conditions (HAC) Reduction Program
  • 5. Value Modifier (VM) Program, also known as the Physician Value-Based Modifier (PVBM)

The original program, ESRD QIP, was groundbreaking, linking payments directly to metrics for quality of care. This program reduces payments to participating facilities that fail to meet performance standards.

The Hospital VBP Program was created to deliver higher-quality, more efficient care and to improve the overall patient experience. Under this program, Medicare withholds 2% of payments for participating hospitals for a fiscal year. The hospitals are then gauged on various metrics, based on how they performed previously as well as their performance compared to all other hospitals. Their performance against these metrics determines how much of that remaining 2% they will receive from Medicare.

The HRR Program monitors the readmission rates of applicable hospitals and reduces reimbursements to those hospitals with excess readmissions. This incentivizes hospitals to involve patients and caregivers in post-discharge planning.

The purpose of the HAC Reduction Program is to decrease hospital-acquired conditions such as pressure sores, perioperative hemorrhage, and postoperative sepsis. Applicable hospitals that fall within the worst-performing 25% of all applicable hospitals will have their Medicare payments reduced by 1%.

The VM Program focuses on FFS payments made for individual claims, paying physicians and other health service providers for their performance based on both quality and cost metrics.

These programs and others that the CMS has introduced over the past decade in efforts to improve care, reduce cost, and invest in population health require providers to manage risk in unprecedented ways. As a trusted partner, TractManager can give your organization insight into your data, aiding in compliance and risk management.

CMS: What are the value-based programs?
Becker’s: Payer-provider partnerships and market trends


Erin Harvey

Senior Technical Writer

Erin Harvey joined TractManager in 2011.


Related Blogs:

Related Resources:

TractManager’s Contract Analytics tool helped a Northeast U.S. health system analyze 6,000+ contracts in six weeks instead of two years, saving more than $320K in staff salaries.

TractManager’s Contract Analytics tool helped a Northeast U.S. health system analyze 6,000+ contracts in six weeks instead of two years, saving more than $320K in staff salaries.

Manually reviewing the overwhelming volume of data contained in your contract assets to ensure compliance is a daunting and incredibly time-consuming task, which most organizations do not have the time or resources to undertake ...

Interested in Better Margins and Better Healthcare Compliance?

Learn why the nation’s top health systems choose TractManager for contract lifecycle management.

Share This