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Value-based reimbursement: A model that benefits patients, practices, and payers

Something’s happening in healthcare reimbursements. The change? A shift from traditional fee-for-service models to more nuanced value-based reimbursement models. 

value based reimbursement

At a Glance

  • Healthcare is shifting from fee-for-service to value-based reimbursement models, focusing on patient outcomes and cost efficiency.
  • Implementing value-based models involves adopting advanced technologies, revising payment structures, and enhancing patient care quality.
  • Value-based reimbursement aligns provider incentives with patient care quality, transforming healthcare delivery to benefit providers, patients, and payers.

Something’s happening in healthcare reimbursements. The change? A shift from traditional fee-for-service models to more nuanced value-based reimbursement models. 

The American Academy of Family Physicians (AAFP) came out with a value-based care survey in 2022 which found that 49% of practices that responded are participating in some form of value-based payment. But the data doesn’t stop there. Another 18% of practices that responded are developing the ability to move to this model. That’s a lot of healthcare providers switching up how they receive reimbursements.

The goal of this transition? To align healthcare provider incentives with patient outcomes and deliver high-quality, cost-effective care. Or at least, that’s the hope. Let’s explore the types of reimbursement models that currently exist, why the shift to value-based from volume-based is happening, and how to manage that shift in your healthcare practice.

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What are the types reimbursement models in healthcare?

Healthcare systems use different types of reimbursement models to compensate healthcare providers for the services they deliver to patients. 

The following are a few of the primary reimbursement models.

1. Fee-for-service (FFS) 

Fee-for-service is the most widely used payment model. The 2022 Commonwealth Fund International Health Policy Survey of Primary Care Physicians found that 71% of respondents were receiving FFS reimbursements. In this model, healthcare providers receive payment for each service or procedure they deliver to a patient. Payments are made based on the volume of services provided, encouraging more services and tests, which can potentially lead to increased healthcare costs for patients.

2. Capitation 

Capitation involves paying healthcare providers a fixed amount per patient for a specific period. It doesn’t matter what services they deliver; providers must offer all of the necessary services within that fixed payment. This model encourages efficiency in care delivery but risks rationing services.

3. Bundled payments

Under bundled payment models, a single payment is made to cover all services related to a specific treatment or condition. This approach aims to streamline costs for a particular episode of care, encouraging collaboration among healthcare providers to deliver cost-effective and high-quality care.

4. Pay-for-performance (P4P) 

Pay-for-performance models tie reimbursement to metrics or outcomes that a healthcare provider achieves. They receive financial incentives for meeting or exceeding performance measures related to patient outcomes, efficiency, or specific quality benchmarks.

Each reimbursement model has its advantages and disadvantages. Each model also affects how services are delivered because of how they motivate providers to provide care. 

Our main focus in this article is value-based reimbursement models — such as bundled payments and pay-for-performance — because of the massive shift in healthcare towards this model.

What is value-based reimbursement model in healthcare?

The value-based reimbursement model in healthcare focuses on the value and quality of care provided to patients rather than the quantity of services delivered. 

The idea is that value-based reimbursements encourage healthcare providers to deliver high-quality care that improves patient health outcomes — with the added bonus of controlling costs. It motivates providers to focus on preventive care, patient engagement, and delivering comprehensive care that manages chronic conditions.

The value-based reimbursement model in healthcare focuses on the value and quality of care provided to patients rather than the quantity of services delivered. ”

Some key elements of value-based reimbursement include:

1. Emphasis on outcomes 

Value-based reimbursement places a huge emphasis on outcomes. Providers are rewarded for achieving positive health results, like improved patient health, reduced hospital readmissions, or better disease management. An example of this is a shared savings model. Providers receive a share of cost savings achieved by delivering high-quality care at a lower cost.

2. Quality metrics

Value-based models often involve the measurement of specific quality metrics or performance indicators. Providers need to meet or exceed these metrics. This can include patient satisfaction scores, clinical quality measures, sticking to best practices, or cost reduction benchmarks. This really lets medical software with comprehensive data analytics like Tebra shine. Strong tools are integral to a value-based system because they’ll help practices track these metrics.

3. Risk-sharing arrangements 

Value-based reimbursement includes risk-sharing arrangements between payers and providers. In a risk-sharing model, providers share financial risks if they fail to meet certain quality or cost targets. This is the epitome of accountability and efficiency in care delivery. Financials on the line are a big motivator for providers. 

4. Population health management (PHM)

Value-based encourages population health management. PHM includes the steps healthcare organizations take to improve the health outcomes of a specific group of individuals. It focuses on preventive care, health education, and proactive management of chronic diseases to improve overall health outcomes and reduce healthcare costs over the long term.

Value-based reimbursement models aim to line up the goals of the providers, patients, and payers. This shift away from fee-for-service models toward value-based care hopes to transform the delivery of healthcare, benefiting both patients and the healthcare system as a whole.

What is the key difference between value-based and volume-based care?

At the most basic level, the fundamental difference between value-based care and volume-based care — or fee-for-service — is their core objective. 

Value-based care, at its core, focuses on outcomes. ”

Volume-based care really is about quantity. The more patients a provider sees, the more money they make. This can potentially lead to unnecessary procedures or repeat visits to drive revenue. In fact, in a study of 2,106 physicians, “71% of physicians believe that providers are more likely to conduct unnecessary procedures when they can profit from the services.”

