Back to Top Skip to main content the official website of the Military Health System (MHS) and the Defense Health Agency (DHA)

Utility Navigation Links

TRICARE Reimbursement Manual 6010.64-M, April 2021
Alternate Payment Models (APMs)
Chapter 18
Section 1
Alternate Payment Models (APMs)
Issue Date:  April 6, 2021
Authority:   Title 10, United States Code (USC), Sections 1079(h) and (i), 1086, and 1097; 32 CFR 199.6; 32 CFR 199.14(j)(4) and (m)
Revision:  C-5001, December 16, 2021
This policy is mandatory for reimbursement of services provided by network providers.
Currently, TRICARE program requirements generally include fee-for-service reimbursements of covered services provided to eligible beneficiaries by authorized professional/non-institutional and institutional providers. Consistent with the requirements of Section 705 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017, the Defense Health Agency (DHA) is interested in contractor proposed payment reform that will allow a gradual transition from fee-for-service reimbursements to value-based care with the goal of achieving better outcomes at a lower cost. Notably, Section 705 required the Department to “develop and implement value-based incentive programs” as part of future TRICARE Managed Care Support (MCS) contracts. Such contractor-proposed payment reforms or APMs could incentivize high quality and cost efficient care through varying levels of reimbursement and risk sharing. APMs can apply to a specific clinical condition, a care episode, or a population.
3.0  ISSUE
APM establishment, evaluation, measurement, monitoring, and validation.
4.1  Statutory Background
10 USC Sections 1079, 1086, and 1097 authorize the Department of Defense (DoD) to enter into contracts to administer health benefits for TRICARE beneficiaries. 10 USC 1079 (h) and (i) require TRICARE to reimburse both individual health care providers and institutional providers in accordance with Medicare reimbursement methodologies to the extent practicable. The TRICARE regulation at 32 CFR 199.14(j)(4) allows the Director, DHA, within program requirements established by law and regulation, and with the approval of the Assistance Secretary of Defense (Health Affairs) (ASD(HA)), to establish an alternative method of reimbursement for individual health care professionals or other non-institutional health care providers “designed to produce reasonable control over health care costs and to ensure a high level of acceptance of the TRICARE reimbursement, as long as the alternative methods do not result in reimbursement greater than the TRICARE allowable charge method. In addition, 32 CFR 199.14(m) allows the Director to reimburse both professional/non-institutional and institutional providers an amount below the amount usually paid for their services established by the regulation, under a discount program approved by the Director when the provider has agreed to accept the lower amount. Any other proposed APM which is inconsistent with current program requirements established by law and regulation may only be approved by the ASD(HA) through rule-making or exercise of demonstration authority.
4.2  Applicability and Scope of Coverage
The contractor may propose APMs involving any of the TRICARE providers in its network in alignment with an APM Framework developed by the Health Care Payment Learning and Action Network (HCPLAN) and consistent with the requirements below and the law, including those authorities cited above. Such contractor proposed APMs shall be separate and distinguishable from any APMs established by DHA in the TRICARE Reimbursement Manual (TRM)/TRICARE Policy Manual (TPM) (e.g., capitation of low-value care). Beneficiaries under an APM shall receive all rights and benefits associated with their enrollment (e.g., applicable deductibles, cost shares, co-pays and provider access).
4.3  The contractor’s APMs with network providers should focus on achieving the following goals:
•  Improved quality of care.
•  Improved patient outcomes.
•  Improved beneficiary satisfaction.
•  Reduced cost.
•  Reduced use of low-value care or increased use of high value care.
•  Empowerment of beneficiaries to make healthy choices.
4.3.1  The contractor’s proposed APMs shall be cost-neutral, at a minimum. The total cost of care in an APM is considered the maximum allowable charges, not including any applied network discounts. In other words, the Government cost of care for services delivered by providers under any APM may not exceed the Government cost of care that otherwise would have resulted from delivery of the same services if the providers in the APM model had been paid under standard reimbursement methodologies, e.g., at 100% of CHAMPUS Maximum Allowable Charge (CMAC) or Medicare Severity-Diagnosis Related Group (MS-DRG) rates), less any beneficiary deductible/co-pay. In general, there are two levels at which the CMAC may be calculated:
•  Individual claims level - The maximum allowable charge for the particular service.
•  APM model level - The maximum allowable charges all of the services associated with the model.
