Value Based Reimbursement - Simplified - Part 2

Part 2: Risk Adjustment—How Medical Groups Get Paid

While all value-based reimbursement models seek to provide appropriate care to patients while controlling costs and adequately compensating providers through proper incentives, these arrangements can take a number of alternative forms, including:

 BUNDLED PAYMENTS: One payment, multiple providers

Under bundled payments, a single payment covers all of the services associated with an episode of care (such as a hip replacement or cardiac surgery), and may include inpatient, outpatient, and rehabilitation care. Payers calculate this fixed price for a given episode of care based on the historical performance of the hospital and providers. If the healthcare providers in the bundle successfully generate new efficiencies in care—such as better care coordination, less wasteful test ordering, etc.— these providers will generally be financially rewarded out of the savings. If spending exceeds the predetermined bundle price, the healthcare providers will typically bear the financial risk. The goal of a bundled payment is to get providers to work collaboratively to provide a higher quality of care while controlling costs.

RISK-SHARING: Win or lose together

Under risk-sharing arrangements, both the insurer and the providers can share the profits if they deliver care at less cost than the amount budgeted. Some accountable care organizations (ACO)—such as the Medicare Shared Savings Program (MSSP)—are structured this way, enabling the ACO to potentially share some achieved savings with Medicare. Risk-sharing arrangements can be structured so that providers or provider groups share only in the potential profits, or so they also take on some of the downside financial risk if the cost of achieved care exceeds the amount budgeted.

CAPITATION:  Medicare Advantage, HCC codes, and more

Health plans using capitation arrangements generally pay a provider an advanced fixed fee—referred to as Per Member Per Month (PMPM)—regardless of the amount or intensity of the services provided. The ranges of services provided—as well as the number of patients involved, the relative wellness or sickness of the patient population and the period of time during which the services are provided—typically determine the PMPM amount. For example, Medicare Advantage uses a patient’s 12-month Diagnosis history mapped to HCC Codes to create a Risk Adjustment Factor Score (RAF). This score is then multiplied by the base PMPM capitated rate to determine the PMPM for the next period of coverage. Because the agreed-upon capitation fee needs to cover the cost of care for people at many health levels, capitation creates an incentive for providers to control utilization—and healthcare costs—by avoiding unnecessary services.

In Part 3, we’ll discuss some of the basic things you need to know about HCC coding.

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