Strategy 2
Align Services with Value-Based and Alternative Payment Models
Many state Medicaid programs have moved away from simple fee-for-service (FFS) reimbursement. Greater utilization of managed care allows states to take advantage of innovative payment and benefit opportunities such as Value-Based Payment (VBP), In-Lieu of Services (ILOS), and Value-Added Benefits (VAB).
Value-Based Payment
VBP arrangements link MCO payments to performance on key metrics, creating powerful financial incentives for MCOs to seek partners who can achieve improved health outcomes and reduced costs through effective care coordination. Many states are now requiring MCOs to implement VBP arrangements with social service providers. For instance, Nebraska’s managed care contract requires MCOs’ VBP arrangements to include strategies for “localizing care management, addressing social needs gaps, and addressing health disparities.”25 In Massachusetts, MCOs are rewarded through Quality and Equity Incentive Programs for achieving specific performance goals, such as improving hypertension control rates among Black members, leading one plan (Tufts Atrius) to offer medically tailored meals after screenings identified nutrition as a key barrier to better health.26 To secure sustainable funding, SSOs/CBOs must adapt their services to fit payment models that reward improved outcomes and cost-effectiveness.
In-Lieu of Services and Value-Added Benefits
In-Lieu of Services (ILOS) allow managed care plans to offer medically appropriate and cost effective substitutes for covered services.27 Value Added Benefits (VABs) allow MCOs to offer services in addition to those covered by Medicaid and often address non-medical services. 28 Unlike ILOS, VABs do not need to meet any cost benchmarks, but they are typically funded through an MCOs administrative dollars and are thus excluded from the capitation rate-setting process.29
States and managed care plans utilize these pathways to provide services that address drivers of health such as nutrition or education. Opportunities may exist for SSOs and CBOs to form partnerships to provide these services to Medicaid members.
In Florida, MCO contracts require plans to contract with SSOs/CBOs to provide a wide range of pre-approved expanded benefits like family support services, food assistance, and respite care, all of which fall under the umbrella of VAB.30 Meanwhile, in California, the state’s CalAIM Medi-Cal transformation program encourages MCOs to provide ILOS like Enhanced Care Management (ECM) and Community Supports (CS) (described in further detail below).
States and MCOs recognize partnerships with SSOs and CBOs are necessary to control costs and improve outcomes. Therefore, SSOs must proactively evolve their service offerings and payment expectations from transactional (FFS) to relational (VBP), where their success is aligned with the MCO’s success.
Case Study in Action: Utilizing Value-Based Principles to Transform Service Delivery in Nebraska
Lutheran Family Services (LFS) of Nebraska31 successfully transitioned its service delivery to align with VBP principles through a partnership with Optum, a Medicaid MCO. Starting in 2016, LFS created an Integrated Behavioral Health Home (IBHH) targeting high-acuity Optum members who frequently used emergency and inpatient services. Initially, the agreement was a low-risk model where LFS was only reimbursed for the cost of services. However, the program evolved into a sophisticated value-based arrangement where LFS took on more risk for the potential of greater financial reward.32
In this current model, LFS receives a per-member-per-month (PMPM) reimbursement from Optum, providing stable funding for comprehensive care management, care coordination, and linkages to social supports. LFS also receives outcome payments and shared savings bonuses tied to performance on specific HEDIS and quality measures selected by Optum.33
LFS also operates two sites as Certified Community Behavioral Health Clinics (CCBHCs) and is anticipating the state’s adoption of the CCBHC certification in 2026, which will provide enhanced Medicaid reimbursement under a prospective payment system (PPS). This predictable funding stream will enable LFS to serve more individuals, including developing strategies to reach rural and frontier populations.
LFS strategically adapted its services to fit the payor’s demand for value, moving beyond simple cost reimbursement to participating directly in the financial upside of improved efficiency and health outcomes. Further adaptation is seen in LFS’s operation of Certified Community Behavioral Health Clinics (CCBHCs), which, starting in 2026, will benefit from Nebraska’s enhanced Medicaid reimbursement via a prospective payment system (PPS) designed to provide more sustainable funding for whole-person care.34
Actionable Steps for Members
To maximize success, SSOs/CBOs should:
- Monitor State Contracts and Waiver Renewals: Proactively track Medicaid procurements and state plan amendments (SPAs) or Section 1115 waiver proposals. This includes monitoring state Medicaid agency releases for new/existing contract requirements where an SSO/CBO may be a value-add and proactively reaching out to MCOs with tailored proposals demonstrating how SSO/CBO services can make the MCO’s bid more compelling to the state Medicaid agency. Despite the federal guidance on HRSN waivers being rescinded, there will still be opportunities to offer related services that are packaged in a waiver or SPA more aligned with the current administration’s priorities. CMS keeps lists of approved 1115 waivers35 and SPAs 36 (sortable by date of approval) on its website for SSO/CBO monitoring.
- Explore ILOS and VAS Opportunities: Investigate “In-Lieu-of-Services (ILOS)” and “Value-Added Services (VAS)” that MCOs are authorized or mandated to offer in state contracts (e.g., housing navigation, utility assistance, medically tailored meals). These services offer clear opportunities for reimbursement if SSOs/CBOs are willing to reach out to MCOs to offer their partnership.
- Be Open to Shared Risk: Be prepared to negotiate contracts that include shared savings and outcome bonuses, positioning the SSO/CBO as a risk-sharing partner committed to the payor’s financial goals, rather than merely a vendor. To prepare for such partnerships, explore available financial modeling tools to help calculate tolerable risk.