If the contractor proposes to assess an APM’s cost neutrality at the APM model level, then the contractor’s determination of “what would have been paid” shall be calculated at a model-based level (across all the providers and beneficiaries included in the model) and the methodology for demonstrating cost-neutrality may account for: 1) the difference in aggregate amounts paid to providers under the APM model relative to TRICARE maximum allowables, and 2) any utilization savings actually achieved due to the APM model. The determination of what would have been paid under TRICARE maximum allowables, including any analysis of actual utilization savings, shall be calculated retrospectively by the contractor using a methodology the contractor submits in advance for review and approval. The contractor’s analysis shall be conducted by an actuary qualified to issue a Statement of Actuarial Opinion, National Association of Insurance Commissioners (NAIC) Health Annual Statement.
4.3.2  When measuring the percent of network expenditures covered by APMs in order to assess progress in meeting the APM goals outlined in the referenced contract, the contractor may take credit for all existing APM arrangements, regardless of whether they were initiated by the contractor or the Government.
4.3.3  The Government will exclude fully capitated (HCPLAN Category 4) APM payments from its calculation of the network discount guarantee described of the referenced contract.
4.3.4  The contractor shall submit evidence of APM payments to providers (or discount adjustments - see paragraph 4.5) and any negative APM incentives collected from providers to DHA on non-TRICARE Encounter Data (TED) vouchers. Examples of such payments include Category 2 APM payments, Category 3 gain-sharing payments or loss-sharing collections, and fully capitated payments under Category 4. Reimbursement by the Government of net APM payments is subject to the policy stated above that the sum of fee-for-service payments associated with the APM model, plus the net APM payments at the model level, shall not exceed the total cost of care that would have resulted had the Government paid for the care included in the APM model under TRICARE’s standard reimbursement methodologies.
4.3.5  The Government will not consider APM payments (or discount adjustments) submitted on non-TED vouchers when reporting or measuring contractor discounts for purposes of administering the network discount guarantee under Section H of the contract. For example, if a contractor negotiates a 4% discount from the CMAC for claims submitted by a provider, but that provider also ends up earning an APM bonus payment or a discount adjustment equal to 3% of CMAC for some or all of those claims, for purposes of the Section H network discount guarantee, the contractor would be credited with a 4% discount, not 1% for such claims -- subject to the other provisions of Section H such as the limit on credit for discounts on professional services and the exclusion (from the network discount guarantee calculation) of TED records for services for which the contractor or provider has taken full risk under a capitation arrangement.
4.4  The Government will classify the contractor’s proposed APMs as either (1) APMs requiring approval or (2) APMs not requiring approval. Government pre-approval will be required before the contractor may implement most types of APMs. The approval process is defined in paragraph 4.6.
4.5   APMs not requiring approval: The contractor is not required to obtain prior DHA approval for the HCPLAN Category 2 APMs constructed strictly within the framework of network discount agreements with providers. The allowable framework consists of a Provider Payment and APM Model Framework to account for cost neutrality when working with network discounts and maximum allowable costs.
4.5.1  Category 2 - Provider Payment Framework. The contractor ensures that the reimbursement for health care services delivered by the provider plus any APM payment to the provider, when combined, will always be less than or equal to the maximum allowable charge for the health care service under the applicable standard TRICARE reimbursement methodology.
Example 1:  Payment (Provider Payment Framework). The contractor may negotiate a reimbursement agreement with an individual (or institutional) network provider under which the provider agrees to accept a 5% discount in its payment (and thus is reimbursed at 95% of the CMAC rate) for its services but with the condition that if the provider reports certain quality metrics to the contractor, and the provider complies, the provider will received a payment for the difference between its original 95% of CMAC rate payment and the now 100% of CMAC final agreed amount.
4.5.2  Category 2 APMs outside of this framework will require pre-approval as detailed in paragraph 4.6.
4.6  APMs Requiring Approval and APM Proposal Approval Process
4.6.1  APMs other than those described in paragraph 4.5 may not be executed without specific Government approval.  Category 2 - APM Model Framework. The contractor use a method of calculating cost neutrality where the contractor could disperse APM payments in a manner that resulted in some providers receiving payments for services (including any bonuses or incentive payments) that exceed the otherwise applicable TRICARE maximum allowable rates, so long as these payments are balanced by payments to providers that are less than the TRICARE maximum allowable rates. This payment framework may only be applied in the case of individual and other non-institutional providers.
