Avoiding Payment Penalties and Maximizing Reimbursement: The Revenue Strategy Health Systems Can’t Afford to Miss

Hospitals across the country are operating in a financial environment where sub-par performance is no longer solely a quality concern — it’s a strategic threat. Today, under Centers for Medicare & Medicaid Services (CMS) value-based payment programs, even small missteps can trigger payment reductions that put nearly 6 percent of all Medicare payments at risk.

While health systems may have had the wherewithal to absorb these reductions in the past, the One Big Beautiful Bill Act (OBBBA) cuts to Medicaid and the Affordable Care Act (ACA) subsidies sharpen their impact.

Most organizations are already responding, pursuing a dual approach of improving outcomes to avoid penalties while investing in value-based care models that offer financial upside. However, bracing for impact and dodging penalties is a defensive crouch, not a sustainable business model.

The organizations that stand to benefit most are those that recognize a broader opportunity: to convert performance into a reliable driver of margin, not just a safeguard against loss. 

Premier’s strategic guide to margin management outlines strategies to do just that. 

Strive for a Culture of Zero Failures

The path to protecting hospital margin doesn't lie in managing failures — it lies in eliminating them. Healthcare systems must pursue zero failures, addressing the process breakdowns, human errors, clinical missteps and delays that subject hospitals to cascading payment penalties tied to poor quality, readmissions and hospital-acquired conditions.

These failures often show up as missed follow-ups, delayed care transitions and/or high-risk patients who slip through care gaps, all of which can trigger penalties tied to quality, readmissions and hospital-acquired conditions.

With Premier’s support, health systems can deploy a comprehensive set of strategies to make that ambitious goal both tangible and sustainable. 

Data-Driven Oversight and Analytics

Premier’s performance insights and analytics platforms aggregate quality, financial and operational data to identify failure points early. These include missed follow-ups, delayed transitions and/or high-risk patients who slip through care gaps. By bringing those insights into clinician and operational workflows, systems can close loops before penalties hit.

Workflow Embedded Decision Support

Through clinical decision support (CDS) tools, Premier embeds evidence-based guidance in the care process. This means clinicians receive alerts and alternatives at the point of care, helping reduce unnecessary variation, prevent errors and align care with best practice — all of which support zero-failure outcomes.

Process Standardization and Value Analysis

Premier’s physician-led value-analysis frameworks equip organizations to standardize clinical practices, supplies and workflows across service lines. Standardization drives reliability, which is foundational for failure elimination. When every unit follows a proven process, the chance of avoidable variation — and thus failure — drops significantly.

Cross-Continuum Alignment

A zero-failure strategy cannot end at discharge. Premier helps health systems integrate post-acute, ambulatory, home care and community partnerships, helping make care transitions seamless and suppressing risks of readmissions or complications. This broader ecosystem view is essential, because many penalties arise from care breakdowns outside the hospital walls.

Smart, Sequenced Moves into Value-Based Care

The Medicaid and Affordable Care Act (ACA) cuts in OBBBA may leave hospitals with a higher share of uninsured and underinsured patients, meaning more care delivered with little or no fee-for-service (FFS) reimbursement. As a result, health systems should start to see value-based care not as a choice but as a survival strategy to avoid “death by a thousand cuts” in an increasingly restrictive payment landscape.

Value-based models offer a different path. Through accountable care organizations (ACOs), bundled payments and population-based contracts, providers can be rewarded for care coordination, chronic disease management and prevention, converting clinical excellence and operational discipline into predictable financial reward. 

The transition involves upfront investments, cultural change and longer revenue cycles tied to performance-based reconciliation. To prepare, health systems must conduct a clear-eyed assessment of where they stand today from both a contractual and operating capabilities perspective. This means understanding:

• What portion of contracts already tie payment to performance.
• How financially and operationally ready they are to take on risk.
• Which patient populations they’re best positioned to manage. 

Additionally, the transition to a VBC model requires investment in analytics tools and registries to track chronic conditions. It also requires embedded care coordination models that reach into partnering physician groups (both owned and out of network) and other providers across the care continuum. 

As OBBBA and other drivers accelerate the shift away from fee-for-service, Premier’s Population Health Management Collaborative (PHMC) is showing what’s possible. For Performance Year (PY) 2024*, PHMC members earned over $500 million in shared savings (and over $919 million in savings). They also achieved an impressive average quality score of 84.76, outperforming the national average quality score of 81.53 for all ACOs.

While the transition can be daunting, organizations that begin early are better positioned to capture shared savings, improve quality performance and stabilize revenue over time.

Optimize Your Supply Chain to Prevent Shortages and Protect Quality

Supply chain performance plays an important role in quality outcomes and, in turn, reimbursement rates. Supply shortages and other disruptions can increase length of stay, contribute to complications and drive readmissions, all of which negatively impact performance measures tied to reimbursement.

A resilient supply chain helps mitigate these risks by ensuring providers have the right resources at the right time, supporting consistent care delivery across the continuum.

For example, when South Carolina’s Prisma Health made a systemwide transition to Premier’s group purchasing organization (GPO), it leveraged Premier’s advanced data and technology solutions, unlocking actionable insights that connected clinical and operational leaders.

This empowered Prisma Health to track quality performance, monitor compliance and prioritize areas for improvement.

Tech-Enable Processes to Bridge the Provider-Payer Gap

Even when care is delivered effectively, reimbursement can break down due to administrative complexity. Claims adjudication cost providers more than $25.7 billion in 2023, a 23 percent increase over the previous year. Seventy percent of denied claims were ultimately overturned but only after multiple, costly rounds of review. Added labor was responsible for 90 percent of claims processing expenses incurred by providers.

Automation and novel technologies provide more direct solutions to reimbursement headaches: They can be used to check payer policy changes, alert staff when prior authorization is needed, gather relevant documentation and review authorization requests for accuracy. 

Premier’s Gaps app and artificial intelligence (AI)-driven prior authorization solution help bridge the provider-payer gap, optimizing resource utilization, streamlining administrative processes and enabling efforts to ensure accurate reimbursement and improve outcomes. 

The result is a more efficient process that helps ensure providers are reimbursed quickly and accurately for the care they deliver.

Enlist Expert Help to Navigate Unprecedented Volatility

Compressed margins, inflationary pressures and payer mix shifts are creating a pressure cooker for health systems, leaving many vulnerable to marginless growth. Overcoming these challenges requires a coordinated approach. Premier’s award-winning advisory services team is purpose-built to help health systems navigate this complexity, bringing expertise in revenue cycle, payer contracting, workflow optimization and more. By combining data, technology and hands-on support, Premier helps organizations improve collections, accelerate speed to revenue and strengthen financial performance. For example, McLaren Health Care worked with Premier to optimize its payer strategy and streamlined access, boosting system revenue by $35 million.

Health systems that employ a coordinated approach are not simply reacting to pressure; they are converting a performance advantage into competitive differentiation in value-based markets.

How are leading health systems avoiding payment penalties and maximizing reimbursement? Get your copy of Premier’s strategic guide to margin management for a closer look.

*Based on Premier's internal analysis of the 55 ACOs that were in the PHMC in 2024.