Value-based care, at its core, focuses on outcomes. When a patient has a positive outcome, the doctor receives a financial benefit. In this model, doctors can be more invested in the overall journey of their patients.

Transitioning from fee-for-service to value-based reimbursement

The transition from fee-for-service to value-based reimbursement can be a challenge for healthcare providers. If a practice wants to adapt, they have to do it well. That means navigating 3 pillars to transition from FFS to value-based reimbursement: enhanced technologies, new payment structures, and impeccable care coordination between healthcare teams to improve the quality of patient care.

Here are some tangible ways a healthcare practice can begin to make this transition. Remember, making the switch will take time. Tackling these items is a great starting point.

1. Institute upgraded technology for data collection and analytics

If the new reimbursement model involves being paid proportionate to patients' health outcomes, a you'll need a way to track those outcomes accurately. Technology like Tebra makes it easy for a practice and its patients to collect, revise, and track health data is going to be your best friend.

Some top-line things to think about are:

  • Implement advanced data analytics: Use data analytics tools like Tebra to track and analyze patient outcomes and treatment efficiency. Basic data analytics alone aren’t going to cut it anymore.
  • Focus on comprehensive patient records: Ensure comprehensive and accurate patient records, as they play a critical role in demonstrating the quality of care. Make collecting this information — from intake to dismissal — easy on patients.
  • Invest in staff training: Train staff on detailed and accurate data collection. Use office administrators as a front line of defense to collect the correct data and keep it up to date to help the new value-based model.
  • Adopt a patient-centric approach: Focus on collecting data that reflects patient satisfaction and outcome improvements. Update forms to ask specific questions to guide the patient to describe their view on their health outcomes.
  • Leverage new technology: Use electronic health records (EHR) and other healthcare IT systems to streamline data collection and analysis. The current system may not be up to the task.

2. Learn a new way to calculate and collect payments

In value-based reimbursement models, payments are often based on anticipated costs associated with patient care. This can look like population health management. How much does a practice typically bill for treating someone who is, say, diabetic? If a healthcare practice doesn’t know, they need to know.

Working in this value-based model means analyzing historical data and health outcomes to predict the cost of care for a particular patient group. Look at anticipated costs and factor in patient complexity, chronic conditions, and anticipated care needs.

In a risk-sharing or shared savings model, the prediction of these numbers will affect an overall bottom line. Take the time to evaluate these costs, or you may lose money.

On the other hand, fee-for-service doesn’t compensate providers for certain things like follow-up calls. With a value-based reimbursement model, many insurers pay providers for secure messaging with patients. This is something a practice can build into those bundles or packages they’re creating to increase revenue.

While a healthcare practice may have to shift how payments are collected, there are lots of opportunities for revenue growth in this model.

3. Improve the quality of patient care and your bottom line at the same time

The top goal with value-based reimbursement is — and always should be — patient care. However, quality of care can align with increased revenue when done right. 

Here are some considerations to look out for patients while looking out for the bottom line:

  • Seek out partnerships outside of medical spaces: Local community centers and non-profits can be strong partners. These spaces can connect a practice to certain populations — older people with chronic conditions, people in recovery, or mothers — so they can understand their needs. Connecting with these populations can help you develop bundled programs and better predict cost assessments for shared risk or savings programs. It can also bring in new patients to a practice and offer support to these patients they may not have known existed. Win/win.
  • Connect with patients: A positive doctor-patient relationship can affect outcomes. With Medicare and other insurers paying out for communications with patients, they can connect with patients and get paid. Investing in an easy-to-use communication tool like patient text messaging or a patient portal can benefit relationships and outcomes.
  • Collaborate with other care providers: Consider joining an accountable care organization (ACO) to collaborate with. Not only will it give patients well-rounded care, but you can share the risk and the rewards of meeting outcomes. This will take some research on the provider’s part. They’ll need to understand what rights and obligations belong to the ACO, and what rights and obligations they are responsible for.
  • Manage chronic conditions: Patients with chronic conditions need regular care and a solid plan to increase their quality of life. Providing bundled packages can keep them coming back for more, reduce their overall costs, and offer potential payment boosts for a provider. It’s really important to track their outcomes while working through their care plan to prove achieving better outcomes.

Value-based reimbursement model: A slow but necessary change

As healthcare continues to evolve, don’t get left behind. Embracing value-based reimbursement models increases patient care quality and optimizes costs. Shifting to quality over quantity will need preparation, technological advancements, and dedication to patient-centric care. But this new model is the way forward. The effort will be worth it.

Tebra can help your practice thrive under a new value-based model

Tebra offers a complete operating system to help your practice track necessary data, communicate with patients, and collect payments. Learn more.

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Jenn Green

Jenn Green has been a freelance writer for 8 years. She is a certified digital media marketer and an expert at SEO and building email marketing strategies. Her passion lies in writing engaging and impactful content for organizations.

Reviewed by

Terri Joy

Terri Joy has over 25 years of experience in physician coding, billing compliance, and revenue cycle management. She is the author of “E&M Coding Clear and Simple” and has worked with 4 major university faculty practices.

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