business of pediatrics

Understanding Value-Based Care

Healthcare is beginning to transition away from fee-for-service care, and toward value-based care.

While initiated by Medicare, some say that this paradigm shift will spread across the industry to private payers.
According to an
article from Modern Healthcare, "more insurers and providers may be willing to enter risk-based contracts with Medicare's announced commitment... this really means that contracting for a result or an outcome is really going mainstream if Medicare is doing it." Also, "executives at United Healthcare Group, Aetna, and Anthem, formerly Well Point, have also pledged to increase the use of quality and cost-control incentives." In light of this trend, value-based care and how to achieve it is a topic to become familiar with. "There's been a sea change in the payment environment" says Dr. Neil Kirschner of the American College of Physicians when interviewed by Whitney McKnight. With value-based care, physicians are paid according to quality and efficiency, as opposed to the fee-for-service model, which pays doctors based on volume of services and often results in unnecessary procedures and higher costs.

What Factors Determine My Payment With Value-Based Care?

Under value-based care, practices will be paid based on:

Quality of Care: Did the patient have a quality experience? Was the patient treated with evidence-based practices? What was the patient's level of discomfort during treatment and did the patient experience any delays in accessing care?

Outcomes: Did the patient experience a good outcome for their condition? What was the health status achieved and was it sustained?

Efficiency of Care/Cost Containment: Did the provider keep costs down while still providing appropriate care? For example, could a generic rather than brand name drug be prescribed, or could diagnostic tests be cut out if not deemed essential?

As these factors shift much of the financial risk to the providers, they will need to closely manage outcomes. This differs from the fee-for-service model, where providers are paid for services performed despite patient outcomes.

How Will I Be Paid Under Value-Based Care?

With value-based care, there are several risk-based payment models that payers may use. Depending on the payer, some examples are:

  1. Bundled Payments
  2. Shared Savings
  3. Capitation
  4. Pay-for-Performance

Bundled Payments

According to the American Academy of Pediatrics (AAP), bundled payments are designed to encourage teamwork and the coordination of patient care and services. With providers working together, the thought is that the quality of care will go up and the cost of care will go down via the elimination of duplicate services that can often occur outside a team approach. With bundled payments, rather than each provider being paid separately, all providers share one payment for the whole range of expected services. The inherent risk here is that if the cost of care exceeds the predetermined budget for the condition, the provider does not get paid more but instead takes a loss on any expenses above and beyond the original paid amount. However, if the care provided comes in under budget, the provider stands to gain, as they would receive more money than if they had billed under a fee-for-service model.

Shared Savings

A similar model, with shared savings there is a contract between a provider and a payer, with a predeterminded budget for care. When the care provided to a patient comes in under budget, those cost savings are distributed between the provider and the payer.


An article published by the American College of Physicians describes capitation as "a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of health care services." The amount to be pre-paid takes into account factors such as:

  • What services were provided?
  • How many patients are being seen, over what period of time?
  • What are the local costs and average use of these services in this geographic location?

Often with capitation models, a percentage of the payment is held by the payer until the end of the fiscal year. This is a safety net for the payer, and does not always work in favor of the physician. If the health plan does poorly overall, the payer retains this portion of the payment to make up for losses. If the health plan does well, the additional percentage is released to the provider.

Pay for Performance

As outlined by the Health Care Incentives Improvement Institute, Pay for Performance (P4P) models take into account:

Financial Incentives

Performance measurement based on:

Structure: How easily can the patient access care and what is the quality of care? Is there use of an EHR?


Clinical measures based on data from claims.

Patient Engagement: where payers provide information about "high-value" providers and give patients incentives to go to them. This in turn pushes providers to up their quality and value of care so as not to lose patients to other practices.

How Can I Be Successful At Moving My Practice Toward Providing Value-Based Care?

The shift to value-based care neccesitates change. The way a practice has always been run is not the way it can continue to operate if the goal is to meet these new requirements. The previously quoted Dr. Kirschner speaks of what needs to increase in a practice in order to find success by providing some examples:

  • Increase patient engagement in care
  • Increase access to your practice by adding after-hours or weekend appointments
  • Increase care coordination among multiple providers
  • Increase the level of patient education

It takes team-based care in order to provide a higher quality of patient-centered care. A solo provider would have a hard time meeting all of the requirements associated with value-based care. One of the biggest things you can do to be successful is to form a team. Consider adding to your practice:

  • Additional physicians
  • Nurse Practitioners
  • Physician Assistants
  • Care Coordinators
  • Social Workers / Mental Health Providers
  • Additional Administrative Staff

In an interview with Whitney McKnight, Dr. Nitin Damle, incoming president of the American College of Physicians, outlines his suggestions for success with value-based care. He mentions the importance of having a goal or plan in place for the steps you will take. Next, the formation of a team to accomplish those goals is imperative. After that, make sure you have an EHR in use that is able to incorporate the quality measures needed to achieve value-based care requirements. An EHR used by all providers on a team will also streamline the process of providing care, in that all team members will have access to the same information regarding the patient. Next, have your funding in place. There are costs associated with providing value-based care, from additional personnel, to infratstructure and IT. Make a budget, and determine how you will finance these changes. Some funding could come via the incentives associated with value-based payment models, but you must quality for those incentives by being able to reach the goals for value-based care you have set.

Lastly, remember that change does not happen overnight. Incremental but consistent changes add up, and within 1-2 years a practice can successfully transition to meeting the requirements of value-based care.

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Courtney Edelson

For several years, Courtney Edelson was the Marketing Content Manager at PCC. She wrote for the PCC Blog, and created additional content to keep pediatricians up to date on important healthcare industry news and trends. In addition to being a lifelong writer, Courtney brought nearly a decade of healthcare practice management experience to her work.