Guide to Value-Based Payments for Home Health Care

Guide to Value-Based Payments for Home Health Care

Increasing costs of homecare-based services have wreaked havoc on people who need health care. The aging baby boomer population is living longer, dealing with chronic illness, and transitioning to Medicaid and Medicare, which is also causing a shift in health care. According to the Center for Medicare & Medicaid (CMS), national health care grew 9.7% and accounted for 19.7% of gross domestic product (GDP) in 2020 — Medicare spending grew 3.5%, and Medicaid spending grew 9.2%, while private health insurance spending declined 1.2%. Health care spending is expected to continue to grow about 5.4% every year, reaching more than $6 trillion by 2028.

As a result of the unique changes in health spending, there exists a sense of urgency to focus on making the delivery of medical care more efficient ("doing the thing right") and effective ("doing the right thing"). A value-based payment (VBP) model is one solution designed to help strike a balance between efficiency and effectiveness. In short, VBP is intended to design care around people to improve outcomes and health equity, as well as reduce costs. Only recently, VBP has been extended to home health care as an alternative to fee-based models.

What Is Value-Based Payment (VBP)?

The American Academy of Family Physicians (AAFP) describes value-based payment (VBP) as "a concept by which purchasers of health care (government, employers, and consumers) and payers (public and private) hold the health care delivery system at large (physicians and other providers, hospitals, etc.) accountable for both quality and cost of care."

Value-based approach is designed to provide incentives to providers that offer services based on quality rather than quantity. According to the Centers for Medicare & Medicaid Services (CMS), VBP programs have a three-part aim:

  • Better care for individuals
  • Better health for populations
  • Lower cost

VBP Programs

There are now seven value-based programs that link provider performance to provider payment:

  • End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
  • Hospital Value-Based Purchasing (VBP) Program
  • Hospital Readmission Reduction Program (HRRP)
  • Value Modifier (VM) Program (also called the Physician Value-Based Modifier or PVBM)
  • Hospital-Acquired Conditions (HAC) Reduction Program
  • Skilled Nursing Facility Value-Based Program (SNFVBP)
  • Home Health Value-Based Purchasing (HHVBP) Program

Benefits of VBP 

Everyone benefits with VBP, from patients and providers to payers, suppliers, and society:

  • Patients spend less money.
  • Providers offer more efficient care and have satisfied patients.
  • Payers control costs and reduce risks.
  • Suppliers align prices with patient outcomes.
  • Society becomes healthier overall.

Brief History of VBP

Over the course of history, providers were compensated based on the amount of health care they provided. Regardless of patient results, providers were rewarded through what's called a transactional, fee-for-service (FFS) payment structure.

1967 Patient-Centered Medical Home (PCMH) Model

In 1967, the first value-based model was introduced by the American Academy of Pediatrics (AAP). The VBP model, called Patient-Centered Medical Home (PCMH), was designed as a partnership approach to provide family-centered health care that's accessible, coordinated, comprehensive, continuous, compassionate, and culturally effective.

As a follow-up to the AAP model, the World Health Organization (WHO) declared the importance of primary care. In 1978, adequate health was defined in a new way: "A state of complete physical, mental and social well-being, and not merely the absence of disease or infirmity, is a fundamental human right and that the attainment of the highest possible level of health is a most important world-wide social goal."

Social Security Act of 1983

The 1980s marked a time when HMOs and other managed care organizations began participating in capitation. Capitation was a potential solution designed to help the Centers for Medicare & Medicaid Services (CMS) and other payers address the trend toward quantity-over-quality incentives that were driving increasing costs.

Under the Social Security Act of 1983, payment programs were initially proposed for inpatient hospitals, followed by outpatient hospitals, skilled nursing facilities, and home health organizations. Under a value-based reimbursement model, medical providers received a fixed payment per patient for a particular period (i.e., monthly, yearly, etc.). The set dollar amount was paid in advance regardless of the number of times or services a patient was seen.

Affordable Care Act of 2010

AAP's PCMH model was relaunched with a team-focused approach in 2007. The VBP-based model sought to improve quality outcomes of health care and, in turn, lower costs. Along with the support of several primary care organizations, the model began gaining acceptance in the industry.

In 2010, the Affordable Care Act (ACA) placed a stamp of approval on payment approaches. The act expanded the use of pay for performance as a key part of Medicare. In 2016, the Home Health Value-Based Purchasing (HHVBP) Model was implemented by the Center for Medicare and Medicaid Innovation based on Obamacare.

Difference Between Value-Based Payment and Fee-for-Service Models

As the health care system shifts from traditional fee-based models, understanding value-based payment model can be confusing. There are many key differences when we look at the two approaches in terms of cost control, patient services, provider accountability, modern care, optimal care, and sustainability.

