Value Based Care

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There are a lot of different value-based care models, but at their core the difference is that under a fee-for-service model, the provider is compensated for each treatment the patient receives, while under value-based care there is some level of structure in place to try to align incentives so that the provider isn't just trying to bill the patient as much as possible. There are a lot of different methods that are currently being tested to reach this goal; the prevailing theme is that the provider is paid based on some other metric besides quantity of treatment and typically include some element of "risk-sharing". 

Under capitation plans (common for primary care and a few other chronic modalities), the provider org is paid a certain fee per member per month (PMPM) to provide care for a given population - for example, they may contract with the insurance company to receive $500 a month for every patient in the network based on expectations that only 5% of the network actually utilizes the services in a given month - if services are utilized more than that (or are more expensive, or whatever), the providers lose out on additional revenue and eat the cost, but if costs come in under expected levels the providers receive the same amount of income and enjoy increased profitability. This is typically tied to some level of quality / outcomes measurement, which means that the providers are incentivized to provide the same quality of care at a lower cost rather than billing as much as possible. 

For episodic care (think inpatient hospitalization), sometimes you get bundled payment models - in these cases, the idea is that a patient might need surgery + inpatient rehab + outpatient rehab for a given event or "episode", and the provider org gets a single payment that covers all of the expected treatments for that episode. Again, the idea is that the providers are incentivized to maintain quality at lower costs (and if costs are elevated, the providers, not the patient, are responsible for eating the incremental expense).

There are also outcomes-based payment models, where you get paid a base rate for providing the service but get additional bonuses if you meet quality criteria (think an additional 10% reimbursement if 60% of patients are in remission after 18 months, 20% if 70% are in remission, etc. - this will be tied to performance above "normal" outcomes).

For drug spend, there are things like shared savings programs - if a standard dose of an expensive drug is 5mg once a week, but based on data we believe that for a given patient profile (say, a 105 lb white female whose disease is Stage 2a) we can get by with 4mg twice a month and receive the same (or better) outcomes, then at the end of a measurement period we can point to what the total cost was under our program, and if it's at least a certain percentage less than usual the insurance company will remit maybe 50% of the difference back to us as additional profit - this way it ends up being better for both of us.

There are many, many different forms of payment models, and you often see hybrids as well (e.g. a capitated model where certain drugs are still paid on a FFS basis). It's a complex topic and a lot of smart people are being paid a lot of money to figure out new incentive programs to achieve these goals, but hopefully this helps paint a picture of what they're typically trying to do with value-based care programs.

Quoting because I only see the comment in the app and I don’t want to type it out again

It'll be a negotiated rate with the payor. It's typically based on historical data, but it also varies depending on who has more leverage