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Qcentive Alternative Payment Model (APM) Issue Brief Series: Introduction

Health care organizations across the U.S. are moving away from traditional fee-for-service reimbursement in favor of value-based payment models. Qcentive’s series of APM Issue Briefs is designed to help health care leaders successfully navigate this complex transition.

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Overview: Understanding New Payment Models

The healthcare industry’s transition to rewarding value over volume is well underway and widely expected to continue.  The U.S. Department of Health and Human Services (HHS) has set a goal that 50 percent of its payments to healthcare providers by the end of 2018 will be covered by an alternative payment model, or APM, that ties payment to quality or value. Private payers and state Medicaid programs have followed suit and continue to implement and explore programs that emphasize incentives for high quality and cost-efficient care.

The key element defining an APM is the link between provider payment and care quality, cost-effectiveness and patient engagement.1  APMs take many forms, but all of these models are designed to move provider payment away from traditional fee-for-service (FFS) arrangements. FFS pays a provider for each individual service, offering a clear financial incentive to increase service volume, but few incentives to improve the quality of care. Equally important, FFS does not reward providers who invest in programs that coordinate patient care or promote population health.  By linking payment to quality and value, APMs are designed to reward providers for high quality, patient-centered care and address the shortcomings of FFS reimbursement.

Types of Payment Models

The Centers for Medicare and Medicaid Services (CMS) has described a framework for provider payment that outlines different payment models and their attributes.2  This CMS framework can be summarized using three types of payment models as shown in Figure 1:

Figure 1. A Framework for Provider Payment Models, including APMs
Figure 1. A Framework for Provider Payment Models, including APMs

The first category describes traditional FFS payment models with no link to quality of care. The second models include FFS with some payment or reward to providers for investing in infrastructure, reporting quality results, or meeting quality targets. These second type of payment models are designed to incent higher quality, but are not considered APMs since they fail to incorporate key APM innovations such as financial risk-sharing by providers relative to a target or benchmark amount, or linking payment to services delivered to a patient across providers and over time, such as population-based or bundled payment. Payment models found in this second category can be considered steps along the way to an APM.


The third type of payment models, APMs, require a provider to manage a set of procedures, an episode of care, or all services for individuals in a population. Targets, or benchmarks, are established for both quality and the cost of care. Providers share in any gains or losses relative to those benchmarks. In this way, APMs reward providers based on the value delivered – the quality or outcome achieved at an efficient level of cost. 3

Population-based APMs rely on a person-centered or population focus, covering all, or a wide range of healthcare services – providing greater incentives for care coordination and health management.4  Under these models, a payer generally sets benchmarks for quality and cost for all the services necessary to manage a designated population for a set period of time. Population-based models promote the concept of a single payment for each individual, covering all of their care.

APMs designed around episodes of care, or “bundles,” are patient-centered, with a focus on managing care for a discrete clinical event for a patient or the treatment of a condition or set of conditions. Payment bundles may be defined around surgical procedures, such as the expected services required to deliver a total joint replacement or a back surgery. Bundles for treating specific clinical conditions, such as cancer, cardiovascular, or perinatal care, are other examples.5

As part of its Bundled Payments for Care Improvement (BPCI) Initiative, CMS has implemented payment bundles describing the care related to an acute care inpatient hospital stay.[1] In addition to the inpatient stay itself, CMS bundles for payment relevant pre- and post-services, such as pre-operative testing, hospital readmissions, and post-discharge nursing and rehabilitative care. Similar to population-based APMs, benchmarks for quality and cost performance are established for bundles and providers are rewarded based on their performance relative to these benchmarks. Bundled payment models promote the concept of a single payment for the delivery of a procedure or the treatment of a condition – providing incentives for health systems and care teams to improve cost and quality and to coordinate care.

APMs can differ in other important ways. Some APMs allow providers to share financially in the success of meeting a cost or quality benchmark, but protect them from losses if the benchmarks are not met.  In other models, providers also share in the downside risk of failing to achieve a benchmark. APMs can also differ based on how providers are paid.  Most APMs rely on a FFS payment architecture where providers continue to be paid for services delivered, with a reward or penalty determined by a retrospective analysis of actual performance versus a benchmark. Other models use a prospectively determined amount, covering an individual’s care for a period of time or for the care required to deliver a bundle of services.  Most models adjust payments or benchmarks for differences in patient risk. Figure 2 below describes the key features of typical population-based and bundled payment APMs.

