Provider health systems and hospitals are under growing pressure to assume greater financial accountability for the total cost of care. Federal and state payers and some commercial health plans are accelerating the move from fee-for-service (FFS) payments to value-based care (VBC) models, including high-risk hospital global budget models. Hospital global budget methodologies establish fixed annual spending budgets and can be population-based or facility-based. Hospital global budgets are designed to moderate cost growth while not penalizing hospitals for utilization reductions and offering providers greater funding flexibility for care delivery.

Global budget models are designed to incentivize efficiency, quality improvement, and population health management by decoupling revenue from utilization volume, whereas FFS models generally incentivize volume and alignment of services with payments instead of patient value.¹ Global budgets aim to stabilize hospital revenue and incentivize care delivery transformation. Examples of hospital global budget models include Maryland’s long-standing All-Payer Model² and Pennsylvania’s Rural Health Model,³ as well as emerging initiatives in states like Delaware⁴ and New York.⁵ At the federal level, the Centers for Medicare & Medicaid Services (CMS) has introduced the Achieving Healthcare Efficiency through Accountable Design (AHEAD) Model, which expands global budget model concepts to additional states.

Global budgets expose providers to insurance risk traditionally taken on by health plans but can lead to significant financial and strategic advantages for providers, even in today’s unpredictable cost environment. In this context, success means achieving sustained budget performance while maintaining or improving quality alongside revenue and margin stabilization and care delivery transformation. To achieve and maintain success in these models, providers must align contract structures with enterprise strategy, invest in data-driven operations, and secure cultural commitment across all levels of the organization. Based on our direct experience working with hospital systems navigating global budget arrangements, long-term success depends on six essential implementation conditions.

Condition 1: Long-term budget sustainability and strategic alignment with healthcare provider goals

A global budget model must align not only with a provider organization’s long-term financial and operational objectives but also with the sustainability requirements of payers and the populations they serve. The foundation of successful, high-accountability hospital global budget models is a strategic alignment that ensures both provider and payer viability.

• Appropriate baselines and trends: Establishing global budgets using accurate, representative baselines and realistic trend assumptions is critical to ensuring the long-term sustainability of the model. The baseline should reflect the organization’s expected growth trajectory, balanced with what is feasible from the payer and member perspective. For example, the budget must consider payer-specific constraints—such as premium limitations—and be set at a level that supports both provider transformation and broader system affordability. Relevant adjustments should be applied and pandemic-era distortions normalized for the budget to remain viable for all stakeholders.
• Enterprise risk tolerance: Financial forecasts must consider how potential budget shortfalls align with surplus targets, capital stability, reserve requirements, and liquidity plans.
• Unified leadership commitment: Executive, finance, and clinical leaders must champion global budget contract decisions to ensure growth, quality, and margin goals are prioritized while cultivating organization-wide buy-in.

Condition 2: Stakeholder alignment across payers, providers, and patients in global budget models

High-risk agreements succeed when the financial incentives of key stakeholders, including regulators, payers, clinicians, and patients, are fully aligned with their priorities.

• Balanced incentives: Contract design should align financial rewards to providers with improvements in quality and care delivery while mitigating excess risk. This balance must be achieved not just within the provider organization but also between providers and payers so that incentives encourage improved quality and cost outcomes for the entire system. Global budget models can reduce certain administrative burdens but introduce new ones, like budget development and maintenance, ongoing performance monitoring, and regulatory compliance. A well-designed contract acknowledges this tradeoff and invests in the infrastructure needed to manage the added complexity, ensuring that net impact on administrative burden is favorable over time.
• Targeted quality metrics: Quality performance measures should align with existing quality programs, be achievable with current clinical assets, and encourage providers to maintain or improve quality.
• Transparent internal funding structures: Clear incentive frameworks for participating physicians build frontline engagement in these models and keep all parties focused on shared goals.

Condition 3: Sound hospital global budget methodology grounded in claims data and actuarial rigor

A data-driven, clearly defined budget is ideally based on historical population or facility-specific spending experience with credible, appropriate adjustments.

• Credible data: Budgets should reflect comprehensive claims data from a recent baseline period that best represents expected patient and provider practice patterns in the performance period.
• Robust population and health acuity adjustment: Budgets should be adjusted for changes in population size and mix, as well as patient health acuity between the baseline and performance periods, to reflect changes in resource needs driven by shifts in both the number and characteristics of the covered population.
• Appropriate adjustment factors: Budget projections should incorporate adjustments to capture inflation (unit price), secular utilization trend, enrollment and demographic changes, regulatory and policy requirements, market share across participants (for facility-based budgets) and other changes (e.g., benefit design or unexpected catastrophic events). The appropriate adjustment factors will vary based on the budget methodology and type of model (e.g., population-based or facility-based).

