Your mission, should you choose to accept it, is to provide higher-quality care at a lower cost. With the healthcare industry’s fast-moving transition to value-based—rather than service-based—payment systems, that’s the challenge many providers are facing. And while that mission may very well seem impossible, the truth is that rehab therapists and their peers in other medical fields don’t really have much of a choice as to whether they’ll accept it.

Download your guide to alternative payment models.

Enter your email address below, and we’ll send you a super-simple chart to help you understand all of your options for participating in value-based payment models.

Please enable JavaScript to submit form.

The winds of change are already blowing—some might even say howling—and the only way to make sure you don’t end up lost at sea is to take control of the sails and point your boat in the direction you want to go. But, whether you’re a top-secret government spy, a storied ship captain, or a PT private practice owner, the first step to overcoming any challenge is gaining a thorough understanding of what, exactly, you’re up against. With that in mind, here’s a breakdown of healthcare payment models and how they fit into the developing better-care-lower-cost picture.

New Year, New Codes: How to Bill for PT and OT Evaluations in 2017 - Regular BannerNew Year, New Codes: How to Bill for PT and OT Evaluations in 2017 - Small Banner

The Current Model: Pay-for-Quantity

As it stands, the amount of payment a therapist receives for each treatment session is determined by:

  1. The CPT codes the therapist bills, and
  2. The number of units associated with each CPT code.

Now, that’s a very bare-bones analysis of how things work in the fee-for-service world therapists have lived in for decades. As Larry Benz explains in this Evidence in Motion (EIM) article, the monetary value of each code also depends on the Resource-Based Relative Value Scale (RBRVS)—which accounts for a practitioner’s geographic region—as well as a fixed conversion factor that updates annually. So, this system financially rewards providers who:

  1. Perform the most expensive modalities (i.e., the services whose associated CPT codes are worth the largest dollar amount), and
  2. Bill for the largest possible quantity of units.

What’s wrong with this picture? Well, it provides absolutely zero incentive for practitioners to factor efficiency into their plans for care delivery. In other words, therapists have no financial reason to either:

  1. Provide—and bill for—fewer services, or
  2. Guide their patients to achieving their goals in fewer sessions.

And asking providers to do both of those things in the current reimbursement environment would be—financially-speaking, anyway—just plain laughable. As Benz notes in the above-cited article, “There is no consideration of the medical value to the patient for a given service nor is there any incentive to minimize costs. As a result, incentives are heavily misaligned and skewed towards the overuse of complex and therefore costly procedures as opposed to encouraging the use of effective procedures, some of which may be low cost to deliver.”

Losing sleep over healthcare reform?

Enter your email address below, and we'll send you our free healthcare executive's guide to maximizing both clinical and financial results—whatever regulatory curveballs come your way.

Please enable JavaScript to submit form.

Federal Policy: The Fast Track to Pay-for-Quality

Bottom line: With the cry for lower healthcare costs louder than ever, it’s clear that the status quo won’t be the status quo for long. When it comes to payment reform, the proverbial ball started rolling years ago. But in 2015, it got a major turbo boost when the US Department of Health and Human Services (HHS) announced its goal to:

  • Base 30% of all Medicare fee-for-service (FFS) on alternative payment models by the end of 2016.
    • Increase that proportion to 50% by 2018.
  • Link 85% of FFS payments to outcome measures by the end of 2016.
    • Bump that percentage to 90% by the end of 2018.

With this statement, the feds made it clear that they’re serious about getting the healthcare community on track to transition to a value-based payment environment—sooner rather than later. As this Medical Economics article notes, “In the next two to five years, the shift from fee-for-service (FFS) to value-based reimbursement will be even more dramatic.” Never before have we seen a government-issued call for such a radical healthcare payment overhaul in such a short amount of time—with defined deadlines, to boot. One established trend that likely won’t change: the private health sector’s tendency to follow the government’s payment policy lead. In fact, some private insurers and provider groups have already jumped on the alternative payment model bandwagon. Translation: eventually, providers in all disciplines—physical therapy included—will receive payment for their services based on an alternative, value-based model. But what, exactly, will that model look like? As with most questions on healthcare policy, the answer is a little—okay, a lot—complicated.

