Value based contracting may also be referred to as risk-sharing or outcomes-based contracts. This type of innovative payment model requires payers and providers to partner to support value-based contracting.
The end goal is about improving outcomes, lowering costs and increasing access to care.
The days of fee-for-service (FFS) models are limited as the shift to value-based contracting are requiring significant changes with hospitals, medical groups and health care providers. These models support evolution in clinical and payment methodologies. The goal is the alignment with providers, members, employers and payers to work in partnership to improve clinical outcomes while improving patient experience. This collaboration will help improve cost savings and create accountability that was lacking in FFS.
The question in the not too distant future is not about considering to negotiate to a value-based contract model but when. This will also require evaluating the state of the current practice, market conditions and choosing the best payment model to join and address payer contracts accordingly.
Value Based Contracting – Common Payment Models
Value based contracting may include the following alternative methods of payment.
Pay 4 Performance (P4P)
This is usually a combination of FFS with financial incentives tied to performance. There is usually a contract or amendment to contract that outlines the performance thresholds. Payout is measured quarterly or yearly and payouts are made via bonuses.
Example: There could be a P4P for mammograms whereby the threshold is 75% of patients come in for their scheduled mammograms. A provider who meets that goal gets a 5% bonus and one who exceeds with 85% get a higher percentage of 10%.
The challenges of this program is the manual process for collecting and calculating the data and managing the different requirements per payer. The amount of work and staff resources often impact lack of provider participation and change in physician behavior.
Bundled Payments (Episode of Care)
For procedures such as knee or hip replacement surgery and CABG procedures, a single negotiated rate of payment for all services is identified. The payment rates are tied to adhering to clinical standards of care, risk and complication allowances.
Benefits to the provider is by improving efficiency without unnecessary episodes of care. The provider will be paid a bundled amount and by working efficiently with a positive outcome for the patient, all services and thereby dollars for procedure may not be used. If a patients procedure is more than the bundled amount, there is usually a clause in the agreement to allow for compensation for the unexpected outcome also called complication allowances. Benefits to the payer are paying less money per patient procedure than paid under fee-for-service as well as knowing the cost it will pay per procedure versus waiting for a claim to be submitted and paid.
Patient Centered Medical Home (PCMH)
Primary care driven initiative that focuses on creating a care team, physician, nurse (case manager) medical assistant and pharmacy if needed who partner to coordinate their patients care across the health care continuum.
The end goal is to provider quality care and coordination especially for chronic condition management and prevention of hospital readmissions and ER visits. To manage the coordination using electronic medical records, and central data repositories are essential. There can be a cost to building and supporting this infrastructure. This fact should be considered when negotiating a contract such as a higher FFS rate or consider a per-member-per-month in addition to FFS.
Shared Savings
These are programs that usually have combined FFS, P4P, bundled payments or capitation. Providers are rewarded if they reduce total health care spend for their patients. This reduction is a percentage set by the payer within the contract. The provider receives a share of the savings and the payer pays less for a patient’s treatment.
Challenges of shared savings programs are they may not pay for primary care services such as nurse care managers for chronic disease patients, and phone and email consults with other physicians. There is also the required spend and manhours by the provider to implement the processes or technologies to manage this model making the bonus dollars months are years before an advantage can be seen in true revenue.
Capitation Models
A set payment is negotiated per patient for specified medical services. 100% of the risk is on the provider for covered services. Payment is typically distributed monthly per-patient-fee. The fee is usually based on historic costs of patient care and population. The fees are adjusted to account for level of risk or acuity per patient population.
Two types of capitation models
- Global Capitation arrangement that includes primary care, hospitalization, ancillary care and specialist medical services for a patient. Provider organizations collaborate together to receive a single fixed payment for care of patient.
- Partial Capitation arrangement that covers only a defined set of services. Providers are paid a monthly fee for these defined services. Those services not under the arrangement may still be paid FFS.
The risk of the capitation models is the provider bears the risk. Providers can definitely benefit if providing care for a patient falls below that capitated rate but if the services go above that rate the provider may have to bear the cost.
Final thoughts:
There may be more value-based models created or in development. It is key for provider groups to stay informed on the changes given the constant changes in health care coupled with the understanding that 2020 is an election year and this could impact industry dynamics based on who is elected as President.
- Are you evaluating your contracts every 2 years or as market demand or pharmaceutical pricing dictates?
- Reviewing contracts every 2 years keeps your contracts top of mind and an open communication with the payers.
- Pharmaceutical pricing, example: If there is a significant change in a drug cost and the provider group is bearing the cost of the drug. Renegotiating is important to stay upon these costs for a healthy bottom line.
- Is the provider group staffed and ready to support change?
- Awareness to finances and ability to accommodate if change requires IT requirements?
Your contracts are your bottom line for revenue and with value-based payment models can impact quality care and patient outcomes, making knowledge of contracts and negotiating your contracts a priority.