How Value-Based Care Works for Doctors

In value-based care models, doctors and hospitals are paid for helping keep people healthy and for improving the health of those who have chronic conditions in an evidence-based, cost-effective way.

In the past, when doctors treated patients, there was a great deal of focus on improving health.

However, as the billing system and insurance process became more convoluted, there was a focus on ensuring doctors were getting paid, rather than simply solving health challenges.

This dual focus for doctors led to mixed health outcomes, and as a result, longer periods of recovery for some patients.

Several years ago, the government introduced a concept called ‘Value-Based Care’.

According to the CMS website, there are three outcomes:

– Better care for individuals

– Better health for populations

– Lower cost of healthcare

To work toward these value-based care outcomes, there are several alternative reimbursement models currently being tested in the marketplace, including pay-for-performance, bundled payments, shared savings/shared risk, and capitation. 

This article explains the process for doctors billing patients under these new systems.

Pay for Performance

The Pay for performance (sometimes known as P4P or value-based purchasing), is a payment model that offers financial incentives to healthcare providers for meeting certain performance measures. Pay for performance systems usually evaluate process quality and efficiency, such as measuring blood pressure, lowering blood pressure, or counseling patients to stop smoking. This model also penalizes health care providers for poor outcomes, medical errors, or increased costs in their patient treatments.

Bundled Payments

The Bundled payment model (also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing) is defined as the reimbursement of health care providers on the basis of expected costs for clinically-defined episodes of care. It if often described as a middle ground between fee-for-service and capitation. Bundled payment provides advantages to bot providers and patients. By removing inefficiency and redundancy from patient-care protocols (e.g. duplicate testing, delivering unnecessary care) it saves time and most importantly cost of treatment.

Shared Savings / Shared Risk

Shared savings (also know as Shared Risk) is a payment strategy that offers incentives for providers to reduce health care spending for a defined patient population by offering them a percentage of net savings realized as a result of their efforts. The concept has attracted great interest, in part fueled by Affordable Care Act provisions that create accountable care organizations and by the movement among medical home pilots to make payment methodologies more performance-based.


The Capitation Model pays a physician or group of physicians a set amount for each enrolled person assigned to them. This is for a set period of time, whether or not that person seeks care.

Providers generally are contracted with a type of Health Maintenance Organization (HMO) known as an Independent Practice Association (IPA). This medical group enlists the providers to care for the HMO-enrolled patients. The amount of remuneration is based on the average expected health care utilization of that patient, with greater payment for patients with significant medical history.

As more providers move to a value-based care model, there will be new trends in both better health outcomes and better profitability. Ideally, the best match of both the factors will show which model is best for the future of the healthcare industry.