Value-based contracting between payers and healthcare organizations and/or providers has seen steady growth in recent years. The basic idea is to incentivize healthcare and provider organizations for better performance on the targets set up by these agreements, with the ultimate goat to achieve the Quintuple Aim.

While they offer the potential to align financial incentives and generate additional revenue for providers, value based payment agreements can also have varied targets across payers that may be inconsistent with the practice or provider organization’s needs or inconsistent with the programs offered by other payers. This article aims to highlight some of the key areas to consider when starting to explore involvement in value-based contracting (VBC) or discussing these agreements with payers.

Know the payer and who you are dealing with

Knowing the payer you are dealing with and having had experience with them is an important first step. However, how do you determine if the relationship is the right fit to move forward with? Below are key areas to consider:

• The company is financially sound and in good standing with the state(s) your organization services
• The company has a history of paying claims promptly and correctly, with any discrepancies resolved within a reasonable time
• There is a history of having a single point of contact or designated representative available to you for any issue resolution
• The contracted network is sufficient for your organization and includes the facilities and specialist physicians to whom your group typically refers to
• The company proactively engages with your organization

Levels of Value-Based Contracts (VBC)

In determining whether your organization is ready for a VBC, you need to think about what level of performance your organization is ready to accept.  There are at least four general levels to VBC agreements with multiple variations to each:

1. Pay-For-Performance: The simplest model rewards practices for achieving mutually agreed upon quality targets.
   • Pros:
     1. Simple and easy to understand rules and measures
     2. Rewards can be easily calculated
     3. Interim scores can be provided by payer or provider organization (with appropriate analytics available)
     4. Could be made simpler for practice if EMR access is granted to the payer or provider organization
     5. Ability to provide supplemental data to hit targets
   •  Cons:
     1. Simple and easy to understand rules and measures
     2. Rewards can be easily calculated
     3. Interim scores can be provided by payer or provider organization (with appropriate analytics available)
     4. Could be made simpler for practice if EMR access is granted to the payer or provider organization
     5. Ability to provide supplemental data to hit targets
2. Upside Reward with no Downside Risk: Provides more reward for improving quality performance while taking on some cost efficiency measures, but without the risk of any losses.
   • Pros:
     1. Same as Pay-For-Performance, but with the opportunity to earn dollars for hitting cost targets as well
     2. Becomes “risk on training wheels,” preparing providers and healthcare organizations to understand and assume more risk
     3. Allows the provider or healthcare organization to get used to running processes that improve the cost profile in the group and become prepared for taking on more risk, hence more reward
   • Cons:
     1. Still below maximum reward possible
     2. Payment requires achieving certain cost targets and then splitting any remaining margin with the payer in a predetermined amount
     3. May take extended time to calculate final payouts for all claims to clear and quality parameters determined.
3. Upside Reward with Downside Risk:
   • Pros:
     1. Same as Pay-For-Performance, but with potential additional dollars for hitting cost targets as well
     2. Depending on the structure of the targets, there may be opportunities to earn more by achieving interval targets
     3. Allows the provider or healthcare organization to get used to running processes that improve the cost profile in the group and become prepared for taking on more risk, hence more reward
   • Cons:
     1. Potential downside risk (financial loss)
     2. Still below maximum award possible
     3. Payment requires achieving certain cost targets and then splitting any remaining margin with the payer in a predetermined amount
     4. May take extended time to calculate final payouts for all claims to clear and quality parameters determined.
4. Full Risk/Capitation/Percent of Premium: Regardless of how it is referred to, this type of agreement puts the provider organization at full risk based on a budget for medical expenses and administrative expenses. Exercise caution to ensure you fully understand exactly what is covered in the arrangement including  pharmacy, behavioral health and substance use disorder, transplants and other high cost services or areas with high recidivism.
   • Pros:
     1. Full benefit of keeping and distributing any margin after medical expenses and administrative costs
     2. Ability to have full control and obtain responsibility over delegated functions in most administrative areas
     3. Provider group can set their own rules and programs as long as they are in accordance with government contracts with health plans (must meet all requirements for Medicare and Medicaid)
   • Cons:
     1. Requires stop-loss insurance to guard against catastrophic losses
        1. May still exceed financial reserves if multiple losses at or just below stop-loss limits
     2. Must have multiple processes in place through a Management Services Organization (MSO), for agreed upon and approved delegated functions including, but not limited to:
        1. Population Health (Utilization Management, Care Management and Care Coordination)
        2. Credentialing
        3. Analytics (performance, productivity and other measures)
        4. Network Management services
        5. Finance/Funds Flow plans
        6. Quality Management program
        7. Claims Management
     3. Have reserves to handle losses
     4. Be able to analyze and manage network providers for ongoing growth and positive performance

Is my organization ready for a Value-Based Agreement

Determining if an organization is ready to move forward with a VBC is crucial in deciding not only to reach out to a payer but also what level to begin the relationship. There are many key aspects to consider:

1. Culture: You need to evaluate whether your organization has a culture focused on enhancing the quality of care for your patients, delivering cost-efficient services and improving the overall health and experience of the population you serve. You can do this by assessing the following:
   1. Strong alignment across the organization on overall goals of improving patient outcomes, enhancing care quality, and reducing costs
   2. A strong move away from unnecessary referrals with everyone working to the top of their license
   3. A move to reducing unnecessary or repeat testing
   4. Adoption of criteria consistent with Patient Centered Medical Home in primary care
   5. A culture of continuous communication between PCP and specialists involved in care of the patient
   6. A culture of continuous communication between the patient and all treating physicians
   7. Surveys of all stakeholders in the healthcare equation for satisfaction with the process
2. Membership: To make almost any VBC meaningful, there is a threshold of membership for each product or Line of Business (LOB) that will be involved. The method of membership attribution must be agreed upon and a determination of the total number of members at the start of the program should be made. If the number involved is below the agreed upon threshold, other activities could be considered including:
   1. Inclusion of a number of additional PCP practices to increase the number of attributed members
   2. Co-marketing with the payer to grow PCP practices
   3. Start at a lower level of VBC until a threshold is reached and then move to the next level
3. Network: Consider the available in-network specialties, as this can help determine the appropriate level of risk for contracting. In addition to having an adequate number of PCPs, the organization must have high volume specialties participating. These specialties include dermatology, cardiology, gastroenterology, endocrinology and general surgery. Depending on the patient population and population health studies, additional specialties may include nephrology (with a high volume of patients with diabetes), OB/GYN (younger populations, such as Medicaid LOB), ophthalmology (older population with cataracts and/or glaucoma present) and other specialties as determined by data for the population you serve.
4. Experience: Looking at the current quality scores of PCPs within your group can give you an idea as to how well you will perform in risk programs. Requesting and using scores from payers or leveraging your current analytics database, if available, can indicate readiness to progress to higher levels of risk, or to start with a simpler level to prepare your organization for future success and advancement.

In the next section of VBC contracting, we will cover essential components to seek in the contract, key terms needed in the agreement, terms you might want to eliminate and strategies for collaborating with the payer on functions they handle, those you manage, and areas of shared responsibility.

Contact info@copeheatlsolutions.com or 213-259-0245 to see how we can you with our value-based contracting solutions.