Pharmacy OneSource Blog

The Future of Value Based Healthcare Regulations

Posted on 03/23/16


For several years, value-based healthcare has been incrementally changing U.S. healthcare. As we approach the end of the first quarter of 2016, it appears that this is the year value-based healthcare will continue to be a key driver in healthcare planning.

What’s changed? Timing, pace and expectations:

  • The Department of Health and Human Services (HHS) has announced that it plans to link 90% of Medicare payments to value-based metrics by 2018.

  • Between August 2014 and February 2015, the percentage of hospital payments associated with value-based contracts doubled, with 42% of hospitals reporting that value-based payments accounted for at least 10% of their revenue last February.1

  • Twenty-two percent of hospitals expected these contracts to represent at least 50% of their revenue by 2017.

  • There are now 761 accountable care organizations (ACOs) with 1,056 different payment arrangements. Among the commercial arrangements, 121 insurers account for two-thirds of the payments. ACOs cover more than 23 million people and about 20% of those are under value-based, capitated contracts.2

Medicare payments and these commercial arrangements have increasingly shifted risk from payers to providers, to the consternation of hospitals and healthcare systems. But, the results have not borne out critics’ worst fears, despite the rocky start reported with early ACOs. “The longer an ACO is involved in the Medicare Shared Savings Program, the higher its savings rate,” Andrew Croshaw, president of Leavitt Partners, told Managed Care Magazine.3

Healthcare organizations are realizing that addressing value-based care sooner is better than later. One of the hurdles faced has been the length of time organizations take to make the transition. A white paper by the American Medical Group Association notes that more than 40% of those surveyed said it would take them three to five years to accept downside risk; one in six said it would take at least six years.4

With Medicare and commercial payers pushing to make the transition quickly, those organizations that implement value-based care initiatives will have an advantage when the time comes for everyone to start sharing risk.

Better than expected financial results have reduced some of the fear associated with accepting downside risk. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) may encourage even more healthcare organizations to move to reimbursement programs that include two-sided risk.The law finally vanquished the Medicare Sustainable Growth Rate (SGR) formula, replacing it with two kinds of incentive payments.

Under the Alternative Payment Models, providers can receive a 5% bonus from Medicare each year. Under the Merit-Based Incentive Program, providers would receive bonuses under a complex calculation of quality, resource use, electronic health records and practice improvement. Those who go with the APM plan must accept downside risk for a minimum of 25% of their payments, a proportion that will rise to 50% by 2021. ACOs can choose to move to a downside risk arrangement this year. Most of them will have to select either the Alternative Payment Models or the Merit-Based Incentive Program by 2019.

How has your hospital embraced value-based payment? How has it changed the provision or quality of care?

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  1. DiChiara J. Hospitals’ Value-Based Revenue Increasing Significantly. RevCycle Intelligence. April 14, 2015.


  3. Kelley T. On or off track? 2016 could be the year that value-based payment arrives--or maybe not. Managed Care. December 2015.

  4. Speed CA, Stempniewicz N, Couch G. Taking Risk: Where Healthcare Financing Is Going and How to Get There. American Medical Group Association. September 2015.

  5. MACRA Could Push More ACOs to Downside Risk. AISHealth. February 2016;7(2).

Topics: Clinical Surveillance

About the Author

Deb Oroszlan is the Marketing Director for Pharmacy OneSource - Wolters Kluwer.