Payment and Delivery System Reform Basics

Accountable Care Organizations (ACOs)
Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who provide coordinated high-quality care to the patients they serve. Coordinated care helps ensure that patients, especially the chronically ill, get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the payer.  While ACOs are predominantly a Medicare initiative, some state Medicaid programs have launched their own models, sometimes with slightly different names. 

For more information, visit the Centers for Medicare and Medicaid Services’ Innovation Center webpage and this ob-gyn-specific presentation

Alternative Payment Models (APMs)
Alternative Payment Model (APM) is a catch-all term for payment that is not based solely on fee-for-service.  APMs may include episode groups (also referred to as bundled payments), shared savings, or full capitation.  APMs typically have some level of financial risk built in.  Some models have upside risk, others have downside risk, and some have both (“two-sided risk”).  Upside risk in payment models allows physicians to share in savings with no potential for losses, while downside risk places the physician at financial risk for losses.  Most APMs also have a quality measurement component. 

Shared savings programs typically set financial, and frequently quality, benchmarks, that physicians must meet in order to receive a portion of the savings they generated for the payer.  Shared savings usually mix fee-for-service payments billed at the time of service with data aggregated over some time span and then retrospectively reconciled.  Any shared savings would be distributed.  In upside-only models, there is no penalty for missing these targets, but in two-sided risk models, physicians would have to refund the payer based on the incurred losses.

Full capitation provides a set amount per patient that a payer will give to a physician to deliver and manage the patient’s care.  Typically, the capitated amount is given on a monthly basis, and is known as a per member per month (PMPM) payment.  The capitation is usually risk-adjusted based on the patient’s health conditions, and sometimes also adjusted for sociodemographic factors that influence health, but are out of the control of the physician.  Physicians are responsible for all of the care costs that a patient incurs even if costs exceed the capitated rate.

Episode groups can either be based on a procedure or a condition.  Procedure-focused episode groups are more popular because they have clear starting points and natural end points.  Condition-focused episode groups, on the other hand, can be harder to define, particularly for chronic conditions because of their on-going nature.  Some condition-focused episode groups focus on acute exacerbations of chronic conditions.  While difficult to develop and implement, condition-focused episodes will help the health system move to value-based care because they do not incentivize one type of procedure or treatment. .

Clinically-integrated Networks (CINs)

Clinically-integrated networks (CINs) are collaborations between otherwise independent health care providers to improve health care quality and contain costs.  CINs use evidence-based guidelines across providers to improve the delivery of care.  If CINs meet certain standards established by the Federal Trade Commission, the government providers a safe harbor for collective bargaining.

Episode Groups

Episode groups are a collection of services that are related to treating a condition (either chronic or acute) or performing a procedure.  Services that fall within in an episode group are both clinically and temporally related.  An episode may be performed by a single provider or practice or by multiple providers across settings.  Episode groups can be used to either measure resource use or bundle payments.  Both uses are intended to drive the delivery of more efficient care and reduce the provision of unnecessary services. 

Episode groups can be operationalized in one of two ways: prospective payment and retrospective reconciliation.  Prospective payments generally cover the entire episode, including all services related to the condition or procedure and to all providers rendering relevant care.  Payments are made to an accountable entity that in turn pays each provider who delivered care during the episode.  Savings or losses are not typically shared with the payer.  Although it is termed "prospective," payments are generally made after the episode ends based on a previously determined price for the episode based on what is deemed appropriate care for the episode.  Retrospective reconciliation is typically paid out on a fee-for-service basis, and after a set period of time, the target episode price and the actual average episode price are reconciled across all episodes attributed to a provider.  The accountable entity can share in any gains or losses along with the payer.

Procedure-focused episode groups have proliferated more so than condition-focused episodes because they have clear starting points and natural end points.  Condition-focused episode groups can be harder to define, particularly for chronic conditions, because of their ongoing nature.  To deal with the lack of precise timing, some condition-focused episode groups focus on acute exacerbations of chronic conditions.  While difficult to develop and implement, condition-focused episodes will help the health system move to value-based care because they do not incentivize one type of procedure or treatment.  

Patient-centered Medical Homes (PCMHs)
Patient-centered Medical Homes (PCMHs) are a primary care medical home model that provides continuous, comprehensive, and coordinated care.  PCMHs not only focus on somatic health, but also integrate behavioral health care into their practices.  PCMHs are responsible for arranging for specialty care that cannot be provided by the PCMH physicians.  Sometime these care coordination relationships are more formalized and are referred to as “medical neighborhoods.”

PCMHs often times must be accredited or certified by a national body in order to receive supplemental or enhanced payment.  Some accrediting bodies do not recognize ob-gyns as primary care providers and, therefore, will not certify their practices as PCMHs; however, there are other certifying bodies that are more permissive and do allow single-specialty obstetrics and gynecology practices to become PCMHs. 

For more information, you can visit the Agency for Healthcare Research and Quality’s webpage

Moving to Value-based Payments
The Secretary of Health and Human Services (HHS) announced goals for Medicare and the entire health system in 2015 to move away from fee-for-service toward value-based care.  HHS set a goal of tying 30 percent of traditional, or fee-for-service, Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements by the end of 2016, and tying 50 percent of payments to these models by the end of 2018.  HHS also set a goal of tying 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by 2018 through programs such as the Hospital Value-based Purchasing and the Hospital Readmissions Reduction Programs. 

To facilitate the move to value and create alignment across payers, HHS convened the Health Care Payment Learning and Action Network (LAN).  The LAN is a multi-stakeholder group, that includes HHS as a partner, that is focused on the accelerated adoption of alternative payment models by payers.  In March 2016, President Obama announced that HHS met its first goal of tying 30 percent of Medicare payments to alternative payment models that are linked with quality. 

For more information about the Department’s strategy to pay for quality, you can read Secretary Burwell’s Perspective in the New England Journal of Medicine

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Payment Reform Contact:   

Elizabeth Wieand
Program Director, Payment and Delivery System Policy

P: 202.314.2356
F: 202.484.7480



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Physicians have a responsibility to our patients and society to “do no harm” which includes providing cost-conscious medical care.

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American College of Obstetricians and Gynecologists
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