10 Questions to Answer Before Entering into Value-Based Contracts
Medical researcher Jonas Salk once said, “What people think of as the moment of discovery is really the discovery of the question.” Nothing could be more relevant for hospital executives than the high stakes involved in entering into value-based payer contracts. The downfall of not knowing the answers to the right questions can be significant. After all, one of the goals of general health reform is to put financial risk in the laps of providers.1 Evidence suggests organizations are implementing a shift in financial risk assumption. Currently, there are nearly 1,000 commercial, Medicare and Medicaid accountable care organizations (ACOs) covering 32 million members, and accounting for 10 percent of the U.S. population.2 In many of our value-based payment program engagements, Conifer Health has noticed hospital executives focusing on questions about the mechanics of implementing specific payment models. That is a common mistake — without first assessing the organization’s cultural, operational and technical capabilities and deficiencies in managing risk.
For that reason — and in a respectful nod to Jonas Salk — we identified the top 10 questions organizations and leaders should ask as they evaluate value-based contracting strategies. 1. Does our organization’s leadership share a vision? Chasing the shiny, new object in the industry press should not be the motivator for undertaking a systemic transition. Your leaders and organization should be clear on how value-based reimbursement furthers their short- and long-term goals, as well as how to manage the transition from fee-for-service to risk-based contracting. 2. Does our organization’s leadership understand the potential risks? Your leadership should understand that different risks manifest during an implementation phase and in a new care and reimbursement model once operationalized. In a value-based environment, there are inherent market, capital investment and actuarial risks. Leadership teams should complete a comprehensive evaluation, and discuss and understand the risks and rewards of the transition to all key stakeholders (e.g., patients, providers and payers). 3. Does our organization’s leadership understand the available value-based reimbursement models? It is paramount that your leadership clearly understand the value-based reimbursement model you intend to pursue. Different models come with different levels of risk exposure and require a variety of resources to administer. Your organization should select a model along the risk continuum that is consistent with your risk tolerance and experience. 4. Does our organization’s leadership understand what capabilities contribute to success? Before dividing responsibilities between your organization and the payer, you must understand what capabilities may drive performance in a risk-based environment. This requires leadership’s assessment of necessary infrastructure components before the organization assumes financial risk. These components include, but are not limited to, care management, an integrated delivery network, IT solutions, and contracting. It is essential that your organization understands the extent to which you control these capabilities and what operational gaps may need to be filled. 5. Is our organization’s leadership able to adequately track and report on operational costs? Evidence suggests that provider chargemasters are an inadequate representation of true costs. Therefore, your leadership and organization must have alternative systems to track costs before determining how revenue is tied to risk. Does your organization have the time, resources and expertise to interpret multiple forms of data to reveal the financial risk of your variations in care and quality? 6. Has our organization’s leadership considered the costs associated with transitioning to a risk-based environment? In addition to the well-documented upfront costs, (e.g., IT solutions) provider organizations should appreciate that a risk-based environment often requires major staffing and training investment — costs that do not translate into immediately recognized ROI. Under any value-based payment model, your organization should plan for as many potential performance outcomes as possible, including data-driven assumptions on professional and administrative costs. Additionally, your organization needs to determine how to operate in two modes simultaneously (i.e., sustain current fee-for-service business while focusing resources on the evolution to a new model). 7. Does our organization’s leadership have access to a robust data warehouse? Provider organizations need access to a data warehouse that can pull from disparate systems including EHRs and claims data. Instead of relying on a snapshot of utilization and expense to get by, the data warehouse can paint a clearer picture of the patient’s clinical documentation, claims expenses and episodes. Having access to long-range patient records to track quality, cost and utilization across the care continuum can assist you in determining your success in the new model. 8. Has our organization’s leadership determined an effective, agreed-upon incentive structure? Organizations should base incentive structures on reliable data and information. These incentives should be sufficiently meaningful to reward providers for improving outcomes and lowering the cost of care. Ultimately, your organization should equitably distribute incentives based on previously agreed quality and cost measures. 9. Has our organization’s leadership determined a sound patient attribution model? More than ever, precision in defining a patient population is critical to value-based reimbursement models. If possible, your organization should agree on a methodology that is easy to track and maintain on an ongoing basis. The more fluid and complex the model, the harder it can be to improve the quality of care by engaging members in the PCP office. Your data warehouse should be able to receive input from eligibility data, EHR data and claims data to properly attribute patients. Your organization may need insight to incorporate the right contractual language and define the payer’s attribution methodology, which entails how enrollees are assigned to primary care providers. It’s important to focus on methodologies that are simple to track and report on. Patient selection of a provider is concrete and simple, whereas claims-based and geography-based methodologies are more complex and difficult to validate. 10. Does your organization’s leadership have the financial expertise to model contract scenarios? After understanding both your professional (e.g., overhead and equipment) and administrative costs (e.g., acquiring IT infrastructure), you will need to model different contract scenarios to determine the impact on your revenue. Best practice includes planning for different outcomes by projecting volume, utilization and quality performance scenarios.
References1. Hospital & Health Networks. “The Big Change in Health Reform: Provider-Sponsored Risk.” April 2016.
2. Health Affairs Blog. “Growth of ACOs and Alternative Payment Models in 2017.” June 2017.
Conifer Health offers a comprehensive portfolio of solutions to help clients make informed decisions that reduce cost and deliver quality outcomes as healthcare organizations, employers and unions adapt to new realities in the fee-for-value era.