November 17, 2021

New value-based models allow for surgeon buy-in, cost savings

The growth of value-based healthcare models is changing the way physicians and hospitals provide care. In value-based models, providers are paid based on patient outcomes. The “value” is derived from measuring health outcomes against the cost of delivering the outcomes.

This balancing act has now become more achievable with new guidance from the Department of Health and Human Services’ (HHS) Centers for Medicare and Medicaid Services (CMS) and Office of Inspector General (OIG).

With some of the regulatory hurdles reduced, programs have the ability to define and monitor value-based purpose and activity through the alignment of physicians and hospital teams.


From volume to value

Value-based enterprise is a new term created by CMS in its December 2, 2020, Final Rule—Modernizing and Clarifying the Physician Self-Referral Regulations—to describe a contractual arrangement among all types of healthcare providers and with other entities such as digital health companies.


The new rule, which became effective in January 2021, gives great flexibility for providers to participate in value-based payment and care delivery models as well as to provide coordinated care for patients. The rule is aimed at reducing regulatory barriers to care coordination and transforming the healthcare delivery system into one that rewards value instead of volume.

“Over the years, we have talked about a movement away from volume to value,” says Anthony Long, MBA, FACHE, FACCA, CAAMA, partner, Pinnacle Healthcare Consulting, Centennial, Colorado. “There was a lot of discussion that we would never move in that direction, but the reality is we are already there,” he says. “We have moved from fee-for-service, to fee-for-service that is linked to quality, and finally to alternative value-based payment models.”


Triple aim

Central to moving from volume- to value-based payment models is the Triple Aim, a framework developed by the Institute for Healthcare Improvement (IHI) in 2007 to optimize healthcare system performance. It was IHI’s belief that new healthcare designs must be developed to pursue three dimensions:

• improving patient care through enhanced care coordination and improved patient outcomes (including quality and satisfaction)

• improving health of populations by improving coordination in healthcare and by connecting care across multiple providers (eg, hospitals, physicians, and post-acute providers)

• reducing the per capita cost of healthcare by holding providers accountable for costs of total episodes, not just one part.

Long notes that because of the COVID-19 impact on scheduling, staffing, and delayed procedures, a fourth aim has now been added—access. “What we have seen over the last year and a half in terms of staffing, ORs being shut down, and schedules curtailed, the access issue has become a major consideration for some organizations,” he says. “And now,” he adds, “some organizations are going twice as fast to catch up with delayed procedures.”

Whether the Triple Aim or the Triple Aim plus access (ie, Quadruple Aim), hospitals and physician practices are leaning on these concepts to deliver value-based care to their patients. In its simplest form, it is care that results in the best patient outcomes at the lowest possible cost to the patient and the system, he says.


Big picture

The underlying motivation for organizations and physicians to move to an alternative value-based gainsharing agreement is that money drives performance. Therefore, aligning financial incentives should improve performance and results, says Long.

The big picture goals of gainsharing and value-based payments include:

• helping bridge the gap between fee-for-service and value-based payment methods

• strategic alignment, collaboration, and integration

• improving quality

• reducing costs.

“When we look at value-based agreements in general,” says Long, “we really are trying to pull together the big picture. It’s not just a matter of saving money on a particular procedure or a particular device, but what the organizational and patient impact is overall. In other words, what is the true ‘value’ realized?” For example, he says, if an organization saves on a device but readmissions go up, the savings could be wiped out.

The most common agreements Long says he is seeing are:

• co-management, quality-based arrangements

• OIG opinion-based gainsharing arrangements

• Medicare arrangements, such as the Comprehensive Care for Joint Replacement Program and the Bundled Payment for Care Improvement Initiative

• episode payment models

• accountable care organizations

• clinically integrated networks

• population health

• value-based entities.

Long commented that recently he was talking with a group about their accountable care organization, which had $2.2 billion in savings in 2020. “Basically,” he says, “this indicates that we are seeing progress and involvement with physicians, but there are still a wide variety of opinions out there from physicians and providers about how to align financial incentives over time.”


Co-management agreements

Co-management agreements are contractual relationships usually designed around service lines. They have two payment structures—fixed (hourly payments) and variable (incentive payments).

In the past, Long says, when considering the fixed and variable, for example, if it was worth a million dollars, frequently it was a 60%–40% split or a 70%–30% split, where the higher percentage was associated with the fixed time, and the performance-based was associated with the lower percentage. The Stark physician self-referral law, which was enacted by Congress in 1989 as the Ethics in Patient Referrals Act (42 USC§ 1395nn) would not allow organizations to increase the performance-based percentage beyond 40%.

