Payment Accuracy in Value-Based Care Contracts

Research Article

Austin Med Sci. 2021; 6(3): 1056.

Payment Accuracy in Value-Based Care Contracts

Mackenzie A¹, Wang J¹, Teppema S¹ and Duncan I²*

1Santa Barbara Actuaries Inc, 3221 Calle Mariposa, Santa Barbara, CA, USA

2Department of Statistics & Applied Probability, University of California, Santa Barbara, CA, USA

*Corresponding author: Ian Duncan, Department of Statistics & Applied Probability, University of California, Santa Barbara, CA 93106, USA

Received: August 30, 2021; Accepted: October 30, 2021 Published: November 06, 2021


Reimbursement for health care services is transferring more risk away from payers and toward health care providers in the form of Alternative Payment Models (APMs), also known as Value-Based Care (VBC) models. VBC models cover a wide variety of forms but all include guarantees by providers of services to improve quality of care and/or reduce cost. Types of risk include performance risk, contract design risk or stochastic risk (because of the random variation in health care services and costs). A form of contract risk that can be a significant driver of cost is model risk, defined as the probability that the savings calculated at contract reconciliation will deviate from the actual savings generated. To estimate the degree of risk we quantify the potential variance in outcomes in a naïve population prior to intervention and the components that could affect outcomes, using examples of maternity and type 2 diabetes. This analysis has implications for both participants in, and designers of value-based contracts.

Keywords: Alternative payment models; Value-based care; Health care management organizations


The health care industry is undergoing a transformation as it focuses not only on health care treatment but also on population health management. Health care payers, such as insurance companies, employers, and the government (via Medicare and Medicaid), have developed new models of reimbursement to health care providers and Health Care Management Organizations (HCMs) who work to improve population health, that involve shifting some or all of the risk of a population’s outcomes away from the payer and to the provider or HCM. This shift is amplified with activity from the Centers for Medicare and Medicaid Services (CMS) as it has implemented many new Alternative Payment Models (APMs), also known as Value- Based Care (VBC) models.

Financial risk arrangements and value-based care

Traditionally, healthcare services have been reimbursed with some type of transactional or fee-for-service payment arrangement. As payers have faced escalating costs and stagnating quality, interest has grown in transferring financial responsibility to the providers of healthcare services as a means of incenting improved outcomes and reduced cost [1,2]. Value-Based Care (VBC) arrangements represent “a path to achieving the aspirational goals of the Institute for Healthcare Improvement’s “triple aim”: improving the patient experience of care, improving the health of populations, and reducing the per capita cost of health care, as well as improving clinician experience, a fourth aim that others have proposed [3]. These VBC arrangements have been increasing in size (number of participants), volume (number of arrangements), and scope (proportion of payments linked to financial and quality performance, as well as the range of covered medical conditions) in recent years. Medicare and Medicaid have been leading the way in developing VBC arrangements, but commercial plans have been adopting and scaling VBC and financial risk arrangements as well [4-6]. According to Change Healthcare, the number of US States and Territories with value based reimbursement programs has increased from only 6 in 2013 to 48 in 2018 [7]. Recent legislation, such as the Affordable Care Act, the Protecting Access to Medicare Act, and the Medicare Improvements for Patients & Providers Act, have contributed to VBC momentum [8].

Value-based care models take many forms. Figure 1 shows the terminology and relationship of different models along two dimensions: Services at Risk and Degree of Risk transferred in the contract. Any contracting entity must determine where on the spectrum it is comfortable contracting. Numerous studies have examined the mechanics and financial implications of different established payment models, for example [9,10]. The degree of risk of is denoted on the horizontal axis, from the traditional fee-for-service model (the lowest risk form of contract for a provider, and most risky for a payer) through gain- and loss-sharing models, to fullycapitated models, in which healthcare risk is completely transferred to the provider/HCM. The vertical axis indicates the extent of services whose risk is transferred ranging from costs incurred in managing a single condition to “total cost of care” where a provider is responsible for all of a patient’s cost.