In supporting the right care at the right place at the right time, all value-based purchasing initiatives (VBPIs) are intended to ensure the appropriateness of care, improve clinical outcomes, enhance the patient experience, and generate cost efficiencies for healthcare providers. A successful VBPI launch requires four preparative steps (Mandal et al., 2017): Understand the beneficiary population. Analyze healthcare economic data. Identify risk-ready external partners. Consider administrative costs and burdens. By applying this four-step strategy, described here in detail, Health Net Federal Services (HNFS) has proposed an alternative payment model (APM) for freestanding ambulatory surgery centers (ASCs). UNDERSTAND THE BENEFICIARY POPULATION The Defense Health Agency (DHA) oversees the TRICARE Health Plan, the civilian plan for U.S. Armed Forces military personnel, military retirees, and their families. Through a competitive bidding process, private health plans (i.e., managed care support contractors) are offered a regional administrative services–only contract, agree to provide comprehensive healthcare support, and reimburse downstream providers through a fee-for-service (FFS) schedule. The National Defense Authorization Act of 2017 mandates value-based reimbursement methods that transfer financial risk to healthcare providers and managed care support contractors. With this federal mandate and as the managed care support contractor for the 21 states in the western United States (TRICARE West), HNFS must become a healthcare “integrator” (Berwick et al., 2008). The Centers for Medicare & Medicaid Services (CMS) promotes multiple APMs. Consequently, the DHA tasks its managed care support contractors to model their VBPIs on CMS’s APMs. However, such mimicry may not suit TRICARE beneficiaries because targeting post-acute care spending, an approach taken frequently by providers in bundled payment arrangements with Medicare, may be less rewarding in working-age populations (Wynn-Jones et al., 2019). For example, in CMS’s Comprehensive Care for Joint Replacement (CJR) model, an inpatient admission for lower extremity joint replacement triggers a bundled care payment initiative (BCPI). In 2016, a TRICARE East demonstration project modeled after CJR showed that its costs for lower extremity joint replacement surgeries were 11% higher than those at comparison hospitals during a 2-year period (U.S. Government Accountability Office, 2020). Because TRICARE beneficiaries have reduced disease burdens and shorter lengths of postoperative stays as compared to Medicare beneficiaries, a CJR-like APM would not generate cost efficiencies. Instead, any CJR-like provisions for bonus payments could increase per capita costs. Indeed, episode volumes, population demographics, and issues with implementation also contributed to the shortcomings of this TRICARE East pilot (Department of Defense, 2020). The pilot outcome led HNFS to conclude that continued FFS reimbursement with network steerage to an ASC would be more cost-effective than any BCPI for hospital-based care in TRICARE West. Unfortunately, such network steerage with FFS reimbursement does not satisfy the National Defense Authorization Act’s VBPI requirements. As Figure 1 illustrates, both BCPIs and ASCs reduce variability, lower costs, improve quality, and increase patient satisfaction scores, albeit through different mechanisms. Adapting a BCPI to emerging healthcare delivery innovations that ASCs offer should yield an additive, if not synergistic, effect.Figure 1: Adding Bundled Payments to Ambulatory Surgery SettingsAnalyze Healthcare Economic Data The DHA permits HNFS to launch VBPI pilots in a specific medical service area in Colorado, which provides an opportunity to fully understand the needs of a well-circumscribed beneficiary population and its drivers of healthcare (Health Net Federal Services, 2021). A 3-year claims analysis in this medical service area identified spine surgery as one of the top five drivers of costs among inpatient surgical procedures, with high per capita variability for facility and professional charges. Nationally, spine surgeries also have increased threefold and have the largest rate of variation among all surgical procedures. A BCPI for spinal surgery thus should be quite appealing to any healthcare organization. HNFS’s claims analysis demonstrated that overutilization of hospital-based spine surgery is a major factor for high per capita expenditures in TRICARE West, with most cases, both inpatient and outpatient, performed in the acute care hospital setting. Of the spine surgery cases that triggered a Medical Severity Diagnosis Related Group because of inpatient admission, 91% of cervical and 55% of lumbar inpatient surgeries were discharged within CMS’s Two-Midnight Rule and could have been candidates for outpatient surgery. Moreover, no TRICARE West beneficiaries had major complications during the first 90 days after