Value-Based Contracting: From Payer and Provider Point of View

Value-based contracts can come in many forms and range from bundled payments to shared savings contracts to accountable care organizations. Payers and providers need to work together to form value-based contracts and be successful in the agreement.

Here, a payer shares what it looks for in a value-based contract partner, and a provider shares its take on bundled payments and negotiating contracts with payers.

Payer perspective

For the most part, it falls to the payer to decide on a value-based contract partner, and each payer has different criteria when seeking out that partner. Aetna has taken an active stance on value-based contracting and has several value-based agreements with various hospitals and physician groups.

Charles Kennedy, MD, CEO of accountable care solutions for Aetna, says it looks at the following characteristics in a potential value-based partner:

•    Leadership. Aetna looks for leaders who are committed to value-based ways of operating an organization. "Leadership from the executive team is absolutely critical because of the enormity of the changes you're trying to make," Dr. Kennedy notes.
•    The market. This may seem obvious, but Aetna looks at the organization and how it compares in the local market in aspects such as strength of brand and patient admissions.
•    Operations. Specifically, Aetna looks at how the organization does when it comes to total cost of care and its operational performance in terms of cost, quality and convenience parameters.

After looking at those parameters, Aetna comes up with a value-based contract approach that is unique to each organization and supports it mission and vision.

While there is no "single recipe" that makes an organization more attractive to Aetna for a possible value-based contract, Dr. Kennedy did say the payer generally looks for "organizers of care." In other words, organizations — be they hospitals, medical groups or integrated delivery networks — that have significant scale, heft and reach in the market.

Provider perspective

When a hospital, health system or other provider organization enters into a value-based contract, regardless of type, the organization needs to ensure the contract is fair for its providers and the cost and/or quality metrics are realistic.

Gabrielle White, RN, executive director of ambulatory services and network development at Hoag Orthopedic Institute in Irvine, Calif., says she and other leaders at HOI were drawn to value-based contracts, particularly bundled payment contracts, because it is the future of healthcare reimbursement. "We all know change in healthcare needs to occur because the fee-for-service model as it is today is costly and unsustainable," she says.

Hoag Orthopedic Institute is part of the Integrated Healthcare Association bundled payment pilot program and has three successful commercial bundled payment contracts for primary joint replacement, according to Ms. White. The IHA is a multi-stakeholder leadership group that serves as an "incubator" for pilot programs and projects.

Ms. White offers the following tips for a successful contract negotiation for provider organizations thinking about entering into a value-based contract:

•    Know your data and costs.
•    Understand where the outliers are and work to improve them. "Make sure when contracting that there is stop-loss or risk-adjusted pricing to cover those out of the ordinary outliers that can occur," Ms. White says.
•    Involve all leaders. "Encourage representatives from all provider sources, those in administration…to participate in [contract negotiation] discussions," she says. "I recommend all groups get their key administrative personnel involved early and include those who understand claims and payments."

Overall, value-based contracting is a two-way street and needs to involve communication and trust by both payers and providers. If the organizations work together, the contract and partnership is more likely to be successful and benefit both parties.

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