How To Choose A Value-Based Reimbursement Model

This article was written by Lisa Miller.

As the healthcare sector moves towards value-based care, one challenge hospitals face is how to choose the value-based reimbursement model that is most appropriate for their organization.

In this blog, I highlight four value-based reimbursement models, together with five essential questions to consider before making that decision.

Bundled Payment Model

The bundled payment model provides a single negotiated payment for all services included within a specific procedure or condition. The American Hospital Association describes bundled payment programs as: “…’the middle ground’ between traditional fee-for-service payments (minimal financial risk for providers) and ‘full capitation’ (full financial risk)…”

Shared Savings Model

Shared savings arrangements represent a potentially higher level of reward for healthcare providers. They can also offer an enticing incentive because hospitals are rewarded to reduce the total spending on their patients.

In this model, the healthcare provider is paid a fixed amount to provide care for a group of patients. If the cost of the care falls below this budget, the hospital shares the savings with the payer.

Shared Risk Model

The shared risk model represents the next level of risk arrangement. Under this model, providers receive performance-based incentives to share cost savings. These are also combined with disincentives to share the excess costs of healthcare delivery.

Full Risk Capitation Model

In this fourth model, the healthcare provider, or group of organizations, are held fully accountable for their patients’ health outcomes. Under a capitated payment model, the healthcare provider receives a set fee for each patient which covers all of the costs associated with that patient for a specific period of time. This includes, for example, medication, surgery, a visit to the ER, hospitalization and so on. That amount is paid whether or not an individual seeks care.

Top 5 questions to consider when choosing your value-based reimbursement model:

To assist your decision-making process in selecting a value-based reimbursement model, I recommend asking the five questions listed below. Due to the numerous factors that must be taken into account, I also suggest taking a holistic perspective:

1. Have you analyzed your supply and service spend, not just for the last 12 months but for the last 3 months? This is essential as it will identify any recent changes and influence your final decision.

2. Have you met with your supply chain and OR to identify any emerging or new costs and technology that would also impact this decision?

3. Do you really understand all of the costs associated with the supplies and services that make up the costs for consideration in your reimbursement model? This should include the non-PO spend that is often overlooked or missed. You must consider all costs when deciding on a value-based reimbursement model.

4. Have you met with physicians to discuss how their practice and treatments may change in the future as you negotiate a reimbursement model? If they plan to change their practice this is an important element to consider during your decision-making process.

5. Have you considered adopting a test approach and negotiating one or two risk models with the provider in question? This will help your hospital to focus on achieving successful results, measure that success and then present your findings to your organization.