Example 2:  Payment (APM Model Framework). The contractor may negotiate reimbursement agreements as it deems appropriate with the individual and other non-institutional network providers who will be participating in the APM model. The contractor may then sum all the dollars associated with the discounts from the services of all participating providers (thus ensuring that the total payout to providers for health care services did not exceed the CMAC rates at the model level) and pay bonuses or incentives out of the total dollars associated with APM model to providers who satisfy predetermined criteria -- meeting reporting requirements, quality standards. Under this approach, the combined value of the reimbursement(s) to a particular provider for health care service(s) rendered and any bonus or incentive payment(s) paid to that provider could exceed the maximum amount the provider otherwise could have been paid for the service(s) under the applicable standard TRICARE reimbursement methodologies.  The government will treat contractor proposed HCPLAN Category 3A and 3B APMs as either pilots or demonstration projects. A “pilot” is a project that does not include any elements that conflict with or require exceptions to a requirement or limitation set forth in statute or the TRICARE regulation. Therefore, for example, the Government will treat a contractor proposed Category 3A APM that is structured to operate within the framework of network discount agreements with providers as described in paragraph 4.5 and does not require for implementation the approval of an exception to any statutory or regulatory limitation, as a pilot project. Generally speaking, the DHA Director may implement a pilot project without higher-level approval. Conversely, a “demonstration” is a project that includes elements which conflict with one or more requirements or limitations set forth in statute or regulation and which therefore must be implemented under the authority of 10 USC Section 1092. Further, 32 CFR 199.1(o)(3) defines “demonstration project” as “a project of limited duration designed to test a different method for the finance, deliver or administration of health care activities.” The DHA may implement a demonstration only after it has been approved by the ASD(HA), cleared by the Office of Management and Budget (OMB), and published in the Federal Register. For example, the Government will treat a contractor proposed Category 3 APM that proposes shared savings from utilization that could potentially exceed the amount of total network discounts as a demonstration.  The government will consider all contractor proposed HCPLAN Category 4A, 4B, and 4C APMs as potential demonstration projects.
4.6.2  The contractor shall submit all Category 3 and 4 APMs for approval using the following process:  The contractor shall provide to the DHA draft APM proposals for preliminary review.  The DHA will provide to the contractor an initial disposition, questions, and comments to draft APM proposals.  The contractor shall submit to the DHA final APM proposals.  The DHA will notify the contractor of approval or disapproval.  An APM undergoing a pilot or demonstration project may not be expanded to other providers without additional DHA approval or regulatory change.
4.7  APM Proposal Guidelines
The contractor shall, for any APM proposal, include the following information to ensure an effective and comprehensive approval process.
4.7.1  Identify the category and sub-category from the HC-PLAN framework and provide an overview of how this APM supports the APM goals outlined in paragraph 4.3.
4.7.2  Identify the target provider and beneficiary population for this APM.
4.7.3  Identify the current and/or expected expenses paid to providers for these services.
4.7.4  Document the attribution methods for each APM.
4.7.5  Describe how the cost of the APM is calculated at the population level including the cost of care, any special APM payments to providers or other non-TED applicable costs (if applicable).
4.7.6  Describe how the costs associated with this APM will be tracked, including for purposes of the contractor reporting the total percentage of health care dollars paid under APMs.
4.7.7  Identify the three-year targeted savings following implementation of the APM.
4.7.8  Identify the performance measure used to trigger payment to providers.
4.7.9  Specify how the contractor will measure quality of care, patient outcomes, beneficiary satisfaction, reduced cost, reduced use of low-value care or increase use of high-value care and empowerment of beneficiaries to make healthy choices consistent with the requirements outlined in paragraph 5.0.
4.7.10  Indicate how the contractor will demonstrate/measure the APMs cost neutrality, i.e., that the payments to providers measures either at the claim/payment level or at the model level, including the cost of care and any special APM payments to providers or amounts collected from providers, did not exceed the aggregate cost of care that would have been incurred if the providers participating in the APM were paid the maximum allowable amount under standard reimbursement methodologies (see paragraph 4.3.1).
4.8  APM Reporting
