Alternative Payment Models

ModelDescriptionDelivery System Alignment
Pay-for-Performance (P4P)In P4P models, a portion of a provider’s payment is based on its performance on established metrics of quality, health outcomes, and efficiency. From a mechanical perspective, pay-for-performance is the easiest approach to value-based payment for payers as it maintains the existing FFS payment structure. However, payers and providers must identify performance metrics and providers must develop systems and capacity to collect, share, and track performance data.All Providers and Delivery System Models
Care CoordinationPayers generally reimburse care coordination services using a per member per month fee. The payment amount varies based on the services provided and the risk level of the patient. Providers must deliver all care coordination services within the monthly fee.PCMH, Health Homes, ACOs
Shared SavingsPayers and providers agree to a spending target for a set of services. The payer monitors the cost of services rendered against the spending target. If the costs for services are less than the spending target the providers may be eligible to share in the savings generated. If the total cost of care exceeds the spending target, the providers may be required to reimburse the payer for some or all of the excess costs. Generally, providers are only eligible to share in savings if they also achieve minimum quality and health outcome standards.ACOs, Retroactive Bundled Payment Models, PCMH, Health Homes
Episodic (or Bundled) PaymentsPayers pay a single price for a set of services for a given condition. For example, instead of paying for preoperative, surgical and rehab services separately, a payer pays a single flat rate to one provider or entity for all of these services. That provider or entity is responsible for paying the other providers who treated the patient during the episode of care. The providers are only responsible for covering the costs of services associated with that specific condition. The payer pays separately for unrelated conditions.Prospective Bundled Payment Models
CapitationIn a capitated model, payers pay a single per member per month payment for a set of services for a designated population. Capitation is most commonly used to pay commercial health plans to assume responsibility for delivering the health services for a defined population. The payer, in this instance, is usually either a government program (Medicare or Medicaid) or an employer.
MCOs, in turn, may “sub-capitate” or pay certain providers on a capitated basis for a set of services. This is most commonly used by MCOs to reimburse primary care providers.
MCOs, Primary Care Providers