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In the traditional fee-for-service reimbursement model, healthcare providers are paid for the amount of services performed. 

Incentivized to order more tests, perform more procedures, and manage more patients in an effort to optimize payment golds, the burgeoning costs were determined by what commercial payers paid in the private market and a percentage of what Medicare reimbursed for similar services. To make matters worse, the rates for services were also unbundled, meaning each service was paid for separately.

Under fee-for-service models, cost variations for procedures and tests increased and the healthcare industry was spending more to treat patients without regard to patient outcomes, which were not necessarily improving. The model also challenged provider workflows because physicians were seeing more patients and each claim had to be processed in a fragmented network.

To drive down healthcare costs and improve patient outcomes, the federal government designed value-based care programs: these reimbursement and care models integrate on advancing quality of care while increasing patient access and accounting for price at the point of care.

Value-based reimbursements are calculated by using numerous measures of quality and determining the overall health of populations. Unlike the traditional model, value-based care is driven by data reported to payers on demonstrated improvement and specific metrics: track and report on hospital readmissions, adverse events, population health, patient engagement, and more.

Under the new models, evidence-based medicine, engage patients, upgrade health IT, and use data analytics will incentivize providers in order to get paid for their services, rewarding more when patients receive coordinated, appropriate, and effective care.

To participate in value-based care, CMS has developed several models for providers, such as the accountable care organization, bundled payments, and patient-centered medical homes.