Selecting a downside-risk payment model

Imagine a health care system where patients get the best possible care—and at an affordable price. That is the mission behind value-based health care. Under traditional fee-for-service arrangements, providers receive the same payment regardless of whether the treatment improves the patient’s outcomes. Value-based payment models, on the other hand, attempt to reimburse providers based on the treatment’s quality or outcomes, encouraging them to pick the treatments they believe will treat most efficiently and effectively. When implemented correctly, value-based payment models can both cut costs and help patients live healthier lives, benefiting everyone: patients, providers, and payers. However, moving from a traditional payment model to a value-based model can be an overwhelming and daunting task.

In upside-risk models, providers are rewarded for spending below a given threshold but not penalized if they exceed the limit, putting the risk entirely on payers. Downside-risk models are those in which the risk is either shared between payers and providers or assumed entirely by providers.

When designing a downside-risk payment model, it is important to consider the advantages and disadvantages of each one to select the best one given the circumstances. As a research economist with expertise in health care financing and payment, my colleagues and I have been working with the Center for Medicare & Medicaid Services (CMS) for over a decade evaluating, designing, and implementing a variety of value-based payment models. Drawing from these experiences, the infographic below describes the types of downside-risk models, explaining which types of providers or system they work best for, and some of the benefits and challenges of each one.

Health care doesn’t have to be a zero-sum game; by implementing value-based payment models, we can help align payers and providers to provide patients with high-quality care while saving money for both patients and the system.

To see how value-based care and downside-risk payment models might work in your organization, contact Denise Clayton and Kaajal Singh from our Health Care Financing team.