Figure 2. Key Features of Population-Based and Bundled Payment APMs
Figure 2. Key Features of Population-Based and Bundled Payment APMs

Designing, Implementing and Managing APMs: A Series of “How-To” Issue Briefs

While the concept of transitioning to value-based healthcare payment is well understood, developing, implementing and managing APMs can be complex for both payers and providers. Payers and their provider partners are faced with a number of important decisions in designing and implementing an APM and administering these models and their associated contracts.  How organizations address these challenges will have a significant impact on their ability to create a sustainable model and achieve program success.

Qcentive is preparing a series of APM Issue Briefs designed to help organizations understand and address the key challenges involved in defining and implementing a value-based payment model. These briefs will:

  • Focus on the two most prevalent forms of an APM today – population-based models and bundled payment models;
  • Describe an issue in the context of designing and contracting under an APM and provide illustrative examples;
  • Provide recommendations; and
  • Address the inherit complexities and options involved with a specific design component of an APM.

While the concept of transitioning to value-based healthcare payment is well understood, developing, implementing and managing APMs can be complex for both payers and providers.

While the briefs will look at the two models separately, it is important to note that interdependencies exist between their components. This requires users to examine issues in a more holistic way, and assess the cumulative set of decisions surrounding an APM and its desired and expected outcomes.

For each form of an APM (population-based and bundled payment), the Qcentive APM Issues Brief Series will cover topics such as:

  1. Establishing Cost Benchmarks and a Baseline Budget: Setting the initial contract budget, including various approaches to setting financial benchmarks for the initial contract year and a budget based on the size and composition of the designated population or mix of patients;
  2. Contract term: Determining the appropriate contract term;
  3. Benchmark and Budget Trending: Choosing a methodology to set the growth in benchmark and budgets based on a variety of factors including the general increase in the cost of medical care, members’ health status, plan benefit design and program objectives;
  4. Risk-sharing relationships: Defining risk-sharing relationships between health plans and providers. Determining whether risk-sharing percentages should be fixed or variable over the contract term, and assessing shared upside gainsharing and downside risk between the payer and the provider;
  5. Included and excluded services and costs (or carve-outs): Determining the inclusion or exclusion of specific types of care and adjusted benchmarks and budgets to reflect the defined set of services;
  6. Quality measures: Selecting appropriate quality measures for a population-based or bundled payment design, by setting (inpatient or ambulatory) and by type (process or outcome). Setting benchmarks and weighting the selected measures to determine appropriate rewards and penalties. Incorporating these measures and benchmarks into the contract terms;
  7. Contract settlement methodology: Selecting claims run-out periods, determining settlement frequency, determining timing of risk sharing, and including appropriate charges;
  8. Member attribution: Under population-based models, selecting a methodology for attributing plan members among providers/provider groups;
  9. Provider protections: Determining financial caps and other protections, such as reinsurance and risk corridors, to protect providers against outlier claims;
  10. Supporting and engaging key stakeholders: Approaches towards effective engagement with a diverse set of stakeholders, including providers, member populations, employer accounts, and internal constituents within your organization;
  11. Negotiating with provider partners: Assessing opportunities and strategies for contracting and applying a defined APM strategy across your provider networks; and,
  12. Assessing program performance: Measuring the success of an APM along a number of dimensions, including prioritizing opportunities for improvement.


Qcentive is reinventing the way healthcare payers and providers work together to improve care quality and lower costs. Our mission is to make it radically easier for organizations to build highly successful value-based payment relationships. Our solutions support the full life-cycle of value-based contract models and are built on a robust cloud-based technology platform. The Qcentive team combines decades of experience in healthcare analytics, payment and operations with a knowledgebase derived from the largest body of value-based payment experience in the US.

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1 The Healthcare Payment Learning and Action Network launched by HHS describes APMs as moving toward a model of person-centered care that involves, “high quality care that is both evidence-based and delivered in an efficient manner, and where patients’ and caregivers’ individual preferences, needs, and values are paramount.” 

2 The Healthcare Payment Learning and Action Network, 2016.

3 Examples of APMs currently in use include the Medicare Shared Savings (MSSP), Primary Care Model and Pioneer ACO Programs, the Medicare Bundled Payments for Care Initiative (BPCI), state-organized bundled payment programs implemented in Arkansas, North Carolina and Ohio, and the advanced population-based Alternative Quality Contracting (AQC) model adopted by the Blue Cross Blue Shield of Massachusetts.

4 Population-based models can cover an entire population or a subset, such as patients with diabetes, end-stage renal disease (ESRD) or cardiovascular disease

5 State of Ohio Medicaid Program, 2016. State of Arkansas Health Care Payment Improvement Initiative, 2016. 

6 CMS. Bundled Payments for Care Improvement (BPCI) Initiative: General Information.