Value-based contracting 101: Key considerations for medical practices
As you look for ways to promote the financial sustainability of your medical practice, value-based contracts (VBC) might be an option to consider. Why? Unlike fee-for-service (FFS) contracts where you’re paid for each individual service you provide, VBCs pay you for keeping patients healthy. When you do this, you’re paid more.
Value-based contracting in healthcare: What’s it all about?
Value-based care—and the contracts that promote it—foster high-quality care at the lowest cost, providing you with countless opportunities to earn more revenue without necessarily providing more services. If you think about it, this makes sense. Providing services to patients solely for the sake of generating revenue only adds to rising healthcare costs. It also takes valuable resources away from patients who truly need them. In addition, being tied to a rigid payment structure means some patients don’t ever get the care coordination and nonmedical services they might need. If there’s no way to bill for it, you can’t. Value-based care balances your needs as a business owner with the needs of your patients. Value-based contracting in healthcare allows you to be more creative and holistic.
Still, there are challenges associated with VBCs as outlined in this VBC best practices playbook from the American Medical Association (AMA). In addition, many payers still require FFS contracts, leaving physicians between a rock and a hard place. Still, VBCs might be worthwhile to consider if you’re looking for an alternative solution to address financial challenges.
In this blog, we summarize a handful of VBC best practices outlined in the AMA playbook. However, be sure to read the playbook in its entirety for more in-depth information about contracts for value-based care.
1. Prioritize accurate patient attribution. Patient attribution—the process of matching patients with a physician, advanced practice practitioner, or medical practice, or value-based care entity for the purposes of performance data—forms the basis of all VBCs. If you’re thinking about VBCs, it’s important to get this part right. Ideally, patients for whom you’re primarily responsible will select you. However, you’ll still want to validate attribution lists from payers using claims data to make sure you’re the provider who can have the biggest impact on value-based costs and outcomes.
2. Ensure an accurate value-based care benchmark. In VBCs, the benchmark is the financial target with which performance year expenditures are compared. There are obviously a lot of factors to consider, one of which is whether to use your own historical data or whether to use regional or national data. As you consider VBCs, you’ll also need to decide whether to include pharmaceutical costs when setting your baseline. Note that you may be able to improve value-based care health outcomes (and generate more revenue) through better medication adherence and prescribing lower cost options when those options are equally as clinically effective.
3. Choose the right risk adjustment model. The AMA suggests Hierarchical Condition Categories (HCC) or other independently verified models. Regardless of the model you choose, you’ll need to understand how to document the full extent of illness for your attributed patient population.
4. Set achievable performance targets. This includes establishing a minimum performance threshold with sliding scale to reward higher quality improvement, allowing bonuses for quality improvement alone (regardless of whether cost savings are achieved), and taking historically marginalized populations into account when establishing value-based care quality targets and incentives.
5. Structure levels of risk carefully. Depending on your financial reserves, patient panel characteristics, type of organization, and experience managing the total cost of care, you may not be able to take on partial or full downside financial risk, meaning you could lose money if you don’t meet performance targets. That’s why it’s important to use multi-year arrangements with the goal of increasing risk over time. It’s also important to evaluate local market dynamics as well as your capacity and readiness to do it before making the leap into VBCs.
6. Think carefully about how you’ll be paid. Consider prospective payments especially if you’re new to value-based care or face resource challenges. Also be sure to advocate for value-based care payments that are adjusted to account for the complexity of the patient population.
Looking ahead
VBCs may not be the answer for everyone, nor may they be an option with some payers; however, it may be worthwhile to explore whether and how VBCs could help in the long-run. Medical practices that take the time to understand value-based contracting in healthcare may be better able to navigate business challenges with greater ease. Learn how edgeMED can help.
