New Payment Models for Healthcare: Which One Is Right for Your Organization?

To thrive under healthcare reform, providers rapidly are adopting new payment models. Each model aligns financial incentives so that higher-quality healthcare can be provided at lower costs. Ultimately, this means moving away from fee-for-service models to those that emphasize value over volume.

Some organizations already have implemented new approaches successfully. But for those unsure of which direction to take, understanding the most widely accepted models will help an organization make an informed decision.


Find Your Payment Model
Select a model to learn more.

In the accountable care organization (ACO) model, clinicians, hospitals, and other healthcare providers voluntarily share responsibility for providing coordinated, high-quality care to a specific patient population. The goals of ACO are to deliver the right care at the right time, avoid duplication of services, and prevent medical errors. When those goals are met, the ACO shares in the savings it achieves with Medicare.

An ACO must establish a governing body, routinely monitor and report on the care it delivers, and use that information to continually improve care.

What types of providers and suppliers of Medicare-covered services can be included in an ACO?

  • Physicians and professionals in group practice arrangements
  • Networks of individual practices of physicians and other professionals
  • Joint ventures and partnerships of hospitals and physicians and professionals
  • Hospitals employing physicians and professionals
  • Critical access hospitals (CAHs) that bill under Method II
  • Other providers and suppliers that may participate in an ACO but would not be used to directly assign patients


Medicare offers several ACO programs:


Section 3022 of the Affordable Care Act added to the Social Security Act a section 1899, which calls for shared savings programs. These programs create an incentive for providers to coordinate and improve the quality of care for Medicare fee-for-service beneficiaries and reduce unnecessary costs. To participate in the Shared Savings Program, an ACO must accept responsibility for at least 5,000 Medicare fee-for-service beneficiaries and participate in the program for at least three years.

An ACO may choose to participate in one of two tracks:

  • Operate on a shared savings only arrangement
  • Share in savings and losses for the duration of the agreement, in return for a higher share of any savings it generates


All ACOs that elect to continue in the program after the first agreement period must continue in the two-sided model.

Regulations: CMS developed program regulations for ACOs that wish to participate in shared savings. ACOs must practice evidence-based medicine, engage their beneficiaries, and coordinate care. CMS can terminate its agreement with an ACO for failing to comply with eligibility and program requirements, avoiding at-risk beneficiaries, and failing to meet the quality performance standards.

ACO quality performance standards: Before an ACO can share in any savings it generates, it must demonstrate that it has met quality performance standards for that year. The program’s quality measures span four quality domains:

  1. Patient and caregiver experience
  2. Care coordination and patient safety
  3. Preventive health
  4. At-risk population

The Pioneer ACO Model is designed for organizations that have experience offering coordinated, patient-centered care and operate in ACO-like arrangements. Shared savings are determined through comparisons against an ACO’s benchmarks. The first performance period began in January 2012.

Pioneer ACOs achieving savings over the first two years are eligible to move to a population-based payment model that is a per-beneficiary, per-month payment amount. CMS established two alternatives to the core payment arrangements to allow ACOs more flexibility in how quickly they assume financial risk.

Pioneer ACOs must affirm that at least 50 percent of the ACO’s primary care providers have met meaningful use requirements.

Who is eligible to participate in the Pioneer ACO Model?

Organizations are required to be providers or suppliers of services structured as:

  • ACO professionals in group practice arrangements
  • Networks of individual practices of ACO professionals
  • Partnerships or joint venture arrangements between hospitals and ACO professionals
  • Hospitals employing ACO professionals
  • Federally Qualified Health Centers


What are the differences between a Pioneer ACO Model and a Shared Shavings Program?

  • The Shared Savings Program fulfills a statutory obligation set forth by the Affordable Care Act.
  • The Pioneer ACO Model is designed to test the effectiveness of a particular model of payment.
  • The first two years of the Pioneer ACO Model are a shared savings payment arrangement.
  • In year three, Pioneer ACOs that have earned savings over the first two years will be eligible to move to a population-based payment arrangement.

Advance Payment ACOs are designed for physician-based and rural providers that may have less access to capital. Participants receive upfront and monthly payments that can be used to invest in their care coordination infrastructure.

Through the Advance Payment ACO Model, organizations receive an advance on the shared savings they are expected to earn.

What types of payments will participating ACOs receive?

Participating ACOs will receive three types of payments:

  • An upfront, fixed payment
  • An upfront, variable payment based on the number of its historically assigned beneficiaries
  • A monthly payment of varying amount based on the number of its historically assigned beneficiaries


CMS will recoup advance payments through the offset of an ACO’s earned shared savings. CMS will offset shared savings in subsequent performance years and any future agreement periods or will pursue recoupment where appropriate.

The Advance Payment ACO Model targets two types of organizations participating in the Shared Savings Program:

  1. ACOs that do not include any inpatient facilities and have less than $50 million in total annual revenue
  2. ACOs in which the only inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals and have less than $80 million in total annual revenue


ACOs that are co-owned with a health plan are ineligible.


Developed by the Centers for Medicare & Medicaid Services (CMS) Innovation Center, the Bundled Payments for Care Improvement (BPCI) initiative provides financial and performance accountability for specific episodes of care. The goal is to enhance care coordination among providers. In January 2013, CMS selected healthcare organizations across the country to participate in the BPCI initiative.

Within the BPCI initiative are four different models of care that link payment with the services beneficiaries receive during episodes of care.

Model 1: Retrospective acute care hospital stay only

Model 2: Retrospective acute and post-acute care episode

Model 3: Retrospective post-acute care only

Model 4: Prospective acute care hospital stay only


Introduced by the American Academy of Pediatrics in 1967, the Patient-Centered Medical Home is a widely accepted model for organizing and delivering primary care. In 2007, the major primary care physician associations developed and endorsed the Joint Principles of the Patient-Centered Medical Home.

The concept of the medical home includes the following attributes:


The Federally Qualified Health Center (FQHC) Advanced Primary Care Practice demonstration began on Nov. 1, 2011, and concluded Oct. 31, 2014. The program was designed to evaluate the effect of the advanced primary care practice model, commonly referred to as the Patient-Centered Medical Home, in improving care, promoting health, and reducing the cost of care provided to Medicare beneficiaries served by FQHCs.

Select an ACO program.