Value Over Volume: Payment Models of the Future

There is no singular value-based system for health services reimbursement; rather, there’s a spectrum of models ranging from the current fee-for-service structure—which, as we’ve already discussed, favors providers who deliver a higher quantity, rather than higher quality, of services—to a full capitation model, in which entire networks of providers pool their resources and receive fixed monthly payments for each enrolled patient. Interspersed between these two extremes are other lump-sum structures such as the per diem structure (in which providers receive one lump sum for each episode, regardless of severity) and the episode of care structure (which is similar to per diem but accounts for severity and complexity). Let’s review a handful of the most popular models.

The Shared Savings Model (ACOs)

In a shared savings structure, individual providers join together in a group called an accountable care organization, or ACO. The group then contracts with a payer to provide care for a particular patient population. As part of that contract, the parties agree on specific cost and quality benchmarks and determine a time frame for measuring performance on those fronts. If the ACO’s performance exceeds the predetermined cost and quality goals, the group shares the savings with the payer. If the providers do not meet the benchmark goals, the ACO absorbs the difference.

Essentially, this model merges traditional fee-for-service with real financial incentives for minimizing healthcare spending—by either refraining from providing unnecessary services or prioritizing the delivery of less expensive, similarly effective alternatives—while simultaneously maintaining or improving quality of care.

Is it Right for Your Practice?

Several commercial payers have dipped their toes into the shared savings pool, but Medicare really brought ACOs into the spotlight with its Medicare Shared Savings Program (MSSP) and its Pioneer Program. As Medical Economics reports, as of 2014, 47% of MSSP participants came in under budget. However, only 25% lowered spending enough to qualify for shared savings. So, while shared savings programs may seem like a simple answer to a complex problem, the reality is that these groups often must invest substantial resources—like personnel for data collection and oversight, for example—in order to reap the potential financial rewards.

On the plus side, providers who join these groups have the opportunity to tap into a potentially larger patient base while sharing the risk of participating in an alternative model with the rest of the network.

The Bundled Payment Model

Many episodes of care involve several different types of services delivered by many different providers. And even though they’re all working toward the same outcome—theoretically—their incentives are not truly aligned because in the traditional payment structure, each provider receives payment independently. Essentially, it’s every provider for him or herself. And that leads to unorganized, inefficient care and massive overutilization of services.

The bundled payment model, on the other hand, gets all of those individual providers on the same page, gunning for the same goal, and—most importantly—working under the same budget. Basically, the payer offers a single lump sum for the entire episode of care related to a particular treatment or condition. (Some bundled payment spin-offs, like the patient-centered medical home model, incorporate some fee-for-service components to supplement the lump sum.) Then, all of the providers involved in that episode get a piece of the lump-sum pie. For example, if a patient had knee surgery, he or she would incur one single charge to cover the surgery itself, the post-op rehab, and all follow-up exams and services.

Keep in mind that a few different variations of the lump-sum structure fall under the bundled payment umbrella. For example, the per diem structure provides one lump sum for each type of episode, regardless of severity, whereas the episode of care structure accounts for severity and complexity.  

Is it Right for Your Practice?

In theory, the bundled payment setup encourages the team of providers to work together to determine the most cost-effective route to delivering quality care—thereby increasing everyone’s margins. Makes sense, right? Well, in certain circumstances—like cases with defined starting and ending points—it might. But for therapists treating patients with chronic conditions, the payment process could get a bit tricky. The same goes for situations in which patients end up needing more care than initially predicted. And there’s always the possibility that providers will try to skimp on service delivery in order to lower their costs—which could have the exact opposite effect of what value-based payment models are supposed to achieve: better quality care.

And then there’s the whole gatekeeper issue: Who’s the decision-maker responsible for divvying up the lump-sum pie? That question is especially relevant if the individual providers come from different organizations. David Zetter, PHR, CHBC, principal of Zetter HealthCare Management Consultants, expressed his reservations on that front in Medical Economics: “My concern is—who is going to be the gatekeeper? If it were one of my clients, I would say, ‘Before you get involved and agree to this, we need to have every single question answered so we know what the expectations are...You need to know all the details upfront. With bundled payments, it depends what the service is. How is it going to work, who is affected and who makes those decisions.”

