Valence Health Models of Value-Based Reimbursement White Paper_4061FDF6-FB07-3D0E-5D3D1D36E12D3A5B_

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Financial Opportunity & Incentive Alignment VALUE-BASED SPECTRUM P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK PROVIDER- SPONSORED PLANS Today’s hospitals and other healthcare providers who deliver traditional, fee-for-service medicine are in the midst of navigating significant changes in the way they conduct business and care for their patients. Competition among providers and increasing pressure from public and commercial payers to lower costs and improve care are driving them away from long-standing volume-based healthcare models, and toward so-called “value-based care” models. These models seek to more fully align payment and objective measures of clinical quality. Indeed, the only questions most of today’s providers will face in the not-too-distant future—if not already—are not if they’ll be joining the value-based healthcare movement, but when and, beyond that, which particular care and risk model to join. The various models, several of which will be presented herein, fall along a continuum, with the resources and level of clinical and financial integration needed for a given provider to succeed steadily rising, along with a concurrent rise in risk and rewards for each type. Indeed, the payment models cannot be separated from changes in care delivery; thus, they require increasingly tight hospital-physician alignment, which can be achieved through physician employment, entering into service line co-management arrangements, clinical integration, or other methods. 1 Historically, one payment model has dominated the healthcare provider payment landscape: fee-for-service (FFS). Generally speaking, FFS describes the arrangement under which a healthcare provider renders a treatment or test to a patient in return for payment, either from the patient directly, from a third party, such as an insurance company, or some combination thereof. It is widely acknowledged, however, that the FFS model rewards volume and intensity of service. Essentially, the more admissions, testing, procedures, and treatments a provider or hospital delivers, the more money that provider stands to earn. Indeed, the FFS model is widely seen as an underlying driver for the skyrocketing cost of healthcare over the past 30 years. Attempts began in the 1980s and 1990s to reign in these rising costs through the concept of managed healthcare organizations. But the concept fell out of favor with the public and legislators, owing largely to its payor-centric implementation and emphasis on limiting utilization of healthcare services, particularly specialty services. Models of Value-Based Reimbursement A Valence Health Primer © 2013 Valence Health. All rights reserved. 1 Figure 1: Value-Based Spectrum
Pay for Performance (P4P) In the early 2000’s, the concept of “pay for performance” (P4P) emerged as a more popular tactic for aligning provider payment with value. Under the typical P4P model, financial incentives or disincentives are tied to

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