Tag: Fee-for-service

Accountable Care Organizations Solutions

Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high-quality care to their Medicare patients. Their goal, as is the goal of coordinated care, is to ensure that patients, especially chronically ill patients, get the right care at the right time while avoiding unnecessary duplication of services and preventing medical errors. When an accountable care organization succeeds in delivering high-quality care and spending health care dollars more efficiently, it will share its saving with the medicare and Medicaid program.

Now healthcare organizations and doctors are facing the most sweeping payment transformation in history as there has been an accelerating shift to different types of value-based and shared-risk models which impacts hospitals operations and bottom lines.

While there are many definitions of ACO Health Solutions, they all imply the shift in reimbursement from procedure-based, fee-for-service to fee-for-quality, disease or condition-based reimbursement with capitated payment to healthcare delivery organizations on a per-case and per-capita basis. So how do you structure it? The ultimate structure of these contracts is a point of continued evaluation and debate, and the government, payers, providers, and employers are experimenting with a wide variety of contract types in an effort to identify those that are most effective.

Despite these unknowns, the market’s overarching direction is remarkably clear: the payment models that successfully reduce costs and improve quality will survive. Momentum is building to find the models that work and quickly.

Today’s fee-for-service contracts reward health care organizations that increase the volume of services that they provide. Broadly, value-based contracts attempt to use payment as an incentive for other aims, such as cost reduction and quality improvement.

Many of these payment models attempt to improve on the current fee-for-service system while adjusting the model in a range of ways—small and large—in an attempt to more adequately compensate ‘value’ in health care. Other models, like capitation, represent a break altogether from the current fee-for-service system. Providers, payers, and employers across the country are experimenting with a wide variety of these payment models in an effort to find contract types that best improve care delivery. There are, however, some at-risk contract types which are pretty common. They are:

Shared savings:

Shared savings initiatives give providers the opportunity to benefit or ‘share’ the cost reductions that they drive through their improvement initiatives. Providers and payers negotiate a benchmark rate, typically representing what the expected payment would have been in the absence of an ACO. In an upside only arrangement (also called a one-sided model), the provider’s risk is limited. They benefit from any savings but don’t incur losses if spending goes over the target. In a model with a downside (also called a two-sided model), providers typically have a greater financial stake but also go at risk for losses should total payments surpass the benchmark.


Under capitated payment models, providers receive a set per-member-per-month payment and are at full financial risk for the members in their population.

Today’s healthcare leaders face the great challenge of developing the competency for this new world in a market that, paradoxically, rewards a different set of values. Despite the challenge, building these new competencies is absolutely critical. Straddling two fundamentally competing payment models is sustainable only while value-based payment contracts represent a small subset of overall agreements. As providers and payers identify effective value-based contracts, it’s likely that the market will hit a tipping point where there’s a rapid acceleration of value-based payments. Organizations that are unprepared for this shift put themselves at serious risk.

Fee-for-service plus bonus:

Also called pay-for-performance contracts, these are traditional fee-for-service contracts that include incentive payments for hitting pre-defined targets.

Bundled payments:

Bundled payment initiatives attempt to reduce care fragmentation and improve the overall quality of care by aligning the financial incentives between all providers (for example, hospitals, physicians, and post-acute care providers) that touch a single episode. While these payments increase coordination across the episode, they don’t provide any incentive to reduce episode volume.



In order to remain financially viable while excelling under free-for-value contracts, health practitioners and doctors have to have a different set of competencies. To succeed under fee-for-service contracts, health care leaders need to be skilled at driving growth of high margin. To succeed under value-based payments, health care leaders must do the exact opposite. To reduce costs, preventative services are emphasized far more than acute care services which are usually high cost. These high-cost services should be used as sparingly as possible. To improve quality, leaders need to identify and minimize unnecessary variation from evidence-based practice.