U.S Value-Based Healthcare System

Alabama has initiated several policies and legislative reforms that are focused on a value-based healthcare system. They have been proactive in this regard, with the state Congress representative initiating legislative changes to protect gains the state had made. Similarly, Texas and Illinois have shown commitment through both legislation and policy toward transitioning to value-based healthcare. At the other end of the scale, Florida, Indiana, and Kansas have not adopted a coordinated state approach, nor have they initiated regulations to promote this healthcare model. Although each of the three states has various initiatives running within their boundaries, they are limited in nature. While some have been successful, it remains to be seen if it will kick start a more state-wide approach.

Check out this other report to discover a working framework for measuring value-based healthcare.

Common Terminology

  • A section 1115 waiver is “a written approval from the federal government (reviewed and determined by the Centers for Medicare & Medicaid Services) that allows states to differ from the rules of the standard federal program. In other words, the state is allowed a “waiver” from some of the requirements of the federal program. This means that they can test and develop how to deliver services in their state- based program in a way that differs from federal guidelines.”



  • Legislative changes made in Alabama in 2013 focused on moving the state reimbursement methodologies away from per diem or fee-based payments that focus on utilization and volume to reimbursement methodologies that focused on value and quality. The legislation made provision for Alabama to move to a capitated managed care system that would be managed by Regional Care Organizations (RCO) that would implement a value-based payment system. A 1115 waiver was required to facilitate this change.
  • The potential that legislators saw in this model of care included:
    • Improved care coordination which would especially benefit those at risk of poor outcomes, mental and behavioral health issues, substance abuse issues, and complex medical conditions whose needs are often not addressed under fee-based arrangements;
    • The ability to innovate and structure services to meet the needs of their population better; and
    • Localization of services to better align with patient and community needs.
  • A timetable was established to implement the RCO model, which saw the payment structure shifting to a model that required the RCO to take on more responsibility for providing value to patients by 2016.


  • The shift to RCOs was abandoned upon President Trump’s election as changes to federal law negated the positive impact of moving to an RCO model of care.
  • On 30 July 2017, the Governor of Alabama and the Medicaid Commissioner announced they were abandoning plans to convert Alabama healthcare services to RCOs. This was based on discussions with the Trump administration that promised to give them more flexibility in running the medicare program in Alabama without the upfront investment required for RCOs.


  • A multitude of changes were made to the Alabama Administrative code in 2017 and 2018, with many of the sections being amended several times. The purpose of these regulatory changes was to transition Alabama away from the RCO model of care towards an Integrated Care Network model of care.
  • The effect of the proposed changes and move toward Integrated Care Networks will create a patient-centered approach to long-term care. It will facilitate a less fragmented system, a more fiscally sustainable program, and place a heavy emphasis on case management and outreach. In the long-term, it will increase home and community-based services. Ultimately, the legislative changes will serve to encourage the transition toward value-based healthcare. The changes made by the Alabama State legislature were approved by the CMS in 2018.


  • A troubling federal development has the potential to undermine home healthcare in Alabama. The CMS has proposed a new payment model, the Patient-Driven Groupings Model (PDGM), which aims to make “behavioral” adjustments to providers based on their billing behaviors. Although it has not yet been regulated, the proposed changes, which would see adjustments made based on assumptions rather than real-time data, are expected to decrease the level of reimbursement to Alabama healthcare providers in the region of $1.3 billion. These changes were incorporated into the Bipartisan Budget Act of 2018.
  • Providers that were expected to be most affected are those operating a value-based model of care through a dedicated home healthcare program. This would have decreased the likelihood of Alabama healthcare organizations transitioning to a value-based model of care. The fear relating to the impact these changes could have on the Alabama population prompted Alabama representative Terri Sewell, along with representatives Ralph Abraham and Vern Buchanan, to introduce the Home Health Payment Innovation Act to Congress.
  • The act aimed to neutralize the changes of the Bipartisan Budget Act by requiring any changes toward the PDGM be implemented in a budget-neutral manner and provided a waiver to organizations that were operating under value-based systems. The changes of the Bipartisan Budget Act remained for those offering fee for service.


  • Florida has adopted a relatively ad hoc approach to value-based healthcare with few regulatory provisions in place. The Comprehensive Quality Strategy of the Agency for Healthcare Administration in Florida sets out the most definitive blueprint for healthcare in Florida. However, it is still relatively short on detail, especially detail relating to the transition to value-based healthcare. The strategy sets out performance measures to assess the value of the programs being implemented. The performance measures are weighted toward adding value to healthcare.


  • A physician incentive program offering payment for performance was established in 2016, relating to pediatrics and OB/GYN with the intention to roll out further physician incentive programs over time. The ultimate goal is to offer incentive programs to each of the 16 MCOs within the state. As indicated, this is not supported by regulation. The intention of these programs is to transition toward value-based care in the long-term; this initial step at least allowing for performance based payments. The issue with these programs is they are in some instances not tied to optimal health outcomes which creates potential issues. Pay for performance is, however, the most common mechanism used to transition providers toward value-based care.


  • Florida does have an 1115 waiver in place, which has enabled it to continue developing its Provider Service Networks (PSN). PSNs do not directly support value-based medical care, but they do create the option for the provider to elect to provide services on a capitation basis, which historically has been the first step on a pathway to value-based care. They also allow for fee for service providers.
  • Unfortunately, there is no provision within the current 1115 waiver for performance-based or value-based services. The Florida legislature’s failure to address these aspects of care has no doubt slowed the trend toward value-based care, which is becoming a hallmark of other states.
  • While Florida has been recognized as pursuing value-based reimbursement outside of the medicare’s CPC+ and SIM programs, it has of date very little regulation to support such a move.


