Risk-Based Arrangements in Health Care

Defining Key Terms:
Risk: uncertainty associated with potential financial gains or losses. Risk-Based Arrangement: an agreement in which a CMS Innovation Center model participant is held financially responsible for the quality and cost of care delivered to beneficiaries in exchange for flexibilities regarding the way they deliver care. Upside Risk: uncertainty associated with potential financial gains; a risk arrangement that only includes upside risk may be referred to as a “one-sided risk arrangement.” Downside Risk: uncertainty associated with potential financial losses; a risk arrangement that includes both upside and downside risk may be referred to as a “two-sided risk arrangement.”

Defining Key Terms:

Risk: uncertainty associated with potential financial gains or losses.
Risk-Based Arrangement: an agreement in which a CMS Innovation Center model participant is held financially responsible for the quality and cost of care delivered to beneficiaries in exchange for flexibilities regarding the way they deliver care.
Upside Risk: uncertainty associated with potential financial gains; a risk arrangement that only includes upside risk may be referred to as a “one-sided risk arrangement.”
Downside Risk: uncertainty associated with potential financial losses; a risk arrangement that includes both upside and downside risk may be referred to as a “two-sided risk arrangement.”

Risk-Based Arrangements & Value-Based Care

A central goal of CMS Innovation Center models is to improve quality of care without increasing cost, lower costs without compromising quality of care, or, ideally, increase quality of care and lower costs. To that end, many CMS Innovation Center models use risk-based arrangements to promote integrated, person-centered care among model participants.

Within such arrangements, participants agree to be held financially responsible – or take on a certain level of financial risk – for the quality and cost of health care services provided to beneficiaries. This structure incentivizes participants to improve quality and lower costs through strategies like care coordination and preventive care.

In upside-only, or one-sided risk-based arrangements, participants who successfully deliver quality care at a lower cost may be eligible to receive a payment from CMS.

Some risk-based arrangements include both upside and downside risk, also known as “two-sided” risk. In such arrangements, participants who deliver quality care at a lower cost may be eligible to receive a payment from CMS, while participants who increase overall spending may owe a payment to CMS.

Further, a model may have different participation options, or tracks, that allow participants to assume varying levels of financial risk that suit their capabilities and experience.

Upside and downside risk-based arrangements play a part in transforming the nation’s health care system from one that rewards volume to one that rewards value.

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