Some other questions worth asking before you hitch a ride on the Bundled Payment Express:

  • Who else will be involved in the patient’s care?
  • How will the payer determine the budget for each episode?
  • Will the budget for a particular condition produce a positive ROI for you?

Capitation is kind of like an extreme version of bundled payment. Essentially, with this model, each provider receives a fixed, per-patient allowance to provide care over a set time period. The obvious problem with this model: it doesn’t place much emphasis on the patient’s best interests, as it encourages practitioners to provide as few services as possible.

Is it Right for Your Practice?

While the percentage of providers participating in capitation contracts is falling, newfangled capitation models—called global payment or global capitation—have gotten some attention recently, as Medical Economics reports. Such models can allow participants more bargaining power in payer contract negotiations—especially if those participants include large hospitals and other large practices. Still, with the fallout from the managed care crisis of the ’90s still fresh in everyone’s minds, providers and practice owners should approach this type of setup with extreme caution.

The Hybrid Model

Quitting fee-for-service cold turkey—and across the board—could very well prove unfeasible. That’s why, as the above-cited Medical Economics article explains, many experts foresee widespread implementation of some type of hybrid model that includes both fee-for-service and pay-for-performance elements. With this type of setup, providers don’t have to completely abandon the system to which they’ve grown accustomed, but they also have reason to limit the volume of services they provide—and bill for—whenever appropriate. For example, a hybrid model might include a base fee-for-service payment with the potential for performance-based positive or negative adjustments depending on:

  • Results (i.e., patient outcomes)
  • Patient satisfaction
  • Clinical decision-making and adherence to guidelines (i.e., accountability)
Is it Right for Your Practice?

Ideally, a hybrid model would curb the over-provision of unnecessary services—and thus, cut down on wasteful spending—without compromising patient care (i.e., encouraging providers to perform the bare minimum). As K.J. Lee, MD, FACS, is quoted as saying in Medical Economics, “The practical solution is a hybrid payment system that incentivizes doctors to be good stewards of the healthcare dollar as well as rendering accessible, quality care...It allows the doctor to concentrate on patients rather than trying to document to get paid more.”

Furthermore, adoption of a hybrid model likely would be the least-disruptive route to transitioning away from a predominantly fee-for-service structure.


While you might not be as eager to abandon the fee-for-service ship as Ethan Hunt is to take on a covert assignment, the fact is that the incumbent system is a sinking ship of wasteful spending—and the move to a value-based model seems to be the lifeboat our healthcare system so desperately needs.

  • Past, Present, and Possibility: The Progression of Pay-for-Performance Image

    articleMay 7, 2015 | 5 min. read

    Past, Present, and Possibility: The Progression of Pay-for-Performance

    For decades, healthcare leaders have searched for a way to balance the interests of providers, patients, and payers. The pay-for-performance paradigm has emerged as a front-runner in the race to drive down healthcare costs while simultaneously raising the quality of care and increasing patient satisfaction. But what, exactly, does this buzz term mean? Defining Pay-for-Performance As this Health Affairs article explains, the pay-for-performance umbrella encompasses any “initiatives aimed at improving the quality, efficiency, and overall value of …

  • Triumph in the Triple-Aim Game: The Healthcare Executive’s Guide to Readmission Reduction, Patient Safety Promotion, and ACO Success Image

    downloadSep 28, 2016

    Triumph in the Triple-Aim Game: The Healthcare Executive’s Guide to Readmission Reduction, Patient Safety Promotion, and ACO Success

    The Affordable Care Act (ACA) and other reform efforts have brought forth a renewed emphasis on care coordination at all points along the care continuum—including the period after hospital discharge. As part of this push, new financial incentives and penalties have put healthcare executives at the center of a high-pressure game of tug-of-war in which they must simultaneously improve care quality and reduce costs. Talk about a catch-22. Enter your email address below to download this guide …

