The transition from a fee-for-service to value-based care (VBC) healthcare reimbursement system has been slow, but steady.  Countless medical providers and health systems now participate in some form of shared savings or shared risk model under a VBC paradigm.  These programs are typically run by payors – from managed care organizations, to workers’ compensation and auto insurance companies, to government entities such as The Center for Medicare and Medicaid Services (CMS).  When these payors believe that they have improperly paid for medical care (i.e. care deemed to be medically unnecessary, or the responsibility of another entity), they have mechanisms in place to recover the amounts overpaid.  Due to the myriad value-based care models in place, recouped money can no longer be assumed to be the property of the payor.

Below are hypothetical scenarios that demonstrate how payors may be increasingly receiving windfalls from their recoupment efforts.

Example 1: Episode of Care (EOC)

An orthopedic practice participates in an EOC program with a workers’ compensation (WC) insurance company.  For each hip replacement the group performs under the EOC program, it receives $25,000, which covers all costs associated with each patient’s surgery: the surgery itself and all care through 90 days post-operative.

Through an unrelated fraud investigation, the WC insurer freezes all receivables owed to an unaffiliated pain management practice.  Ultimately, the pain management practice admits no fault, but agrees to waive certain receivables – some of which include care provided to patients in the orthopedic group’s EOC.

This money should be credited back to the orthopedic practice.

Example 2: Total Cost of Care (TCC)

A primary care practice participates in a TCC model with a commercial payor, meaning the primary care practice is responsible for the cost of all care for all its patients.

If the total cost of medical expenses for the practice’s patients exceeds the amount allotted (“benchmark”), the practice is responsible to pay back the deficit.  If expenses are below the benchmark, it receives the difference.  The stakes are high under these “at-risk” models, and considerable resources have gone into developing strategies to code properly, keep patients out of hospitals when appropriate and reduce drug costs, among many others.

Few (if any) resources have gone into ensuring that medical expenses rendered to be improperly paid, and recovered by payors, are credited back to the at-risk medical group.


  1. Several of the primary care practice’s patients received surgery at an outpatient ambulatory surgery center (ASC) for treatment. The ASC is accused by the payor of violating state self-referral laws, and the payor claws back hundreds of thousands of dollars as a result.
  2. Several of the primary care practice’s patients were referred to a cardiology group for treatment. The cardiology group is accused of systematic “upcoding,” leading to an audit and ultimate settlement between the cardiology group and the payor.

In scenario a. and b. above, any monies that were deducted from the primary care practice (as medical expenses) and later recovered by the payor should be credited back to the practice.

Example 3: Medical Malpractice Awards 

An accountable care organization (ACO) signs up for a shared-savings program with CMS.  The ACO treats a patient with numerous comorbidities over the course of many months.  Despite best efforts, the patient experiences serious complications and eventually sues the treating physicians for damages.  The jury returns a plaintiff verdict in the amount of $1 million.

Prior to the verdict, CMS submitted a report outlining the money it paid towards the treatment of the patient – placing a “CMS lien” on that portion of the award.  CMS recoups this portion.

These funds should be credited back to the ACO (Note letter submitted to CMS for clarification here: – no response was received.)


Under a true value-based care system, a wide range of payment disputes over medical expenses get eliminated.  While the US healthcare system continues its slow and steady march from fee-for service to value-based care though, the parties financially responsible for the cost of medical care deserve a proper accounting.

Brian S. Kern, Esq., is the founder and CEO of Deep Risk Management, LLC, the nation’s leading value-based healthcare risk brokerage and consulting firm.  William Vanderveer is CEO of Redfine Healthcare, an innovative and fast-growing MSO focused on treating large populations of patients experiencing injuries and pain.