Mastering the Three Pillars of Value-Based Care Contracting: Negotiation, Monitoring, and Reconciliation

While healthcare providers understand the value of transitioning from fee-for-service to value-based care VBC), the actual adoption has been slow. Despite the promises emphasizing quality of care, improving patient care outcomes, and reducing healthcare costs, successful execution requires innovative technology and commitment.

According to a survey conducted by the Health Care Payment Learning and Action Network (HCPLAN), payments under alternative payment models (APMs) that involve two-sided risk (3B-4) accounted for 19.6% of the aggregated payments. This represents a definite rise in the popularity of alternative payment models that move away from traditional fee-for-service (FFS) models.

Progress is slow, however, as this transition is driven by several factors, including regulatory requirements, customer expectations, cost pressures, and an overall transformation in the healthcare landscape. Payers and the government are increasingly embracing VBC models, as evidenced by the Center for Medicare and Medicaid Innovation's goal to shift 100% of Medicare beneficiaries into an accountable care relationship by 2030.

Although the industry acknowledges that the adoption of a VBC model can provide various benefits for healthcare stakeholders, it also puts a significant amount of pressure on providers to restructure their business strategies and risk-sharing agreements to adapt to the dynamic market needs. Providers must align their values, analyze data, and prepare for the challenges of transitioning from a volume-based to a value-based reimbursement model.

Are Healthcare Providers Fully Equipped for the Transition?

A recent survey of providers, payers, and hybrid "pay-viders," identified whether capability gaps in a variety of areas have negatively affected the clinical and/or financial performance of their VBC programs.

A substantial share of providers report having gaps in contracting expertise, risk management, and financial planning, which is inhibiting their VBC success. Providers also believe that payers are prepared to succeed in a VBC world, while payers doubt that providers are. Moving to a VBC contract, from covered services to payment terms, providers were more likely than payers to believe that contracts favor the other party.

As health systems take steps to prioritize preparation for the transition to implement the VBC model, they must ensure they possess the necessary skills to evaluate risk options and terms, negotiate contracts efficiently, and identify value levers with the greatest impact on utilization, cost, and quality.

To successfully navigate value-based care contracts, organizations require a comprehensive understanding of the VBC contract lifecycle and the necessary expertise to optimize each phase. It includes three crucial phases: contract negotiations, contract performance monitoring, and contract reconciliation. By doing so, they can ensure the creation of successful contracts, deliver the desired care outcomes, and achieve their value-based care goals.

Understanding the VBC Contract Life Cycle

Value-based care contracts come in all shapes and sizes, from pay-for-reporting to bundled payments for episodic care to full capitation for patient populations. The type of VBC contract organizations implement depends on the kind of care they deliver, the market in which they operate, and their patient population, among other factors. The contracting lifecycle which is common to all contracts can be broken down into three phases for a performance year.

Contract Negotiations

Providers must prepare for VBC contract negotiations in a strategic manner that requires a thorough understanding of the practice's capabilities, patient population, and cost structures. Providers must analyze historical data to identify areas for quality improvement and cost reduction. They should establish clear goals for patient outcomes and align them with the payer's objectives. It's crucial to assess the practice's infrastructure to ensure it can support the data reporting and care coordination necessary for VBC. Providers must also be ready to discuss risk-sharing arrangements and define performance metrics. (Explore the Innovaccer quick guide on mastering value-based care contracting to improve contract negotiations here.)

Healthcare systems are increasingly recognizing the importance of leveraging advanced analytical tools to optimize their contract negotiations with payers. By modeling different scenarios, these systems can project and evaluate the financial implications of various contract terms according to their maturity at the end of the year.

As healthcare payer contracts become increasingly complex, it becomes essential for health systems to be able to predict and adapt to future conditions to maintain a healthy bottom line. By simulating a range of outcomes based on variables such as MLR targets, shared savings logic, stop-loss thresholds, patient volume, quality/utilization-related incentive structure, and changes in healthcare regulations, health systems can identify the most favorable contract terms and develop strategies to negotiate from a position of strength.

