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Current and Emerging Payment Models
Health care is currently in the middle 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).
The COVID-19 pandemic was an inflection point for the U.S. health care delivery system. While factors like rising inflation and staffing shortages have put unprecedented strain on hospitals and health systems, the post-pandemic environment represents an opportunity to stabilize and improve health care financing, where warranted, and further transition toward value-based care.
CMS, including through CMMI, is continuing to advocate for continued growth and expansion of value based and alternative payment models. In a strategic plan refresh published in November 2022, CMS set a target of aligning 100% of Medicare fee-for-service beneficiaries with an accountable care relationship by 2030.
Thus, hospitals and health systems must exist in both the fee-for-service and value-based worlds. Organizations need to continue to optimize services under the traditional fee-for-service structures such as Medicare's inpatient and outpatient prospective payment systems. However, they also must begin to determine how and when they will take financial accountability for the quality and costs of an entire episode of care or attributed population.
Explore Current and Emerging Payment Models Topics
Medicare
Medicare coverage is tied to eligibility for Social Security or Railroad Retirement benefits. In 2015, there were almost 56 million people enrolled nationwide.
The program includes:
Inpatient Prospective Payment System (IPPS)
Find out what Medicare's Inpatient Prospective Payment System IPPS in healthcare is. More than three-quarters of the nation's inpatient acute-care hospitals are paid under the inpatient prospective payment system, while nearly a quarter are paid based on costs and are called Critical Access Hospitals. The IPPS pays a flat rate based on the average charges across all hospitals for a specific diagnosis, regardless of whether that particular patient costs more or less. What is Inpatient PPS?
Outpatient PPS
The Centers for Medicare & Medicaid Services (CMS) Nov. 1 released its calendar year (CY) 2025 outpatient prospective payment system (OPPS) and ambulatory surgical center (ASC) final rule. The rule increases OPPS rates by a net 2.9% in CY 2025 compared to CY 2024.
MACRA & Other Physician Payment
The Centers for Medicare and Medicaid Services (CMS) uses the Medicare Physician Fee Schedule (PFS) to determine how to reimburse physicians for their services. Under the PFS, Medicare considers various elements including the work the physician put in, the expenses incurred in providing care, the cost of malpractice insurance, and geographic differences in wages to calculate how much physicians should be paid for their service. This system has been in place since 1992.
Inpatient Rehabilitation Facility PPS
This web page provides information and resources related to inpatient rehabilitation hospitals and units, with a focus on Medicare payment and related implementation issues.
Visitors to this site may also be interested in learning more about the resources and services of the AHA Constituency Section for Long-Term Care and Rehabilitation. This special section of the membership comprises over 3,000 members that offer hospital rehabilitation, long-term acute, skilled nursing, home health, and post-acute care.
Home Health PPS
The Centers for Medicare & Medicaid Services (CMS) Nov. 1 issued its calendar year (CY) 2025 final rule for the home health (HH) prospective payment system (PPS).
The 340B Drug Pricing Program
For more than 30 years, the 340B Drug Pricing Program has provided financial help to hospitals serving vulnerable communities to manage rising prescription drug costs. Despite significant oversight from HRSA and the program’s proven record of decreasing government spending and expanding access to patient care, some want to scale it back or drastically reduce the benefits that eligible hospitals and their patients receive from the program.
IPPS Hospital-Acquired Condition Reduction Program
The Hospital-Acquired Condition Reduction Program ties performance on patient safety issues such as infections, bed sores and post-operative blood clots to payment. Under the program, the Centers for Medicare & Medicaid Services penalizes the lowest performing 25% of all hospitals each year 1% of their Medicare hospital payments. In addition to these penalties, the law requires CMS to post publicly hospitals' performance on HAC quality measures.
IPPS Hospital Readmission Reduction Program
Through the Hospital Readmission Reduction Program, the Centers for Medicare & Medicaid Services penalizes hospitals for “excess” readmissions when compared to “expected” levels of readmissions. Since the program began on Oct. 1, 2012, hospitals have experienced nearly $2.5 billion of penalties, including an estimated $564 million in fiscal year 2018.
IPPS Hospital Value-Based Purchasing
The Hospital Value-Based Purchasing Program seeks to improve patient safety and experience by basing Medicare payments on the quality of care provided, rather than on the quantity of services performed. Hospital VBP affects payment for inpatient stays in more than 3,000 hospitals across the country.Under this program, Medicare rewards hospitals with payments based on either how well they perform on certain quality measures or how much they improve their performance. These bonus payments are funded by a 2% reduction in all payments.
Long-Term Care Hospital PPS
This Regulatory Advisory reviews highlights of the LTCH provisions in the rule, while the inpatient PPS provisions are covered in a separate advisory.
Skilled Nursing Facility PPS
The Centers for Medicare & Medicaid Services (CMS) July 31 issued its fiscal year (FY) 2024 final rule for the skilled nursing facility (SNF) prospective payment system (PPS).
Navigating Value-based Payment
In the 14 years since passage of the Affordable Care Act (ACA) and 9 years since the passage of the Medicare Access and CHIP Reauthorization Act (MACRA), there have been numerous programs developed by Medicare, states and commercial payers to support the movement to outcomes or value-based reimbursement.
Program Integrity
In recent years, the Centers for Medicare & Medicaid Services has drastically increased the number of program integrity auditors that review hospital claims to identify improper payments. These audit contractors include recovery audit contractors (RACs) and Medicare administrative contractors (MACs). RACs are charged with identifying improper Medicare and Medicaid fee-for-service payments – both overpayments and underpayments. They are paid on a contingency fee basis, receiving a percentage of the improper payments they identify and collect.
Psychiatric PPS
Medicare pays for these services through the IPF prospective payment system, which uses pre-determined rates based primarily on the patient’s condition (age, diagnosis, comorbidities) and length of stay, and the location of the IPF. Medicare also provides additional payment for IPFs that are teaching hospitals, located in Alaska and Hawaii, and/or have emergency departments.
The IPF PPS rates are intended to cover all routine, ancillary and capital costs that efficient providers are expected to incur in furnishing inpatient psychiatric care.
Federal Capital Financing
Explore federal government programs that provide grants, loans and loan guarantees to support hospitals' capital financing needs. Learn about eligibility and financing.
Related Resources
AHA Center for Health Innovation Market Scan
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