surgery. While spine surgery has been routinely performed in ASCs for working-age adults as well as Medicare-eligible patients for several years and is widely regarded as the standard of care, only 8.1% of all spine surgeries in the TRICARE West medical service area occurred in an ASC. Figure 1 summarizes how developing BCPI for specialized surgery in an ASC can reduce variability, lower cost, improve quality, and improve the patient experience. IDENTIFY RISK-READY EXTERNAL PARTNERS HNFS has a long-standing relationship with an ASC management company with experience in value-based contracting. Moreover, because uncomplicated surgeries remain the most cost-effective, this pilot includes a freestanding ASC that focuses on spine surgery, has received high-quality scores from accreditation groups, and works with surgeons who have achieved excellent outcomes on spine surgery performed in ASCs. Furthermore, the VBPI is structured so that the ASC, under the aegis of the management company, acts as a true convener by negotiating pricing with and subsequently reimbursing all individual providers and vendors. In this manner, the integrator contracts with a convener to transfer fiduciary risk away from the payer and to all providers reimbursed through the BCPI. When pricing BCPIs, most administrators identify the average cost of care and then decrease that amount by 1%–2%. Although that practice can reduce variability, it does not generate appreciable cost efficiencies. Here, historical disbursement amounts first are grouped into terciles, and the negotiated pricing for spine procedures is then aimed at the bottom tercile. So, the negotiated price for each surgery should be lower than that previously paid in two thirds of historical cases. Only high-value providers who willingly could take on such fiduciary risk can agree to such pricing. CONSIDER ADMINISTRATIVE COSTS AND BURDENS As noted earlier, HNFS is responsible for system integration. Because most of the DHA’s regulations are based on CMS statutes even if the population health requirements of TRICARE beneficiaries are dissimilar to Medicare beneficiaries, many of the spine surgery cases proposed for this pilot do not appear on the DHA’s ASC group payment rate list and cannot be reimbursed if performed in an ASC. Therefore, HNFS has had to present evidence-based medicine criteria in support of adding these procedures to that payment rate list. The next task in this pilot is to develop internal processes for this novel bundling of provider remuneration while remaining compliant with claims payment regulations. There are three administrative requirements for these processes. First, consistent with the Triple Aim (Berwick et al., 2008) and pending DHA approval of this proposal, HNFS—as the healthcare integrator—must implement a new beneficiary navigation system to coordinate preoperative care and postoperative recovery. Thus, a new beneficiary navigation system to coordinate perioperative care and postoperative recovery has been established. Second, the surgeon referral and authorization process must comply with the DHA mandate that TRICARE beneficiaries may choose providers in the civilian healthcare network. Third, HNFS has subcontracted the development of a claims-processing interface with the DHA to an information technology vendor. Working with the claims processor, HNFS has implemented a unique process to pay a single payment for claims negotiated in the BCPI fee schedule, validate beneficiary eligibility, and safeguard against duplicate claims submissions from downstream providers. HNFS factored the costs for these administrative requirements into this VPBI proposal to verify its financial sustainability. CONCLUSION By adhering to these four steps in formulating VBPIs, HNFS identified the most appropriate APM for a specific beneficiary population requiring a specific set of surgeries in the most appropriate venue. Ten years ago, CMS proposed a bonus payment arrangement for high-quality ASCs (Department of Health and Human Services, 2011) that remains in administrative stasis as the federal debate on quality measures continues (Medicare Payment Advisory Commission, 2021). Any bonus would still depend on FFS reimbursement; thus, such payments would remain based mostly on volume, not value. On the other hand, the BCPI for ASCs described here transfers significant fiduciary risk to the integrator and the convener-provider, as both work together to provide the best care. Even as this BCPI proposal navigates HNFS and DHA bureaucracies, the transfer of care to ASCs is widely accelerating. Hence, this description of a pioneering VBPI is preemptively reported here to spur discussions on an emerging topic of interest among healthcare leaders—and thereby promulgate much-needed advances in healthcare delivery. ACKNOWLEDGMENTS The authors thank the HNFS legal department for its review of the manuscript and Dr. Joyce R. Grissom, CMO of HNFS, for her support.