Organizations now have the ability to flip those percentages and associate a higher percentage of the payment to performance-based criteria, Long says. When the Accountable Care Act went through, it eliminated the rule that required organizations to keep that percentage on the lower side of the equation.

In January 2021, an updated guidance on the Stark self-referral and anti-kickback statues, titled “Regulatory Sprint to Coordinated Care,” went into effect. It creates new, permanent exceptions to the Stark law for value-based arrangements, and the exceptions apply to different populations of patients (ie, Medicare patients).

“It looks at different populations and how physicians are treating patients within a certain population, as well as what their incentives are to coordinate and collaborate on care and to share access,” says Long.

The immediate response was that there was no way the government would make such changes and everyone went on an immediate pause, he says. However, the guidelines that were produced ended up being much greater than expected.


OIG opinion-based agreements

More than 15 opinions have come from the OIG that talk about gainsharing initiatives. Many of them involve orthopedics, neurosurgery, and cardiology, and they are focused on supplies and drugs.

However, says Long, there are still questions about whether these initiatives have been approved. “There is no specific legal document that says gainsharing is free and clear. You have to look at facts and circumstances and follow specific guidelines.”

Long noted that there are six steps in gainsharing, and that the steps should loop around (sidebar, “Steps in gainsharing”).

Source: Pinnacle Healthcare Consulting. Used with permission.

The steps are:

• measure current cost and volumes for savings baselines; establish quality metrics

• identify and quantify waste reduction and maximum savings opportunities

• prepare hospital, physician, and third-party program administrator contracts by group


• develop a specific plan with physicians to reduce costs

• provide quarterly performance reviews and benchmarks—know how much has been saved

• pay physicians at the end of the program year


Then start over with step one of measuring cost and volumes.

The OIG says organizations will have to look at a rebasing scenario each year and share savings up to 50%, says Long. Not every organization that does a gainsharing agreement shares all 50%, however. Some do 40%, some do 30%, and some do 20%, but this is still a big opportunity for orthopedic, neurosurgery, and cardiology supplies, he says.

Things an OIG gainsharing program cannot do are:

• pay for future volume/value of referrals

• pay a physician for individual performance

• pay for historical performance

• pay a physician if quality or severity decreases

• exclude qualified physicians

• pay physicians an unlimited amount of money.


Value-based entities

Keys to success with value-based entities are that:

• they require signed writing describing value-based activities and purposes

• the type of compensation and methodology must be set in advance

• outcomes must be objective, measurable, and selected based on clinical evidence or credible medical support

• remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the third-party payment system

• arrangement must be monitored to ensure progress towards value-based purposes

• corrective action must be taken if monitoring reveals shortcomings.

“The biggest takeaway from value-based entities is that there has to be an at-risk component of at least 10% built into the agreements or a contribution to the compensation,” says Long.

The other big item that has come through, and for which surgeons have been asking, is that there is no pro-rata. Instead of having to split, for example, a savings of $100,000 among 20 physicians, an organization now has the ability in a value-based entity to distribute those funds based on a different methodology.

“You can look at higher-performing physicians or contributors to the savings as getting a bigger percentage, or a bigger portion of the savings,” Long says (sidebar, “Flow of funds”).

Source: Pinnacle Healthcare Consulting. Used with permission.

In addition, organizations frequently contract with a group or multiple groups that structure a simple limited liability company (LLC). This way, the organization deals with one entity as opposed to dealing with five or six different groups.

One benefit to the organization is that it must deal with just one, in theory. Another benefit is that it forces the physicians to work together in things such as selecting an accountant for the LLC, distributing funds, and building a governance structure to deal with some components in their decision making.

Overall, moving from a fee-for-service to a fee-for-value system is progressing. The adoption of value-based entities is likely to increase over the next year or so as organizations look to protect themselves from future crises like the COVID-19 pandemic. ✥

—Judith M. Mathias, MA, RN



Amodeo M. New Stark exceptions mark shift to value-based care. Faegre Drinker. December 9, 2020.


Centers for Medicare and Medicaid Services. Modernizing and Clarifying the Physician Self-Referral Regulations. Federal Register. December 2, 2020.


Department of Health and Human Services. Medicare and state health care programs: Fraud and abuse; revisions to safe harbors under the anti-kickback statute, and civil monetary penalty rules regarding beneficiary inducements. Federal Register. December 2, 2020.


Long A, Arreola A. What the OR needs to know about the new gainsharing rules. OR Business Management Conference. 2021.

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