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How to Choose the Right Value-Based Contracting Model as a Physician

By reading this article, you'll gain valuable insights into the different types of value-based contracting models, their pros and cons, and key factors to consider when selecting the best model for your practice. These insights can help you navigate the complexities of value-based contracting and improve your practice's efficiency and patient outcomes.

The Different Types of Value-Based Contracting

Value-based contracting in healthcare involves various models designed to align payment with the quality and efficiency of care. Each model has its unique advantages and challenges, which we'll explore in detail below.

Episode-based Payments

Episode-based payments, also known as bundled payments, provide a single payment for all services related to a specific treatment or condition over a set period. This model encourages providers to deliver efficient, coordinated care.

For more details on episode-based payments, see Episode Payment Models and learn more about the history of value-based care.

Pros of Episode-Based Payments:

  • Encourages coordinated care
  • Reduces unnecessary services
  • Predictable costs

Cons of Episode-Based Payments:

  • Risk of under-provision of care
  • Complex to administer
  • Requires robust data management

Accountable Care Organizations (ACOs)

ACOs are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated high-quality care to their patients.

Learn more about accountable care organizations.

Pros of ACOs:

  • Encourages collaboration
  • Focuses on preventative care
  • Potential for shared savings

Cons of ACOs:

  • High administrative burden
  • Potential financial risk
  • Requires significant coordination

Pay for Performance

Pay for performance (P4P) incentivizes healthcare providers to meet specific performance measures for quality and efficiency.

For more information, read about pay for performance.

Pros of Pay for Performance:

  • Rewards high-quality care
  • Encourages continuous improvement
  • Aligns provider incentives with patient outcomes

Cons of Pay for Performance:

  • Can lead to "cherry-picking" patients
  • Measurement challenges
  • Potential focus on metrics over patient needs

Shared Savings

The shared savings model allows providers to share in the savings they generate by delivering care more efficiently, while maintaining or improving quality.

More details can be found on the Shared Savings Program.

Pros of Shared Savings:

  • Financial incentives for efficiency
  • Encourages quality improvement
  • Flexibility in care delivery

Cons of Shared Savings:

  • Requires robust data analytics
  • Potential for financial risk
  • Administrative complexity

Pay for Quality

Pay for quality involves compensating providers based on the quality of care provided rather than the volume of services.

Pros of Pay for Quality:

  • Emphasizes patient outcomes
  • Reduces unnecessary procedures
  • Aligns payments with quality care

Cons of Pay for Quality:

  • Measurement difficulties
  • Potential for gaming the system
  • High administrative burden


Capitation pays providers a set amount per patient per period regardless of the number of services provided, encouraging cost-effective care.

Pros of Capitation:

  • Predictable revenue
  • Incentivizes preventive care
  • Reduces unnecessary services

Cons of Capitation:

  • Risk of under-provision of care
  • Requires effective care management
  • May discourage complex cases

Bundled Payments

Bundled payments provide a single payment for all services related to a treatment episode, promoting coordinated and efficient care.

For more information, visit Bundled Payments.

Pros of Bundled Payments:

  • Encourages care coordination
  • Predictable costs
  • Reduces unnecessary services

Cons of Bundled Payments:

  • Potential for under-provision of care
  • Complex administration
  • Requires robust data systems

Patient-Centered Medical Homes (PCMH)

PCMHs focus on comprehensive, patient-centered care coordination, emphasizing primary care.

Learn more about the patient-centered medical home.

Pros of Patient-Centered Medical Homes:

  • Holistic care approach
  • Improved patient satisfaction
  • Emphasis on preventive care

Cons of Patient-Centered Medical Homes:

  • High implementation cost
  • Requires significant care coordination
  • Administrative complexity

Factors to Consider When Choosing a Value-Based Contracting Model

When selecting a value-based contracting model, physicians should consider several factors:

  1. Patient Population: Consider the types of patients you serve. Different models may be more suitable for different populations. For example, ACOs might be ideal for a diverse patient base, while bundled payments might suit providers focusing on specific treatments.

  2. Practice Setting: The setting of your practice, whether it's a hospital, private practice, or clinic, will influence the best model for you. Hospitals might benefit more from shared savings programs, while private practices might find capitation models more predictable.

  3. Financial Risk: Evaluate your willingness to take on financial risk. Models like shared savings and capitation involve higher risk but also offer higher rewards for efficiency.

  4. Administrative Capacity: Assess your practice's ability to handle the administrative requirements of each model. Some models, like ACOs and PCMHs, require significant coordination and data management.

Understanding these factors can help you navigate the potential problems with value-based care and select the model that aligns best with your practice’s capabilities and goals.

Download our free VBC eBook for more expert insights and learn more about how Elation supports value-based care.


What is value-based contracting? Value-based contracting involves agreements between healthcare providers and payers that link payment to the quality and efficiency of care provided. This approach aims to incentivize better health outcomes at lower costs. Learn more about value-based contracting.

What are the benefits of value-based contracting? Value-based contracting offers numerous benefits, including improved patient outcomes, reduced healthcare costs, and enhanced care coordination. It aligns provider incentives with patient health, fostering a more efficient and effective healthcare system. Discover more benefits of value-based care.

What are examples of value-based contracting? Examples of value-based contracting include episode-based payments, ACOs, pay for performance, shared savings, pay for quality, capitation, bundled payments, and patient-centered medical homes. Each model offers unique ways to align payments with quality care.

What is the difference between volume-based and value-based reimbursement? Volume-based reimbursement, or fee-for-service, pays providers based on the number of services rendered, potentially leading to overuse. Value-based reimbursement, on the other hand, ties payment to the quality and efficiency of care, promoting better health outcomes. Learn more about value based reimbursement and the differences between fee for service vs value-based care.