rcm glossary

Alternative payment model (APM)

Alternative payment model (APM) is a reimbursement approach that deviates from traditional fee-for-service, promoting value-based care by linking payments to quality and cost outcomes.

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What is Alternative Payment Model (APM)?

Alternative Payment Model (APM) is a term commonly used in the healthcare industry, particularly in the context of healthcare revenue cycle management (RCM). It refers to a payment approach that deviates from the traditional fee-for-service (FFS) model, where healthcare providers are reimbursed based on the volume of services they deliver. APMs are designed to promote value-based care, improve patient outcomes, and control healthcare costs by incentivizing quality and efficiency.

Understanding the Difference: APM vs. Fee-for-Service (FFS)

To better understand the concept of Alternative Payment Models (APMs), it is essential to differentiate them from the traditional Fee-for-Service (FFS) model. In the FFS model, healthcare providers are paid for each service they provide, regardless of the outcome or quality of care. This payment structure often leads to fragmented care, overutilization of services, and a focus on quantity rather than quality.

On the other hand, APMs shift the payment focus towards value-based care. Instead of solely reimbursing providers for the volume of services rendered, APMs tie payments to the quality, efficiency, and effectiveness of care delivered. These models encourage healthcare providers to focus on preventive care, care coordination, and patient outcomes, ultimately aiming to improve the overall health of the population while reducing unnecessary costs.

Types of Alternative Payment Models

There are several types of Alternative Payment Models (APMs) that have been developed to align payment with value-based care.

Some of the most common APMs include:

1. Accountable Care Organizations (ACOs): ACOs are groups of healthcare providers, such as hospitals, physicians, and other healthcare professionals, who voluntarily come together to provide coordinated care to a defined population. ACOs are responsible for the quality and cost of care provided to their patients. They receive shared savings or shared losses based on their ability to meet predetermined quality and cost targets.

2. Bundled Payments: Bundled payment models involve a single payment for a defined episode of care, such as a surgical procedure or a specific condition. This payment covers all services related to the episode, including pre-operative care, the procedure itself, and post-operative care. Bundled payments incentivize providers to deliver high-quality, cost-effective care throughout the entire episode, as they are financially responsible for any complications or readmissions that may occur.

3. Patient-Centered Medical Homes (PCMHs): PCMHs are primary care practices that provide comprehensive, coordinated, and patient-centered care. In this model, a primary care provider acts as the central point of contact for a patient's healthcare needs, coordinating care with specialists and other healthcare professionals. PCMHs focus on preventive care, chronic disease management, and care coordination to improve patient outcomes and reduce unnecessary healthcare utilization.

4. Pay-for-Performance (P4P): Pay-for-Performance models link a portion of provider reimbursement to specific quality and performance metrics. Providers are incentivized to meet or exceed these metrics, which may include measures such as patient satisfaction, clinical outcomes, and adherence to evidence-based guidelines. P4P models aim to reward providers for delivering high-quality care while encouraging continuous improvement.

Examples of Alternative Payment Models

To provide a clearer understanding of how Alternative Payment Models (APMs) work in practice, here are a few examples:

1. Medicare Shared Savings Program (MSSP): The MSSP is an ACO model developed by the Centers for Medicare and Medicaid Services (CMS) for Medicare beneficiaries. ACOs participating in the MSSP are accountable for the quality and cost of care provided to their assigned beneficiaries. If an ACO meets certain quality and savings targets, they are eligible to receive a portion of the savings generated.

2. Comprehensive Care for Joint Replacement (CJR) Model: The CJR model is a bundled payment model implemented by CMS for hip and knee replacements. Under this model, hospitals are responsible for the cost and quality of care provided to patients undergoing joint replacement procedures. Hospitals receive a bundled payment for the entire episode of care, including the surgery, hospital stay, and post-acute care. If the total costs of care are lower than the target price, the hospital may be eligible for additional payments.

3. Merit-Based Incentive Payment System (MIPS): MIPS is a pay-for-performance program introduced by CMS as part of the Quality Payment Program (QPP). Eligible clinicians are assessed based on four performance categories: Quality, Cost, Promoting Interoperability, and Improvement Activities. Their performance scores determine payment adjustments, with high-performing clinicians receiving positive payment adjustments and low-performing clinicians facing negative adjustments.


Alternative Payment Models (APMs) represent a significant shift in healthcare reimbursement, aiming to align payment with value-based care and improved patient outcomes. By moving away from the traditional fee-for-service model, APMs incentivize healthcare providers to focus on quality, efficiency, and coordination of care. Understanding the various types of APMs and their implications is crucial for healthcare organizations and professionals navigating the evolving landscape of healthcare revenue cycle management.

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