4.8.1  The contractor shall establish and implement APM reporting processes that address the reporting in the APM Performance Measurement and Reporting requirements in paragraph 5.0, and DHA’s Monitoring, Oversight and Validation of Reporting detailed in paragraph 6.0. The contractor’s detailed methodology for calculating and reporting the overall percentage of network expenditures that are covered by APMs shall be submitted for DHA’s review and approval prior to the contractor’s formal measurement of the APM percentage achieved each year. The methodology shall include details specific to each type of APM in effect during the contract year (regardless of whether the APM was initiated by the contractor or the Government), as well as how the contractor will ensure that any claims falling under more than one APM model will not be double-counted when calculating the overall APM-covered percentage of network expenditures. Examples of methodological issues to be addressed include attribution, timing, and claims inclusion/exclusion criteria.
4.8.2  For each type of APM implemented, the contractor shall also submit for DHA’s review and approval the contractor’s methodology for demonstrating/measuring that the cost of the APM at the model level, including the cost of care and any special APM payments to providers or amounts collected from providers, did not exceed the aggregate cost that would have been paid under applicable TRICARE maximum allowable charges. After each option period, the contractor shall then submit its analysis and findings demonstrating whether each APM model resulted in a net aggregate cost no greater than what would have been paid if the APM providers had been reimbursed at TRICARE’s maximum allowable charges (see paragraph 4.3).
Performance measurement is critical to the success of APMs to advance better outcomes for all beneficiaries. Performance measurement makes it possible to monitor, in a transparent and quantifiable manner, how well APMs achieve the goals of: improved quality of care, improved patient outcomes, improved beneficiary satisfaction, reduced cost, and empower beneficiaries to make healthy choices. It also makes it possible to reward contractor and provider performance through the incentive structures that are central to APM.
5.1  Based on the APMs the contractor selects, DHA will require performance measurement and reporting for the APM according to the healthcare industry standards. Regardless of APMs selected, the contractor shall measure performance and report outcomes for measures in the following levels:
•  Level 1: These outcome-oriented measures represent the most highly aggregated summary view of performance on cost, quality, and population health.
•  Level 2: These outcome-oriented measures will include condition and specialty-specific outcomes achieved for patient populations, for example, outcomes of cardiac care, cancer care, or obstetric care. Level 2 will also include cross-cutting outcome measures such as coordination of care settings and care that is consistent with patients’ values and preferences.
•  Level 3: These are process-oriented measures such as individual activities that collectively contribute to positive health outcomes. These include assessing a patient’s tobacco use, assessing body mass index in a person who is obese, and ensuring stroke patients receive aspirin upon arrival in the emergency department.
5.2  The contractor shall demonstrate that all performance measures and targets are well defined and measurable. The contractor shall submit annual performance measure outcomes related to the approved APMs.
DHA will monitor the contractor’s APMs, cost savings and outcomes to ensure that beneficiary access to care and healthcare outcomes are not adversely impacted. DHA will hold all contractors to the same standards and ensure that the contractor is working diligently to resolve areas of non-compliance while striving to improve outcomes for beneficiaries.
6.1  The contractor shall submit the percentage of payments made under each APM, along with calculated savings in conjunction with the related APM performance measure reporting outlined in the approved APM proposal. (e.g., beneficiary satisfaction, outcomes, and cost).
6.2  DHA may conduct focused audits of the claims or utilization management departments, and/or annual independent financial audits to validate contractor APM reporting.
- END -

Utility Navigation Links

DoD Seal is the official website of the Defense Health Agency (DHA) a component of the Military Health System

TRICARE is a registered trademark of the Department of Defense (DoD), DHA. All rights reserved.

CPT only © 2006 American Medical Association (or such other date of publication of CPT). All Rights Reserved.

If you have a question regarding TRICARE benefits, please go to the TRICARE Contact Us page page.
If you need help with technical/operational issues, please go to the TRICARE Manuals Online Frequently Asked Questions page.

The appearance of hyperlinks to external websites does not constitute endorsement by the DHA of these websites or the information, products or services contained therein. For other than authorized government activities, the DHA does not exercise any editorial control over the information you may find at other locations. Such links are provided consistent with the stated purpose of this DoD website.


DHA Address: 7700 Arlington Boulevard | Suite 5101 | Falls Church, VA | 22042-5101

Some documents are presented in Portable Document Format (PDF). A PDF reader is required for viewing. Download a PDF Reader or learn more about PDFs.