Resetting Payer-Provider Arrangements for COVID-19 and the Evolving Improvement Journey

May 4, 2021

Article Summary

As the healthcare industry recovers from COVID-19, providers are re-evaluating the financial arrangements that motivate them to improve their processes while benefiting payers and patients.

With the pandemic driving lower provider volumes and straining hospital resources, the industry has a renewed urgency for policies that drive better outcomes while lowering cost and improving revenue. Moving forward, healthcare must reset its payer-provider performance standards to the post COVID-19 environment.

Renewed approaches to the following models will consider the impact of remote care, how to reimburse telehealth services, and the need for consistent payments to providers:

1. Pay for performance.
2. Bundled payments.
3. ACOs.

payers and providers

The path to healthcare transformation rests in the improvement journey—the incremental steps that move the industry towards higher-quality care and lower cost. A health system’s comprehensive improvement journey includes payer-provider arrangements that motivate improvement efforts.

COVID-19 renewed the importance of payer-provider arrangements, as the pandemic resulted in lower volumes for providers. Strained hospital resources were common as high-acuity COVID-19 patients occupied ICU beds. Changing the structure of the payment programs was not a top priority for providers or payers during the pandemic’s emergency phases.

Progressing in the improvement journey requires the industry to reset the performance standards of these payer-provider models to the post COVID-19 environment. For example, moving forward, the industry must consider the impact of remote care, how to reimburse telehealth services, and the need for consistent payments to providers.

Healthcare Payers and Providers: A Financial Arrangement Review

No matter how committed an organization is to provide the best care, a system often struggles to take the steps necessary to kick off change without some financial stimulus. As the industry recovers from COVID-19, providers are re-evaluating the financial arrangements that motivate them to improve their processes while benefiting payers and patients.

As arrangements for healthcare payers and providers continue to evolve, the payer industry increasingly pushes for downside risk for providers. A review of the most popular models is discussed below.

Pay for Performance

The most basic arrangement for healthcare payers and providers is pay for performance (P4P). A straightforward incentive system, P4P rewards improvement based on established metrics (and sometimes penalizes if the provider fails to hit the metric). For example, if a certain percentage of patients in a population receives preventive screening during the year, the provider will receive the incentive payment. This kind of arrangement is a basic starting point that drives some improvement.

The majority of fee-for-service (FFS) payment systems link quality metrics to payment. For Medicare payments, hospitals participate in three programs:

CMS has extended the above types of programs to physicians and post-acute care. This emphasis on quality metrics increases awareness of the measures and forces organizations to focus on improvement.

Bundled Payments

In a bundled payment arrangement, a payer gives a single payment for all provider services constituting an episode of care, regardless of how many providers that episode involved. Before bundled payments, the provider would bill each service separately, but under a bundle arrangement, hospitals, post-acute providers, and physicians receive one payment for the episode. This arrangement holds providers accountable as a group for their performance and motivates them to work together to eliminate duplication and waste.

The CMS bundled payment program is called Bundled Payments for Care Improvement Advanced (BPCI Advanced). CMS defines in advance what constitutes an episode of care and which providers’ services that episode includes. CMS updated its voluntary BPCI-Advanced program in 2018, and the program will operate until 2023. CMS has given indications this program may become mandatory after 2023.

Providers participating in BPCI Advanced chose to enroll in 1 or more of the 32 clinical episodes, including congestive heart failure, urinary tract infection, sepsis, and various orthopedics procedures. As of March 2019, there are 334 participants in the program representing 715 hospitals and 580 physician group practices across the country. Most participants chose to participate in fewer than five bundles. The program offers an upside and a downside if costs exceeded a target price, and the organization didn’t maintain quality standards.

Health Affairs did a preliminary review of the CMS bundle program for lower extremity joint replacement (LEJR) and reported the program maintained quality and reduce cost. The study found variability among non-LEJR episodes and urged continued research as the BPCI program adds more data and participants.

