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Value-Based Reimbursement Knowledge Hub

Health care payment reform aims to fix the broken reimbursement system in the U.S. See what it takes to thrive in this new, value-based payment environment.

Risk Affects Anyone Billing Medicare

If your practice bills Medicare, you’re required to report PQRS under the Value-based Modifier (VM) program. VM payment is determined by assessing cost and quality as above or below average. Under VM, to determine if a practice’s cost is above or below average, Medicare uses the providers risk adjustment factor (HCC RAF) to determine if the reported cost is reasonable or unreasonable given the reported sickness level of their patients.

Risk score is based on the diagnoses documented and billed for by providers. The more complicated the diagnosis, the higher the patient’s risk score – the higher the payment. It’s important for providers to accurately represent the sickness of their patient populations by reporting an accurate risk score through their EHR and billing services.

Risk and Accountable Care Organizations (ACOs)
With the passage of the Affordable Care Act came the sudden growth in the number of ACOs across the nation — with roughly 64 ACOs in 2011 jumping to 744 in 2015*. ACO contracts are established by Medicare or private payers and task hospitals and health systems with providing care to patient populations without exceeding predetermined financial limits.

The main payer contract that got ACOs off the ground is Medicare Shared Savings Program (MSSP). The Medicare Shared Savings Program (MSSP) encourages coordination among providers to improve the quality of care for Medicare Fee-For-Service (FFS) beneficiaries and reduce unnecessary costs. Eligible providers, hospitals and suppliers may participate.

Other Risk-Based Contracts
Payers offer other contract options that also take a patient population’s “risk” into consideration when determining payment.

  • Bundles: Offering fixed reimbursement for episodes of care per a payer contract, bundled payments motivate providers to keep costs of care low. If costs exceed the fixed amount, the awardee is held financially responsible for the difference (meaning they don’t get paid more). But when the clinical outcome is good and the costs are kept low, then the awardee is eligible to share in the financial gains. Payments for bundles can be prospective or retrospective from the time the services are rendered, depending on the contract.
  • Capitation: Most commonly used by HMO's, these fixed-rate payments were established to cover a specified set of services for a specified eligible population. In capitation contracts, the payment to a provider for a particular service is “capped” at a certain amount. Expenses for that service beyond what is agreed upon are not covered. Payments are typically made per member per month rather than individual payments for individual services. 
  • Alternative Quality Contract (AQC): The (AQC) is a pay-for-performance healthcare agreement pioneered by Blue Cross Blue Shield of Massachusetts. These contracts combine a fixed per-patient payment with substantial performance incentive payments (tied to the latest nationally accepted measures of quality, effectiveness, and patient experience). The goal is to give the patient the best care result from the most appropriate treatment (e.g. based on the best medical evidence), by the right kind of provider, at the right time, and in the most appropriate setting.**


** “Blue Cross Blue Shield of Massachusetts, The Alternative QUALITY Contract.” May 2010. Available at:

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