Brief Value-Based Care in the Commercial Sector and With Multi-Payer Arrangements

National health spending is projected to grow at an average annual rate of 5.4%, growing more rapidly than gross domestic product, from 2022-2031. Despite high spending, the U.S. has lower life expectancy than peer nations and is seeing worsening health outcomes since the onset of the COVID-19 pandemic, according to a KFF analysis.

With over 65% of Americans covered by commercial insurance, the cost of insurance continues to be a priority for consumers and policymakers alike. Particularly as commercial insurance spending has grown faster than Medicare and Medicaid spending on a per enrollee basis. Commercial insurance includes employer-sponsored coverage as well as insurance purchased on health insurance exchanges or directly from an insurance company.  

As states continue to evaluate strategies that address health care costs, policymakers and health plans are increasingly leveraging value-based purchasing arrangements in the commercial market and across both public and private payers (e.g., within multi-payer arrangements) as a strategy to target health care costs, quality and use. Value-based care models vary in design, but some common models in the commercial sector and within multi-payer arrangements include: 

• Population-based payments/capitation reimburses a provider on a fixed per-member per-unit of time basis rather than for a specific service. 
• Bundled or episode-based payments assign a fixed payment to cover a set of services for the entire course of treatment for a specific illness, condition or medical event. 
• Accountable care organizations are groups of doctors, hospitals or other health care providers that coordinate care for patients with the goal of improving quality and reducing costs. 

Value-Based Care in Commercial Markets: State Examples

According to a 2023 analysis from the Health Care Payment Learning and Action Network APM Measurement Effort (see figure below), the commercial sector has the lowest percentage of payments in any APM (45.5%) or advanced APMs (34.6%) compared to Medicaid, Medicare Advantage, and traditional Medicare. While health plans may lead much of the transition to APMs in the commercial sector, state policymakers may use commercial sector models to inform multi-payer models or consider policies supporting the commercial sector transition to alternative payment models. 

Several states and health plans have acted to support alternative payment models in the commercial sector. 

Colorado. In 2022, Colorado enacted legislation requiring the division of insurance to collaborate with various state agencies and the Primary Care Payment Reform Collaborative to develop rules for primary care APMs offered through health benefit plans. Beginning in 2025, plans must ensure that their APMs for primary care incorporate certain parameters, including transparent risk adjustment, that ensures that primary care providers are not penalized for or disincentivized from accepting high-risk patients, which may encourage providers interested adopting APMs.  

Michigan. Blue Cross Blue Shield of Michigan’s Hospital Pay-for-Performance Program provides participating hospitals with incentive payments for meeting certain metrics associated with quality, cost-efficiency and population health management. This program which was a voluntary transition by BCBS of Michigan, includes an episode-of-care spending component in which 10% of the program’s budget is allocated to an episode-of-care spending metric. Participation requires hospitals to choose two condition-based episode spending measures from a list of seven conditions. One study evaluating hospital performance and behaviors in the first two years of the program found hospital-level episode spending for all conditions declined significantly in 2018 but was not significantly different for 2019.  

North Carolina. Blue Cross North Caolina’s Blue Premier Program shifted toward value-based payments by implementing accountable care organization contracts with health systems. These contracts aim to coordinate care and tie provider payments to the value of services that improve patient health. The program has grown from partnering with five of the state’s major health systems in 2019 to 11 hospitals and health systems and more than 870 independent primary care practices in 2020. Blue Cross North Caolina estimates the program saved nearly $164 million in health care costs in 2022 although these estimates have not been independently evaluated.  

Rhode Island. In 2010, the Rhode Island Office of the Health Insurance Commissioner Office established a set of affordability standards for commercial insurers, intending to lower costs and improve quality. The affordability standards require various reforms including increased spending on primary care and adoption of payment reform strategies. The affordability standards focus on four key areas of payment reform: (1) population-based contracting; (2) adoption of alternative payment models; (3) improved hospital contracting practices; and (4) controlling cost increases associated with population-based contracts entered into by integrated systems of care. Between 2014 and 2017, medical spend in downside risk models increased from $3 million to $404 million. Delaware adopted similar affordability standards as Rhode Island, which also include targets for carrier investment in primary care. 

Value-Based Care through Multi-Payer Arrangements: State Examples  

Alignment between public and commercial payers through multi-payer arrangements may help align incentives for providers to consider value-based payments, and increase the sustainability of arrangements in the long-term. State policymakers can play a central role in coordinating and aligning public and private payers to implement multi-payer value-based care arrangements.  

Arkansas. The Arkansas Health Care Payment Improvement Initiative is a multi-payer, statewide payment and delivery system leveraging episode-based payments and shared savings via patient-centered medical homes (PCMHs). The initiative is led by the state Medicaid agency with commercial insurer participation. An evaluation from 2019 found that the Medicaid program was able to achieve 75% of PCMH quality metrics and nearly two-thirds of Arkansas Blue Cross and Blue Shield quality metrics for PCMH were met. Additionally, the evaluation found that quality improvement, cost containment and improved transparency have been achieved within the episodes of care payment program. 

Pennsylvania. State legislation in 2020 established and funded a rural health redesign center to administer the Pennsylvania Rural Health Model. First-of-its-kind, the model is designed to provide financial stability to rural hospitals and preserve access to care by helping transition rural hospitals from fee-for-service payment models to all-payer global budget payment system. Pennsylvania’s rural health redesign center also provides technical assistance to rural hospitals that participate in the model. The model was launched in 2017 and implemented in early 2019, and currently 18 health systems participate. Initial data evaluating the first three performance years found per member per month Medicare spend comparatively low with the national rural average, as well as notable quality improvements among participants. Recent legislation reauthorized the Pennsylvania Rural Health Redesign Center Authority and the corresponding fund. 

Vermont. Vermont’s all-payer accountable care organization (ACOs) model is an arrangement between Vermont and the federal government that allows Medicare to join Medicaid and commercial insurers to contract with ACOs that assume the risk for meeting financial targets and performance benchmarks. Measurable metrics relate to access to primary care, prevalence of deaths due to suicide and drug overdose, and prevalence and treatment of chronic disease. An evaluation of the implementation and impact of the model found it was associated with reductions in Medicare spending and improvements in population health and quality of care though accompanied with some challenges with participation.