  • Evidence-Based Payment: Why Data is the Key to Pay-for-Performance Success Image

    articleMay 5, 2015 | 4 min. read

    Evidence-Based Payment: Why Data is the Key to Pay-for-Performance Success

    If I challenged you to find a rehab therapist who didn’t believe in the power of evidence, you’d be searching for a while—forever, hopefully. After all, PTs, OTs, and SLPs are steadfastly dedicated to evidence-based clinical practice, because they know it gives their patients the best possible chances for success. On the business side of therapy practice, however, the application of evidence—a.k.a. data—is something many rehab therapists have yet to fully embrace. Payers, on the other hand, …

  • CMS Can See Clearly Now, Releases PQRS Strategic Vision Image

    articleMay 21, 2015 | 3 min. read

    CMS Can See Clearly Now, Releases PQRS Strategic Vision

    All month long, we’ve talked about the healthcare industry’s rapid evolution from the fee-for-service Stone Age to the pay-for-performance Enlightenment Period. Yes, payment reform is upon us , but don’t take our word for it—take it straight from America's largest payer of healthcare services: The Centers for Medicare and Medicaid Services (CMS). In an effort to “contribute to improved healthcare quality across the nation,” CMS recently published the Physician Quality Reporting Programs Strategic Vision , detailing a …

  • The Bundle Conundrum: Should PTs Participate in CJR? Image

    articleNov 9, 2016 | 6 min. read

    The Bundle Conundrum: Should PTs Participate in CJR?

    There a lot of hot topics in health care right now. Among top trending terms like “Affordable Care Act,” “pay-for-performance,” and “value-based care,” you’ve also probably heard “Medicare bundled payments”—specifically, “CJR” (or Comprehensive Care for Joint Replacement ). It’s a new bundled payment model from CMS, and it is of particular importance to outpatient rehab providers. As this article explains, “CJR will support better care for patients who are undergoing elective hip and knee replacement surgeries—the two …

  • Founder Letter: PQRS is Dead, But Your Data-Analysis Efforts Should Live On Image

    articleDec 6, 2016 | 6 min. read

    Founder Letter: PQRS is Dead, But Your Data-Analysis Efforts Should Live On

    If there’s one thing I know about rehab therapists, it’s that we are all very busy people. If your to-do list is anything like mine, it’s growing faster than you can prune it—and has probably expanded onto multiple sheets of paper (or maybe even into multiple notebooks). And regardless of the value associated with each item on the docket, we tend to refer to these tasks as things we “have” to do—not things we “get” to do. …

  • What the New HCAHPS Proposal Means for the Future of Hospital-Based PT  Image

    articleAug 11, 2016 | 3 min. read

    What the New HCAHPS Proposal Means for the Future of Hospital-Based PT

    When a patient is in pain, that patient wants relief—fast. And even if the patient knows medication is only a temporary fix—and a potentially dangerous one, at that—he or she will probably still choose drugs over longer-lasting, less-instant treatment options like physical therapy. For healthcare providers beholden to payment structures that incentivize patient satisfaction, that preference presents a real pickle: give the patient what he or she wants—long-term consequences be damned—or risk lower satisfaction scores (and potentially …

  • Odd Provider Out: Why PT Exclusion from MIPS is Bad for Future Payments Image

    articleMay 4, 2016 | 6 min. read

    Odd Provider Out: Why PT Exclusion from MIPS is Bad for Future Payments

    It’s official: rehab therapists are just a sashay away from exiting the PQRS dance floor. That’s because last week, the Centers for Medicare & Medicaid Services (CMS) issued a proposed final rule that, if adopted, will put into effect the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA). And that, in turn, will give the green light to the Merit-based Incentive Payment System (MIPS) , a brand spankin’-new quality data reporting program that consolidates PQRS , …

  • Payment Reform and PT: The Private Practice’s Guide to Pay-for-Performance Image

    downloadMar 8, 2016

    Payment Reform and PT: The Private Practice’s Guide to Pay-for-Performance

    The US healthcare system is in the midst of a massive overhaul. As part of that shift, the volume-based payment systems of yore (a.k.a. fee-for-service) are quickly going the way of the floppy disk to make room for a new payment paradigm: pay-for-performance. Soon, you’ll receive reimbursements based on the quality of care—not the quantity of services—you provide. Is your rehab therapy practice equipped to survive—and thrive—in a value-based payment world? Enter your email address below to …

Achieve greatness in practice with the ultimate EMR for PTs, OTs, and SLPs.