Medicaid Concepts: Value-Based Payment Models

This is part of our Medicaid Concepts series, in which we provide a high level overview of key concepts in the Medicaid industry today.


What do we mean by value-based payment?


Defining value-based care / payment remains one of the largest challenges in all of the healthcare space, and Medicaid is no different. While everyone agrees that the concept means something akin to “pay more for better outcomes,” providers and payers continue to struggle to arrive at agreement on definitions, how to adjust for population mix and what incentives actually work.


Some terms you may hear related to value-based payment include: shared savings, gain sharing, risk corridors, incentives, withholds and pay for performance.


A sub-industry of solution vendors leverages the focus on value-based payments to drive sales and growth. These range from care management companies and specialized provider groups that use HEDIS performance as core to their value proposition, all the way up to software companies that have emerged to help providers keep track of the complex set of requirements in their value based contracts.


On the Medicare side, CMS implemented several value based programs meant to change the way providers are paid (as part of ACA). The most recent ones were rolled out in 2019: Alternative Payment Models (APMs) and the Merit-based Incentive Payment System (MIPS).




What role does Medicaid play?


Medicaid programs have also invested significant effort in migrating from the legacy fee for service system to value-based payment models. Early efforts included health homes and patient-centered medical homes (PCMH).


More recent efforts have attempted to leverage managed care plans to hold providers accountable for quality. Most states use HEDIS-based incentive systems for managed care payments. Many states require health plans to place an increasing percentage of their provider payments in value-based contracts. In these arrangements, the Medicaid agency establishes benchmarks and contracts with an External Quality Review Organization (EQRO) to oversee the plan performance.


States also have implemented innovative solutions separate from their managed care arrangements. Tennessee has a mature episode-based payment program that rewards providers for better outcomes on comprehensive bundles.


A few states have attempted to use Medicaid Accountable Care Organizations (ACOs). Many states also participated in the CMS-funded State Innovation Models (SIM) program to pilot new ways to use value-based payment approaches.



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