Exploring Healthcare Value Based Payment Models and Flexible Payments

While the United States may be a global economic leader in many industries, affordability and equal access to quality healthcare are areas where we still painfully lag. The passage of the Affordable Care Act (ACA) in 2010 created mandates aimed at steering us in a new direction of how we deliver and pay for healthcare. Using effective models from other countries with access to universal healthcare, Medicare has become the test bed for alternative healthcare payment systems such as value-based and flexible payments.


Healthcare value based payment models are focused on payment based on the value and/or outcome of the healthcare provided, instead of being based on “activity”. This type of model creates incentives for collaboration and coordination across providers to improve patient health outcomes. Value based payments give providers the ability to increase the quality of care provided by being better able to dedicate needed time to each patient, to more fully address their needs. It also supports the value of preventative care alongside treating existing and emergent conditions, which can create massive healthcare cost savings for patients and health plans over time, while improving overall population health.

A closer look at healthcare value based payment models

First, let’s explore how some of these alternative payment models work.

Accountable Care Organizations (ACOs)

As described by the Commonweath Fund, “ACOs are networks of physicians, hospitals, and other providers that voluntarily come together to be held accountable for the cost and quality of care for attributed patients.” These networks pool together to share financial risks of not providing effective care.

Fee-for-service linked with quality and value

Fee-for-service is a model that currently exists in US healthcare as the standard payment model – it pays providers based on activities, often based on pre-approved “playbooks” for treatment of specific conditions. The shift to being linked with quality and value means that providers are still able to be paid by activity, but those activities are less bound to a standard set of treatments and more strongly linked to performance and patient outcomes.


Population-based Global Payments

This model creates a spending target around defined groups of patients – often the participating providers are also an ACO – with the goal of reigning in spending. The overall goal is to increase the provision of high quality, effective healthcare care over low-value ineffective activities that produce poor patient outcomes.

The benefits of healthcare value based payment models

Now let’s explore several of the benefits of healthcare value based payment models:


When healthcare payments are tied to actual outcomes, providers are given more flexibility in how they provide care, allowing for them to use leading research- and evidence-based innovations and approaches in patient care. Providers are better able to collaborate and coordinate to provide broad-spectrum care.

Improved patient outcomes and equitable access to care

When providers are rewarded through value based payments, they are able to achieve several key objectives. This includes providing more preventative care, which can dramatically improve individual patient outcomes, thereby increasing overall population health. Providers are also better able to work with underserved communities and help patients overcome barriers to care that persist with standard payment models.

Cost savings

Value based healthcare payment models help the entire healthcare system realize cost savings, from top to bottom. Providers waste fewer resources on low-quality care, preventative care helps stave off higher costs of condition management, provider ACOs share more financial risk with health plan providers, and patients overall get more value for their dollar when it comes to care.

Positive impact: value based payment metrics

Let’s explore the impact of these alternative healthcare payment models through some value based payment metrics:

For health plans

Commercial health plans are using alternative healthcare payment models such as value based payments for a third of their current payments, and growing. For studies focused on Medicare providers using APMs, hundreds of millions of dollars were saved over several years. However, to achieve long-term meaningful results, these models will need to be expanded.

For healthcare organizations

Healthcare organizations reduce the provision of low-value care when rewarded for performance and actual patient outcomes. Currently 10-20% of provided care is considered low value. To push this number towards zero, we need deeper investment in healthcare value based payments with larger system-wide buy-in and effects.

For patients

As system-wide costs go down, patients will find health plans more affordable and their out-of-pocket costs will continue to go down. Increased efficiency within the healthcare system, as well as the shift to valuing actual outcomes, will increase overall patient well-being, while helping prevent conditions that are expensive and complex to treat once they have emerged.


Healthcare value based payments are on the rise and as these programs expand, they will be able to realize greater benefits to patients, payers, and providers. Increased efficiency will reduce wasted time and monetary resources, performance- and outcome-based care will help close equity and care gaps, and overall population health will rise. While large system-wide changes are challenging to implement, their value to all impacted stakeholders make the transition well worth the effort for everyone.