Cost Control

FFS incentivizes care providers. The more services they deliver and the more expensive the services are, the more the providers get paid. VBP models control costs by linking performance and quality of services to provider payments.

Patient Services

Providers operating under FFS incentives can perform expensive procedures and tests without facing any consequences or pressure. As a result, patients often receive unnecessary services. VBP ensures care is necessary and efficient. Providers aren't rewarded for unnecessary care and are penalized based on outcomes.

Provider Accountability

Incentives tied to the number of patients a provider sees lack accountability. FFS providers are rewarded regardless of the quality of their care. VBP makes providers accountable for the quality they deliver. As a result, patients receive high-value care.

Modern Care

FFS is an outdated model that's limited to in-person visits, which doesn't work with coordinated care. VBP takes a modern approach that focuses on more coordinated interactions between patients and providers. It also allows for virtual patient care and remote patient monitoring. This also offers opportunities for better reporting and data analysis.

Optimized Care

Health care has become fragmented as FFS providers continue to operate in silos. FFS focuses on patients seeing a single provider. VBP encourages collaborative efforts across multiple care providers, thereby optimizing services and improving the delivery of care.


Not only is FFS inefficient, but it's also unsustainable. VBP removes sustainability and efficiency issues associated with FFS by aligning incentives to quality of care rather than quantity of care.

Four Types of VBP Models

Value-based care (VBC) switches the focus from fee-for-services (FFS) models. The difference between the two can depend on the type of VBP model. VBP can involve either population-based payment arrangements (contractors assume responsibility for care outcomes and costs for members of the specified populations) or episode-based payment arrangements (providers assume responsibility for care for a particular condition regardless of location).           

The New York Department of Health (DOH) developed the following four types of VBP models:

Population-Based Arrangements

  1. Total Care for General Population (TCGP): VBP contractors are responsible for all Medicaid-covered services related to the care for attributed individuals
  2. Total Care for Special Needs Subpopulations: VBP contractors are responsible for all Medicaid-covered services for populations that already have dedicated managed care arrangements, including HIV/AIDS, health and recovery plans, managed long­-term care, and intellectual and developmental disabilities.

Episode-Based Arrangements

  1. Integrated Primary Care (IPC) Bundle: Contracted primary care providers (PCPs) are responsible for preventive and sick care, as well as care coordination activities. IPC includes a Chronic Bundle for 14 chronic diseases, including asthma, hypertension, diabetes, and certain behavioral health diagnoses. Serious acute care services such as cancer and trauma care are not included in the IPC bundle. Savings in the IPC generally result from reductions in hospital use, and hospitals that cooperate with PCPs in these arrangements can share in the savings.
  2. Maternity Bundle: Contracted hospitals and/or providers that deliver maternity care are responsible for all care from the onset of pregnancy through the first month of a newborn's care.

VBP Categories and Levels

CMS developed a framework with VBP categories specific to Medicare. The categories are based on quality measures and improved efficiency, which lead to cost savings.

Following are the CMS definitions of each VBP category:

  • Category 1: FFS without link to quality
  • Category 2: FFS with link to quality
  • Category 3: FFS alternative payment models built on FFS methods
  • Category 4: FFS population health-based payments

In alignment with the CMS framework, DOH developed VBP levels specific to Medicaid. The VBP levels define how programs reward providers for good performance based on quality and efficiency.

Following are the DOH definitions of each VBP level:

  • Level 0: FFS payments with a bonus and/or withhold based on quality scores. These arrangements do not count toward the state's VBP goals because they do not incorporate accountability for efficiency.
  • Level 1: FFS with upside-only shared savings when quality scores are sufficient. The amount of savings that can be shared with the VBP contractor increases as quality performance increases.
  • Level 2: FFS with risk-sharing (the VBP contractor shares in losses as well as savings depending on quality performance). Shared savings increase as quality performance increases, and shared losses can increase as quality performance decreases.
  • Level 3: Prepaid capitation with a quality-based component.

A health agency that falls within the lowest level (level 0) and lowest category (category 1) follows traditional FFS models. Payments are based on volume rather than quality. As an agency shifts from FFS to VBP, they move to the next higher level or category, depending on how much payments are based on quality or efficiency. By the third step up, an agency would have some payments linked to accountability through the management of population or episode. The highest level means the agency is paid based on accountability and providing care for more than a year rather than by volume.

Care providers are scored based on a set of quality and efficiency metrics.  

The specific metrics that impact the levels a home care agency can achieve may vary from state to state. Therefore, you should confirm all guidelines for your particular agency’s state.