3 Necessities for Successful Transition to Value-Based Contracting

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The healthcare industry has begun to shift from a fee-for-service approach to value-based contracts under reform efforts. In fiscal year 2014, hospitals will have 1.25 percent of their payments tied to their performance under the Hospital Value-Based Purchasing program, a provision of the Patient Protection and Affordable Care Act. Major health insurers are joining the push for performance-based payments as well, with UnitedHealthcare planning to double its value-based contracts with providers by 2017.

In order to successfully transition to this new payment system, hospitals and health systems need three main foundational characteristics, according to a guide from the American Hospital Association's Hospital in Pursuit of Excellence initiative.

1. Shared goals and incentives
Payers and hospitals must agree on and share goals and incentives for effective payment and care delivery under value-based contracts, according to the guide. One potential goal for payment systems could be encouraging hospitals to invest, innovate and engage in other pursuits that improve efficiency, patient outcomes and quality.

2. Unified persistence of a value mindset
A "value mindset" involves recognizing that utilization creates expense rather than revenue in risk arrangements, and that improving outcomes and reducing costs necessitates different incentives and new management and reporting structures. Furthermore, providers in a value mindset must realize that healthcare providers need to work collaboratively to manage care for patients, particularly people with chronic illnesses. Providers must also prioritize operating efficiency in providing evidence-based services and provide those services to all patients, regardless of payer agreements.

3. Strong leadership and governance
Strong executive, physician and board leadership is a must for the transition to value-based contracts, according to the guide. Leaders must demonstrate a unified vision and focus along with transparency and accountability concerning quality and efficiency of care.

For more tips on transitioning to value-based contracts, read the full guide. The AHA and Kaufman, Hall & Associates will also present a two-part webinar on value-based contracting on Aug. 15 and 17.   

More Articles on Payment Reform:
Stop Paying for Paltry Performance: 5 Tips For Hospital Leaders
Medicare to Accelerate Physician Pay-for-Performance Program
Moody's: Hospitals Will See "Eroding Profits" in Move to New Payment Models 

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