  • Texas has made its intentions in respect of value-based healthcare very clear. Since 2014, the state has had in place the Pay for Quality program in its Medicaid and CHIP programs. This is a requirement of Medicare legislation.


  • The Pay for Quality Program makes the goal of a transition to value-based healthcare very clear by using a range of incentives and disincentives to guide healthcare providers in this direction. This, by default, is likely to increase the shift toward value-based healthcare in Texas.
  • One of the program’s requirements is healthcare providers submit a written report detailing how the provider is expanding value-based contracts with healthcare providers, so they encourage not only innovation and collaboration but also quality and efficiency.
  • A redesigned program came into force in January 2018. The disincentives can now cost a healthcare provider up to 3% of their capitation, while incentives allow additional funds to those that excel in meeting the quality benchmarks. However, the pandemic has slowed progress, with the Pay for Quality program on hold until further notice.
  • While not directly related to value-based healthcare, the State of Texas’ appointment with the US Supreme Court in November 2020 to determine the scope of the Affordable Healthcare Act’s individual mandate has the potential to be a catalyst for chance both in favor and against value-based healthcare. The decision will no doubt be eagerly awaited.



  • The Illinois legislature passed the Medicare Reform law (Public Act 096-1501) in 2011. The law required a minimum of 50% of the Medicare population in Illinois to be enrolled in “coordinated risk-based care by 2015.”
  • To comply with the legislation, the Department of Healthcare and Family Services utilized various care models. These included accountable care entities, MCOs, and care coordination entities for special populations. All shifted some healthcare responsibility onto the providers, with incentive and disincentives used in a carrot and stick approach to transition the Illinois population toward a value-based healthcare system.


  • The 2012 State Innovations Project become part of Illinois reformation of the healthcare system, which aimed to create a more “person‐centered system with a focus on improved health outcomes, beneficiary safety, and enhanced beneficiary access.” It was the mechanism for instituting the changes of Public Act 096-1501. The mechanisms put in place by Illinois have encouraged the transition toward value-based care.
  • All of these individual mechanisms were fell under the Illinois Medicare‐Medicaid Alignment Initiative, which was approved by the CMS.
  • When the Health and Human Services Initiative was introduced in 2015, it focused on establishing a value-based healthcare system within Illinois. The state required healthcare providers to document the design and plan to execute a value-based system for its patient population. The Health and Human Services Initiative has also reduced the number of provider organizations to provide a more targeted and coordinated approach.
  • The implementation of the Health Homes program in Illinois in 2018 aimed to improve coordination and collaboration within the Illinois healthcare system with a program aimed at those with behavioral or mental health issues. One of the goals of the Health Homes program was a more holistic approach to patient health. This is one of the hallmarks of a value-based system.
  • The Healthy Illinois Initiative in 2021 will combine a number of the initiatives in this area.


  • Indiana does not have a coordinated state approach to value-based healthcare. There are no regulations in place to promote value-based healthcare within the state.


  • Within the state, the Next Generation ACO Model and the Bundled Payment for Care Improvement, both administered by the CMS, represent the closest Indiana has come to a coordinated approach to value-based healthcare.
  • The Next Generation ACO Model was first launched in 2016. The model provided for physicians that met specific performance indicators to be excluded from merit-based reporting requirements and payments and earn an APM incentive based payment for the years 2019-2024. The nature of the performance indicators and subsequent incentive-based payments were designed to encourage value-based healthcare.
  • Only three Indiana healthcare providers were included in the 2019 version of this initiative illustrating the slow progress in the state toward a value-based healthcare system.
  • Bundled Payment for Care Improvement utilized four broadly designed care models that served to link the payments of a patient’s care providing a more coordinated approach. The overriding objective was to increase the coordination and quality of healthcare at a lower overall cost.


  • Several pay for performance programs have been implemented by the state. These have typically been focused on specific health behaviors such as smoking, where clear and easily identifiable benchmarks need to be achieved. These value-based programs have not proliferated through the Indiana healthcare system to any great degree.


  • Kansas is another state that has not introduced any regulations that would support a move toward value-based healthcare. There is no coordinated approach from the Kansas state government with respect to value-based healthcare.

PEAK 2.0

  • In fairness, Kansas has made some limited overtures toward value-based healthcare in the form of a voluntary pay for performance program for nursing homes. The Kansas Peak 2.0 (Promoting Excellent Alternatives in Kansas Nursing Homes) program was the basis for a study in this area. The study found a person-centered care approach through the Peak program was associated with a better quality of care. The program’s success was such the study recommended other states may want to consider implementing a similar program.
  • This program has been in place since 2011 and has over 215 nursing homes enrolled in it.


  • More recently, in 2014, Kansas filed an 1115 waiver that, once approved, enabled it to participate in the Delivery System Reform Incentive Payments program (DSRIP). Its participation was between 2014 and 2017 and involved sepsis treatment in three MCOs and two hospitals. A value-based system is implemented under this program, requiring healthcare providers to meet specific performance indicators to receive payment for their services.
  • Kansas did not continue its participation beyond 2017, although other states have committed to different DSRIP initiatives to 2021. The failure to continue the program would seemingly send a signal to healthcare providers and decrease the shift to value-based care.
Glenn is the Lead Operations Research Analyst at The Digital Momentum with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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