Value-Based Care Alternative Payment Models: A Smarter Approach to Healthcare
As healthcare costs continue to rise, both employers and providers are looking for better ways to deliver high-quality care while keeping expenses under control. Value-based care (VBC) alternative payment models (APMs) are a step in this direction, offering a smarter approach to paying for healthcare services.
Unlike the traditional fee-for-service (FFS) model, where providers are reimbursed for each test, procedure, or visit, APMs focus on patient outcomes and efficiency. These models encourage better care coordination, preventive care, and cost-effective treatments, benefiting both employees and employers by improving health while reducing unnecessary spending.
How alternative payment models work
Instead of rewarding healthcare providers based on the volume of services they perform, APMs incentivize them to improve patient health. This means fewer unnecessary procedures, better chronic disease management, and a stronger focus on prevention. When providers successfully lower costs while maintaining or improving care quality, they are rewarded financially. If they fail to meet cost and quality targets, they may also share in the financial losses. This shift aligns provider incentives with patient well-being, creating a more sustainable and effective healthcare system.
Types of value-based care alternative payment models
1. Accountable care organizations (ACOs)–A team-based approach
An accountable care organization (ACO) is a network of hospitals, primary care doctors, and specialists who work together to coordinate care for patients. Instead of treating patients in isolation, these providers share information, develop comprehensive care plans, and aim to prevent unnecessary hospital visits. When an ACO lowers healthcare costs while maintaining or improving patient outcomes, the resulting savings benefit both the participating providers and the employers or health plans funding the care.
For example, an ACO managing a group of employees with chronic conditions like diabetes or heart disease will focus on preventive care, lifestyle coaching, and medication adherence to keep them healthier. As a result, employees stay out of the hospital, miss fewer workdays, and have better long-term health outcomes.
2. Bundled payments–all-in-one pricing
Under the bundled payment model, a single fixed payment is made for an entire episode of care, rather than charging separately for each service. This means that a knee replacement, for example, will include the surgery, hospital stay, rehabilitation, and follow-up visits all under one price.
This model ensures that providers work together to manage costs effectively. If complications arise and additional services are needed, the hospital or surgeon absorbs the extra cost rather than passing it on to the employer or patient. Employees benefit from clear, upfront pricing, fewer surprise bills, and better coordination among their healthcare providers.
3. Patient-centered medical homes (PCMHs)–proactive, continuous care
A patient-centered medical home (PCMH) is a team-based primary care model where a designated group of providers manages a patient’s overall health. The goal is to provide continuous, coordinated care, ensuring that employees get preventive screenings, follow-ups, and chronic disease management without needing to navigate the healthcare system alone.
For example, an employee with high blood pressure and early-stage diabetes in a PCMH will have regular check-ups, a personalized health plan, and easy access to specialists when needed. Instead of waiting for symptoms to worsen, they receive proactive care that keeps them healthier and prevents costly hospitalizations.
4. Pay-for-performance (P4P)–rewarding quality over quantity
In a pay-for-performance (P4P) model, healthcare providers receive financial incentives for meeting specific quality goals such as reducing hospital readmissions, improving patient satisfaction, or controlling chronic diseases. This means that doctors are rewarded not just for treating illnesses but also for ensuring patients get better and stay healthy.
For instance, if a healthcare provider successfully helps 80% of diabetic employees lower their blood sugar levels within a year, they may receive a performance bonus. This model ensures that employers are paying for real health improvements rather than just a high volume of doctor visits.
5. Capitation– fixed payment for comprehensive care
Capitation models take an entirely different approach to healthcare payments. Instead of billing for each service, providers receive a fixed amount per patient per month or year, regardless of how many services the patient uses. This encourages providers to keep patients healthy by offering preventive care and early interventions rather than waiting until a major health issue arises.
For example, if an employer pays a healthcare provider a set fee per employee, the provider is responsible for managing all of their health needs within that budget. This encourages a strong focus on prevention, early diagnosis, and avoiding costly hospital stays.
6. Shared savings and shared risk – a balanced approach
Some models, like shared savings and shared risk, combine elements of multiple payment structures. In these arrangements, providers earn financial rewards from the employer or health plan if they reduce healthcare costs while maintaining high-quality care. However, if costs exceed expectations or quality standards aren’t met, the providers may also share in the financial losses, absorbing a portion of the extra costs
For instance, if a hospital reduces avoidable ER visits by 10% while keeping employees healthy, the hospital receives a portion of the savings generated for the employer or insurer.. However, if costs increase due to unnecessary services, the hospital may bear part of the financial burden. This creates a balanced approach that rewards efficiency and holds providers accountable for both outcomes and costs.
Curious about how this model works in action? Check out these real-world value based care examples to see the impact on both costs and patient outcomes.
Why Employers Should Consider Alternative Payment Models
Traditional fee-for-service models can lead to rising healthcare costs and fragmented care, where employees receive excessive tests, duplicate procedures, and avoidable hospital stays. Alternative payment models provide a more structured, cost-effective way to manage employee healthcare while improving outcomes.
For employers, this shift means:
✔ Lower long-term healthcare costs due to fewer unnecessary treatments
✔ Healthier employees with fewer sick days and improved productivity
✔ More predictable healthcare expenses resulting in better financial planning
✔ Higher employee satisfaction with improved access to preventive care and better health outcomes
As the healthcare industry continues to evolve, more businesses are realizing that value-based care payment models are the future. Investing in high-quality, cost-effective healthcare for employees not only improves their well-being but also contributes to a more productive and financially stable workforce.
If you’re considering implementing a value-based care model for your employees, now is the time to explore which alternative payment structure works best for your business needs. Let’s create a healthier, more cost-efficient future together.
To better understand the financial structures behind this approach, explore these key value based care alternative payment models that are transforming how healthcare is delivered and reimbursed.
