Value-Based Payments in Healthcare

As a patient, understanding and paying healthcare bills can be challenging and confusing. It is also challenging and confusing how healthcare delivery networks get paid. Healthcare networks and insurance carriers are working toward more processes based on the quality of care delivered.

The process of getting paid is ever changing, moving from Fee-For-Service (payment for the services provided) to Value Based payments (payments based on the quality of care delivered). The American Academy of Family Physicians defines Value Based payment as “a concept by which purchasers of healthcare (government, employers, and consumers) and payers (public and private) hold the healthcare delivery system at large (physicians and other providers, hospitals, etc.) accountable for both quality and cost of care.”

What does this mean for patients? It means improved quality at lower costs. Healthcare networks should be continuously working to improve the quality of care, regardless of how they get paid. This includes managing costs to provide care, reducing high cost procedures and tests, and developing standardized processes to improve the overall health of patients. These are all items patients should hope are occurring regardless; yet, may not be, which is a reason healthcare costs continue to increase.

Healthcare networks have invested in systems to collect and analyze data to help in these efforts. Examples of Value Based payments include bundled payments, shared savings and shared risk – all with desired outcomes of improving quality and lowering cost. Bundled payments allow patients to pay a flat amount for services. For example, if you need a hip replacement, the bundled payment bill you would receive has only one total cost – covering everything in the procedure. This bundled payment may be 10+ percent lower than the cost of a non-bundled procedure.

Healthcare networks work to improve quality and lower costs, resulting in organizations keeping more of the payment received. Shared savings sets a target for the healthcare network’s total cost of providing care. At the end of the year, if total costs are below target, the healthcare network receives a bonus payment from insurance carriers because the network has done a good job at providing cost-effective care. Lastly, shared risk is similar to shared savings; however, it requires a healthcare network to pay a penalty at the end of the year if total cost is higher than the target (i.e. the healthcare network and insurance carrier are sharing risk in the patient care).

In 2016, HFM joined an accountable care organization or ACO (Bellin Health Partners). Through collaboration with other ACO healthcare providers, the overall quality of care improves for everyone. For HFM, participation in the ACO continues to advance HFM toward Value Based payments, allowing HFM to be paid for the high quality and cost-effective care already delivered to the many patients trusting us for their healthcare. In the end, patients and the community benefit through lower costs and improved health.

About the author.

Brett Norell is president and chief executive officer at Holy Family Memorial. Reach him at