Alternative Payment Models – Payment Transformation in Healthcare

Srinivasan Sundararajan | November 2, 2021

The healthcare industry is in the midst of a transition from a system of payment based on the volume of services provided (fee-for-service) to payment based on the value of those services (value-based care and alternative payment models).

Payment transformation in healthcare is about how healthcare providers can change their economic incentives to encourage value over volume.

Traditionally, healthcare providers are paid in a ‘Fee-for-Service’ (FFS) model. This is exactly what it sounds like: every time you visit a doctor, have a blood test, a CT scan, or any other service, you (and your insurance company) pay separately for whatever service you have received. Over the course of a long treatment or a chronic condition, that can add up to a huge expense.

The healthcare providers are incentivized to order more tests and procedures, even when not needed in the FFS reimbursement model. These additional medical procedures may not be supported by evidence-based data.

Value-based reimbursements motivate clinicians to connect with patients and provide care appropriate to each individual’s circumstances. It is beneficial for patients as healthcare professionals are able to evaluate the care process, patient outcomes, and data.

An Alternative Payment Model is a payment approach that gives added incentive payments to provide high-quality and cost-efficient care.

Alternative payment models, or APMs, reward health care providers for the quality of care they provide, rather than the volume of services they furnish to patients. APMs are one way that insurers are moving toward a value-based payment system and away from the traditional fee-for-service system — a priority for both the private sector and the federal government.

The remaining sections of the article discuss the various Alternative Payment Models.

Accountable Care Organizations (ACO)

ACOs are groups of doctors, hospitals, and other healthcare providers, who come together voluntarily to give coordinated high-quality care to their Medicare patients. Participants are accountable for the cost and quality of care for the target patient population.

When an ACO succeeds in both delivering high-quality care and spending healthcare dollars wisely, it will share in the savings it achieves.

Initially, ACOs started to support the payments from federal plans like Medicare and Medicaid. Since then, commercial payers such as Aetna, Cigna, and United Healthcare have been busy adapting the government model into a more flexible effort that appeals to a wide range of providers. Accountable Care Organizations (ACOs) offer enormous opportunities for patients and providers to work together to achieve an enhanced quality of care, reduced costs, and improved health outcomes.

Accountable Care Organizations (ACOs) offer enormous opportunities for patients and providers to work together to achieve an enhanced quality of care, reduced costs, and improved health outcomes.

Episode Based Payments  

An Episode from the point of view of care is all services provided to a patient with a medical problem within a specific period across a continuum of care in an integrated system.

In other words, an Episode of Care is a patient’s entire treatment needed for an illness or an episode. The following diagram gives an overview of the life cycle of an episode.

Bundled payments represent one form of alternative payment models (APMs) that are designed to move towards value-based care by incentivizing providers to advance coordination and efficiency of care while also improving quality and outcomes at lower costs. With bundled payments, the total allowable acute and/or post-acute expenditures (target price) for an episode of care are predetermined. Participant providers share in any losses or savings that result from the difference between this target price and actual costs.

The Oncology Care Model (OCM) is a 5-year project led by the Centers for Medicare and Medicaid Innovation (CMMI) that requires practices to reduce the cost of care while improving quality and patient outcomes. The OCM is structured as a 6-month episode-based payment model that begins when a patient receives a qualifying chemotherapy treatment and includes the total care provided to the patient during that 6-month period, including non-oncology care.

Primary Care Transformation Model

Primary Care First is a set of voluntary five-year payment model options that reward value and quality by offering innovative payment model structures to support the delivery of advanced primary care.

Primary Care First is based on the underlying principles of the existing CPC+ model design: prioritizing the doctor-patient relationship; enhancing care for patients with complex chronic needs and high need, seriously ill patients, reducing administrative burden, and focusing financial rewards on improved health outcomes.

Comprehensive Primary Care Plus (CPC+) is a national advanced primary care medical home model that aims to strengthen primary care through regionally-based multi-payer payment reform and care delivery transformation.

GAVS Rhodium Framework for Payment Transformation in Healthcare

GAVS Rhodium[1], aims at providing solutions to long-standing data integration challenges faced by data and analytics leaders in a Value-Based Healthcare ecosystem.

Post pandemic, healthcare is at crossroads and is looking for ways to transform itself. Value-based care, a model that prioritizes patient health quality outcomes versus patient services volume, has the potential to be the silver lining of this pandemic. In that context, healthcare should also transform towards alternative payment models like Total Cost of Care (ACO) and Episode-based Bundled Payments.

[1] Rhodium does not aim to replace existing EMR/EHR Platforms used by Healthcare Providers, but creates a Data Fabric Layer on top of legacy systems across stakeholders and thus providing a unified view.

However, achieving the desired data maturity and the associated insights is not easy for current care due to legacy data platforms. In that context, GAVS Modernization Data Fabric Framework – Rhodium has all the building blocks and can be the one-time solution for Healthcare to achieve the desired outcomes.

About the Author –


Srinivasan Sundararajan

Srini is the Technology Advisor for GAVS. He is currently focused on Healthcare Data Management Solutions for the post-pandemic Healthcare era, using the combination of Multi Modal databases, Blockchain and Data Mining. The solutions aim at Patient data sharing within Hospitals as well as across Hospitals (Healthcare Interoprability), while bringing more trust and transparency into the healthcare process using patient consent management, credentialing and zero knowledge proofs. Back to blogs