Designing Effective Distribution Models for Value-Based Enterprises
April 24, 2025
Effective Compensation in Value-Based Enterprises
Compliance Services
Physician Compensation
Transaction Advisory
Editor’s Note: This article was originally published in January 2021 and has been updated in April 2025 to reflect the latest MSSP participation data and regulatory guidance.
As value-based care models like accountable care organizations (ACOs) and clinically integrated networks (CINs) continue to evolve, so does the need for thoughtful, compliant, and effective distribution methodologies. As of 2023, 456 ACOs were participating in the Medicare Shared Savings Program (MSSP), serving over 10.9 million Medicare beneficiaries, according to the Centers for Medicare & Medicaid Services (CMS).
For value-based enterprises (VBEs), aligning provider compensation with performance, quality, and cost-savings goals is essential—but doing so requires a robust and defensible methodology.
Why Fair Market Value (FMV) and Commercial Reasonableness (CR) Still Matter
FMV and CR have long been essential components of healthcare compensation arrangements. However, their application within value-based programs—such as those under CINs and ACOs—is still emerging, which adds complexity and risk.
In response, CMS and the Office of Inspector General (OIG) released final rules in January 2021 that modernized the Stark Law and Anti-Kickback Statute (AKS). These rules introduced regulatory exceptions and safe harbors specifically for value-based care arrangements, provided certain criteria are met.
These changes were designed to promote innovation in care delivery and payment models. Still, the need for careful documentation and defensible valuation methods remains.
Key Point: Regulatory flexibility does not eliminate compliance obligations. Proper FMV/CR documentation is critical to validate distribution methodologies and reduce legal risk.
Documentation is a Strategic Imperative
Unlike traditional fee-for-service models, there is no standardized survey or dataset that benchmarks compensation within value-based care arrangements. Each structure is unique, and performance-based distributions can vary widely depending on the makeup and goals of the enterprise.
Your documentation should include:
- Attribution and distribution logic
- Quality and performance metrics
- Evidence of sustainability and reserves
- Data that shows the value providers generate
Obtaining a third-party FMV/CR analysis is often the most prudent path forward. It ensures that distributions are consistent with the actual economic structure—and defensible if ever challenged.
Evaluating FMV and CR in Value-Based Structures
When assessing the appropriateness of your distribution model, start with the structure—this is where most of the economic justification lies.
Here’s what to evaluate:
- Provider Effort: Estimate the level of provider involvement. Use total cash compensation and hourly rates as a reasonableness check, even if the model isn't based solely on time.
- Distribution Sustainability: Mature VBEs typically reserve a portion of earnings to ensure distribution consistency.
- Funding Source: FMV evaluations should consider whether the distribution funds are tied to actual performance metrics.
Checklist for CR Documentation
When preparing to defend a value-based distribution model, use this checklist to guide your commercial reasonableness documentation:
- Clear business purpose and justification for provider involvement
- Measurable financial impact and value to the enterprise
- Comparison to alternative compensation models or structures
- Balanced view of risk vs. return for all parties involved
- Terms that are consistent with long-term goals and legal frameworks
Final Thoughts
As value-based care becomes a mainstay of healthcare delivery, VBEs must remain diligent in how they structure and assess provider distributions. With regulatory guidance evolving and performance metrics becoming more nuanced, a well-documented, FMV- and CR-supported model is not just a compliance measure—it’s a strategic advantage.
Ready to refine your value-based distribution model?
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