Tools such as the Innovaccer contract modeling tool were designed to help prepare health systems by simulating contract terms and analyzing their impact on projected performance. Providers can project and simulate the impact of changes in contract terms on future performance, helping them make informed decisions during contract re-negotiations. By leveraging scenario modeling, health systems can identify the contract terms that have the highest potential impact on improving contract performance.

Contract Performance

Providers engaged in VBC contracts should actively monitor and track year-end projected earnings or losses for each contract. This is crucial because VBC contracts typically tie financial outcomes to the quality of care provided, patient outcomes, and cost efficiencies.

Each VBC contract has specific terms that define how earnings and losses are calculated. Providers must thoroughly understand these terms, including quality metrics, cost-saving thresholds, shared savings/losses percentages, and any capitation arrangements.

Providers should invest in robust data analytics systems that can integrate clinical and financial data to track performance against the contract's benchmarks and identify trends throughout the contract period. Regular monitoring of key performance indicators (KPIs) related to quality of care, patient satisfaction, and cost savings is essential. This allows providers to assess whether they are on track to meet the contract's targets or if there are areas that require attention.

By comparing actual performance against projected targets, providers can identify variances. Understanding the reasons behind these variances is critical for making necessary adjustments. For example, if a provider notices higher-than-expected readmission rates, they can investigate the causes and implement strategies to improve patient follow-up care.

Based on the current year's performance data and financial projections, healthcare providers may renegotiate contract terms for the next contract year with payers to ensure that the contracts remain sustainable and mutually beneficial.

Technology, such as the Innovaccer contract performance tool, helps providers gain insights into expected shared savings and quality payouts at the end of the year based on their current performance. It simplifies the ability to identify strategies and interventions to enhance overall earnings for any contract by conducting "what-if" simulations. By applying different interventions, providers can estimate improvements in shared savings or quality payouts. Providers can also analyze contract performance against predetermined benchmarks for key metrics such as cost and utilization, risk, and quality measures, and also identify areas for improvement with prioritized patient lists to enhance performance.

Contract Reconciliation

At the end of the year, during the reconciliation process, providers compare the payer-reported performance data with their computed numbers. This helps to ensure that both parties agree on the performance outcomes and that the appropriate financial adjustments are made according to the VBC contract terms.

For example, let's say a healthcare provider has a VBC contract with a payer that includes a bonus for maintaining hospital readmission rates below a certain threshold. Throughout the year, the provider tracks readmissions and implements various strategies to improve patient outcomes. At year's end, the payer reports a 15% readmission rate, while the provider's internal data shows a 12% rate.

The provider must then reconcile these numbers. They ingest the payer's reports and compare them against their data. If discrepancies are found, the provider must present evidence to support their computed numbers. This evidence could include patient records, discharge summaries, and follow-up care documentation.

The reconciliation process is crucial because it determines whether the provider met the VBC contract's performance benchmarks and, consequently, whether they will receive the full financial incentives. The goal is to ensure transparency and accuracy in the reporting and rewarding of healthcare outcomes.

Identifying discrepancies in payer reimbursements through report comparisons can be conducted with technology such as the Innovaccer contract reconciliation tool. Its advanced capabilities allow for drill down to the member level to provide supporting evidence which can be used to facilitate productive discussions with payers and ensure fairness in agreements.

The Road Ahead

Advanced contract management and analytics are critical to achieving success in value-based care. Healthcare leaders who embrace innovative technology tools will be able to access the insights they need through robust data analysis to optimize care contracts and advance the principles of value-based care.

Learn more about Innovaccer's financial analytics and contract management solutions, which consider key factors like cost, quality, utilization, and patient volume to provide providers with quality insights for improving contract performance and achieving year-end VBC goals, eliminating the guesswork.