Bundled payment arrangements are becoming more common for commercial payers and employers, including the following examples:

  • An employer coalition, including Walmart and Lowe’s, negotiated with four centers to perform hip and knee implant procedures. Employees who have their procedures done at participating centers will receive complete coverage, including travel costs.
  • Humana expanded its Episode-Based Models beyond maternity, oncology, and joint bundles to spinal fusion in 2019.
  • UnitedHealthcare announced its Care Bundles Program in 2019. In specific geographic regions, the payer offered incentives for providers who exceed standards on price and quality. UnitedHealthcare partners with providers on services and support, such as care management, to help patients navigate the continuum of care from pre-hospital to post-acute care.
  • Horizon Blue Cross uses the Episodes of Care model to engage specialty care physicians. The upside-only program goals include achieving the best long-term outcomes, reducing the total cost of care, and creating a positive experience for patients.

Bundled payments are a good way for organizations to ease themselves into a shared savings agreement. Because the bundled payment focuses on just one type of care, such as orthopedics, the organization isn’t taking on as much risk. However, the management of the program may require high resources for success. Quality metrics, such as reduced complications and lower readmissions, are an essential part of these programs. Providers must control utilization and provide high-quality care in multiple settings to succeed in bundles.


Establishing an accountable care arrangement with a payer means entering into a total cost-of-care system that rewards or penalizes based on a patient population’s total cost. This arrangement measures and defines quality metrics.

As of the third quarter of 2019, there were 1,588 public and private ACOs in the United States covering 44 million lives. The Medicare Shared Savings Program started in 2012 with 114 participants and peaked in 2018 with 561. For 2021, the MSSP has 477 participants, with 41 percent in up-side and down-side, covering 10.7 million beneficiaries.

There are no new MSSP participants in 2021 because CMS did not allow new applications during the pandemic. In 2018, CMS introduced Pathways to Success, which limited the time an ACO could take to assume down-side risk and changed formulas for sharing the savings. These requirements caused some ACOs to withdraw from the program.

Commercial payers continue to work with providers to offer ACO-like arrangements for members. These arrangements cover the total cost of care and quality metrics, and programs tend to have broad cost measures over a longer timer period, such as reducing total cost of care by 10 percent over five years. In December 2020, Intermountain Health Care and UnitedHealthcare announced an ACO that aims to improve care coordination and health indicators for a Medicare Advantage population.

CMS introduced the next-generation ACO models in late 2019. The ACO-like model called Global and Professional Direct Contracting (GPDC) accepted applications for a 2022 start date but announced there would be no new applications accepted in 2021. This downside risk model offered flexible cash flow, more predictable cost targets and few quality metrics.

Some organizations may want to ease into the ACO world incrementally by starting with bundled payments. The ACO down-side risk evaluation should involve a detailed review of the participant’s market and organization. The organization needs to develop specific analytical and clinical strategies that will guarantee success in an ACO arrangement. One way to gain knowledge is participation in pilot programs to learn the processes and evaluate risk-tolerance and ability to manage a population.

The Evolving Improvement Journey: Resetting Performance Standards for Healthcare Payers and Providers

Several common threads run through the three types of payer-provider arrangements above. In each, payers and providers must figure out how to work together to improve processes. They must agree on a set of quality, efficiency, and/or patient satisfaction metrics by which they’ll measure performance. Then, organizations must adopt a system for implementing, measuring, and sustaining cost-structure improvement, enabling organizations to profit from a more significant portion of their shared savings payments.

Though CMS paused payer-provider programs in 2020 due to COVID-19, the pause is likely temporary. Organizations should continue to work with payers and support programs to improve quality and reduce costs to continue to improvement journey.

Additional Reading

Would you like to learn more about this topic? Here are some articles we suggest:

  1. Today’s Top Five Healthcare Payer Financial Opportunities
  2. Six Strategies to Navigate COVID-19 Financial Recovery for Health Systems
  3. Healthcare Analytics for Payers: How to Thrive Through Shifting Financial Risk
  4. ACOs: Four Ways Technology Contributes to Success
  5. Six Challenges to Becoming a Data-Driven Payer Organization

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