5.5 Value-Based and Alternative Payment Models
Key Takeaways
- The Quality Payment Program (QPP) created by MACRA offers clinicians two tracks: the Merit-based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (APMs).
- MIPS scores clinicians in four weighted categories — Quality, Promoting Interoperability, Improvement Activities, and Cost — producing a payment adjustment applied to future Medicare Part B claims.
- Advanced APMs require taking on financial risk and can exempt qualifying participants from MIPS while earning incentive payments.
- Accountable Care Organizations such as the Medicare Shared Savings Program (MSSP) and the ACO REACH model reward groups for managing total cost and quality of care.
- Bundled-payment models such as BPCI Advanced pay a single target price for a defined clinical episode rather than fee-for-service for each item.
The Shift from Volume to Value
Traditional fee-for-service pays for the quantity of services. Value-based payment ties reimbursement to quality and cost outcomes. The Medicare Access and CHIP Reauthorization Act (MACRA) created the Quality Payment Program (QPP), which gives eligible clinicians two paths: MIPS or an Advanced Alternative Payment Model (APM).
The Merit-based Incentive Payment System
MIPS combines several legacy programs into one score. A clinician earns a composite score from four weighted performance categories:
| MIPS Category | What It Measures |
|---|---|
| Quality | Performance on selected clinical quality measures |
| Promoting Interoperability | Use of certified electronic health record technology and data exchange |
| Improvement Activities | Activities that improve care processes, access, and patient engagement |
| Cost | Medicare spending attributed to the clinician, derived from claims |
The composite score produces a positive, neutral, or negative payment adjustment applied to the clinician's future Medicare Part B claims. Because the Cost category is calculated from submitted claims, accurate billing directly affects a clinician's MIPS score — a reason billers must understand the program.
Advanced Alternative Payment Models
Advanced APMs require participants to bear meaningful financial risk and use certified EHR technology. Clinicians who meet participation thresholds become Qualifying APM Participants, are generally excluded from MIPS reporting, and may earn incentive payments. Advanced APMs reward groups that improve outcomes while controlling total cost.
Accountable Care Organizations
An Accountable Care Organization (ACO) is a group of providers jointly accountable for the cost and quality of care for an assigned population:
- Medicare Shared Savings Program (MSSP) — the largest ACO program; ACOs that hold spending below a benchmark while meeting quality standards share in the savings, and some tracks share in losses.
- ACO REACH (Realizing Equity, Access, and Community Health) — a model emphasizing health equity and care for underserved populations with higher levels of financial risk.
Bundled Payments
Bundled payment pays a single, predefined amount for an entire episode of care — for example, all services from a hip replacement through recovery. BPCI Advanced (Bundled Payments for Care Improvement Advanced) sets a target price for a clinical episode; if actual costs come in below the target with adequate quality, the participant keeps the difference, and if costs exceed it, the participant repays Medicare.
Intersection with the Readmissions Program
Value-based programs overlap with the Hospital Readmissions Reduction Program (HRRP) introduced in Section 5.2. A hospital in a bundled-payment or ACO arrangement is doubly motivated to prevent readmissions: an avoidable readmission both adds cost inside the episode or benchmark and exposes the hospital to a separate HRRP payment reduction. For billers, this means readmission and post-discharge claims must be coded and submitted precisely, because they feed both the episode cost and the quality penalties.
A solo physician participates in traditional Medicare and is scored on Quality, Promoting Interoperability, Improvement Activities, and Cost, resulting in a payment adjustment to future Part B claims. Which program is this?
A health system enters a model that sets one target price covering all services for a hip-replacement episode; staying under the target with good quality lets the system keep the difference. Which model is this?