Condition 4: Predictable, stable funding mechanisms for hospital global budget performance

Payment and funding mechanisms should be structured to smooth out cash-flow variability, ensuring that funding streams are stable and predictable despite short-term variations in actual performance results.

• Variance management: Unexplained differences between actual spending and the budget erode stakeholder confidence in the model; robust experience monitoring and data reconciliation are important to maintain confidence while understanding opportunities for future improvements.
• Catastrophic protection: Stop-loss, outlier thresholds, and retrospective versus prospective true-up mechanisms can protect providers from unexpected catastrophic events while maintaining care transformation incentives.
• Contract safeguards: Service or member exclusions, renegotiation triggers, and exit clauses can mitigate risk against significant policy changes or market shifts.

Condition 5: Balance contract simplicity with actuarial rigor in hospital global budget design

Effective contracts are sophisticated enough to ensure fairness and predictability yet simple enough for key stakeholders to understand and trust.

• Transparent attribution: Providers must easily understand which patients they are being held financially accountable for. In practice, hospital global budget models may use a geographic attribution approach, assigning responsibility based on a defined service area rather than individual patient assignment. Clear documentation of the attribution methodology, including how patients outside the service area are handled, is important for model integrity.
• Straightforward payments: A clearly defined payment structure—such as monthly capitation with quarterly reconciliation—supports cash-flow planning and reduces administrative burden. This structure can be prospective, retrospective, or blended (e.g., prospective base payments with a retrospective true-up). The choice between retrospective and prospective settlement involves tradeoffs: Prospective approaches offer greater revenue predictability but require more robust upfront forecasting, while retrospective approaches may better reflect actual experience but introduce cash flow and settlement timing uncertainty.
• Clear methodologies: Easily auditable adjustment factors, attribution, and reconciliation processes build long-term trust among stakeholders.

Condition 6: Data infrastructure and organizational culture for hospital care delivery transformation

Provider organizations require robust analytic capabilities with a value-oriented culture to transition from managing risk to reshaping care delivery itself.

• Integrated data platforms: Claims, electronic health record (EHR), and social determinants of health (SDoH) data should feed a single population health system.
• Near-real-time analytics: Dashboards tracking quality, utilization, and total cost of care performance relative to budget allow stakeholders to identify opportunities for improvement before settlement.
• Scenario-based forecasting: Sensitivity testing can model short- and long-term program impacts—like healthcare price increases, new technologies, or quality improvements—to keep leadership apprised of emerging risks. Retrospective lookback testing, which validates model assumptions against historical experience, can help calibrate forecast accuracy and help identify modeling misalignments before they impact contract settlement.
• Dedicated risk management oversight: A focused actuarial and financial risk management team continually reviews performance data, recalibrates forecasts, and provides strategic insights to help optimize model performance.

Looking ahead

Federal and state initiatives continue to accelerate the shift toward greater provider risk, such as global budget models. Recent federal models announced by CMS, like the AHEAD Model, as well as various state Medicaid global budget models, signal that higher-risk and higher-accountability models may continue to proliferate. Hospitals and health systems that consider these six essential implementation conditions will be well positioned to convert risk into a strategic advantage—capturing growth, sustaining quality, and stabilizing margins in these global budget models.

Milliman’s multidisciplinary team of actuarial, financial, clinical, and policy specialists is prepared to support provider organizations at every stage of this transition. We help clients quantify their risk exposure, evaluate contract terms that balance upside opportunity with downside protection, and support the analytics, governance, and care delivery capabilities needed for sustained success in high-risk VBC.

¹ Health Care Payment Learning & Action Network. (2017). APM Framework. The MITRE Corporation. Retrieved March 25, 2026, from https://hcp-lan.org/wp-content/uploads/2025/08/APM-Framework-White-Paper.pdf.

² CMS. Maryland All-Payer Model. Retrieved March 25, 2026, from https://www.cms.gov/priorities/innovation/innovation-models/maryland-all-payer-model.

³ CMS. Pennsylvania Rural Health Model. Retrieved March 25, 2026, from https://www.cms.gov/priorities/innovation/innovation-models/pa-rural-health-model.

⁴ Nemours Children’s Health. (January 6, 2025). Nemours Children’s Health and State of Delaware to launch first-of-its-kind payment model for children’s health. Retrieved March 25, 2026, from https://nemours.mediaroom.com/GBagreement.

⁵ New York State Department of Health. New York State advancing All-Payer Health Equity Approaches and Development (AHEAD) Model. Retrieved March 25, 2026, from https://www.health.ny.gov/health_care/medicaid/redesign/med_waiver_1115/ahead/index.htm.