Pay-for-performance arrangements, consisting of either quality and/or cost savings goals, are a key alignment strategy utilized by hospitals and physicians amidst the healthcare industry’s shift from fee-for-service to value-based care. There are many forms of pay-for-performance arrangements that seek to improve quality and/or reduce costs. These arrangements may be related to individual performance, hospital service line performance, or entire patient population or health system performance. Some examples of these programs include: bundled payments, employment arrangements with a quality payment, service line co-management, cost savings, accountable care organization models, and hospital efficiency improvement programs.

Challenges with these arrangements include defining the scope of the program, determining physician responsibility and impact on the select metrics or program initiatives, and ultimately determining if the incentive compensation payments are consistent with fair market value, as well as many other issues. VMG Health has insight into the latest trends and numerous quality and cost savings compensation structures based on our extensive experience in valuing many types of pay-for-performance arrangements. As a result, we can rapidly assist in confirming if an arrangement with a physician, or other entity, is fair market value.


Documentation illustrating that quality and/or cost savings payments were set at fair market value represents best practice for compliance purposes. Based on regulatory guidance, fees should be derived based on a sound methodology reflecting the terms of the arrangement and relevant value drivers. Two examples of value drivers that should be considered in deriving a proper payment for quality and/or cost savings include: 1) program funding source and 2) level of physician responsibility and risk. VMG has a keen understanding of these factors, and a myriad of other valuation drivers associated with quality and cost savings arrangements.