What is Value-Based Contracting?

Value-based contracting is a negotiated agreement between a provider and an insurance payor or employer that obligates the providers to accomplish certain agreed upon quality initiatives, in return for “value added” payments to be paid to the provider under the Clinical Integration Network or the Accountable Care Organization.

Unlike a Health Maintenance Organization (HMO) down-side risk sharing arrangement, the CIN/ACO also negotiates up-side risk contracts involving accountable care concepts that require achieving low costs and higher quality. Gain sharing will only occur when there is both a financial gain in cost efficiencies, and successful achievement of the quality measures.

These risk sharing type of contracts offered by the insurance payors and employers in collaboration with hospitals and physicians have been in existence for many years. These were often the basis of HMO agreements. Again, Southeast Health Statera Network is not an HMO. Instead we are an “open network” of physicians. However, in the case of the HMOs, the contract establishes a financial budget or global budget for the services provided to the patients who are affiliated with primary care physicians in the provider network. Basically, under the old HMO model, the hospitals and physicians agreed to provide and coordinate services for the contract period for a fixed dollar amount, regardless of who provided the services. At the end of the year, the actual costs are compared with the budget to determine if there was a gain or loss. The providers in this old model either share in the gains, or alternatively are obligated to cover their share of the loss. Again, this is not the predominant Statera Network model. We participate mostly in “upside only” agreements, where there is no “downside” risk.

On a related note, The current reimbursement of fee for service only, with no accountability for quality and outcome is no longer sustainable. Purchasers and consumers now expect to receive value for their money (where value = quality/cost) on every product and service they receive. Medicare and some commercial insurers are introducing new reimbursement programs each year that pay based on appropriateness of services provided and the quality/outcomes of those services. They are expecting to lower their costs by making sure they are only paying for what is necessary, and not paying more because of poor quality of care due to unnecessary procedures.

Physicians will now be expected to successfully reduce or eliminate costs for unwarranted services, and also demonstrate positive patient outcomes for the healthcare services performed. The savings from these efforts will initially accrue to the insurer and to the patients.

However, the physicians have the opportunity to share in the savings they help create, as long as there are quality outcomes. Physicians will be accountable for the value of the care provided to the population of patients who are affiliated with the contracted network of insured patients. The CIN gives physicians control of the direction and facilitation of the care that is provided to their patients rather than conceding that to an insurer or other payer.

For physicians, this will be a new way of managing their patients’ care. Physicians will need new resources, which the CIN/ACO can help provide. For example, physicians will need to look at their patient population in groups such as diabetic patients. (These are referred to as “patient disease registries”). Statera Network researches and explores what percentage of those diabetic patients are at high risk based on key clinical indicators. When were they seen in the office? What care or education can be given outside of the office? What can be done to improve their patients’ health and keep the costs of care down? How can the physicians be made accountable to colleagues who are reviewing their performance in the CIN/ACO?

The CIN/ACO will provide resources to physicians to help them successfully quality for incentive payments from their value-based contracting. For example, advisors are provided for the member physician offices, as well as information management, analysis support, and Statera Network care managers. All of these resources are designed to function in collaboration with the physician clinics to work with high risk patients and other patients in need of closely monitored care.