5 Considerations for Success with Risk-Based Contracting

It’s no secret that payers are taking aggressive steps to tie reimbursement to health outcomes, cost and patient satisfaction. The relationship your provider organization has with payers can be critical to your success in value-based care payment models. Managed care payers, like commercial, Medicare Advantage, and managed Medicaid (which covers approximately 55 million enrollees across the United States1) allow you the opportunity to collaborate and negotiate value-based contracts to receive the best terms possible for your organization and the communities you serve.
While providers have optimized fee-for-service (FFS) contracts over the years, negotiating value-based contracts require different skills and capabilities in order to tie reimbursement to performance. Just as a provider prepares for FFS contracting, proper preparation is essential for the effective negotiation of value-based contracts. Here are five key areas to help position your organization for success.

Understanding the Population

It is essential that your organization receives historical data, even if blinded, from a payer on the population that will be covered in the contract. Without an understanding of the prevalence of certain conditions throughout that population, you’re unable to determine the appropriate rates for reimbursement. For example, if you have a subset of a patient population that is prone to a high incidence of stomach cancer and transplants, you will naturally want to negotiate rates that take such high-cost, high-risk services into consideration.
Your negotiations will benefit from being able to accurately model medical cost projections representing unique populations. Many payers, whether out of concern for confidentiality or other reasons, are reluctant to provide this historical information. Therefore it’s important that you know how to educate payers as to the data needed and reason for the request, as well as state in the contract terms your timing requirements for when you need to receive the data. There are some geographies that do not require payers to share population data with providers. If this is true for your community, consider working with the payer to provide the data to a third party for the analysis.

Delegation and Responsibility of Services

Ensure that the funding levels are set based not only on the risk of the population but also the functions for which you are responsible. A grid showing the Division of Financial Responsibilities (DOFR) is essential to most contracts and was originally created by the Integrated Healthcare Association. The DOFR delineates what the payer is covering versus the risk-bearing entity (i.e., the provider). Depending on the level of risk you are accepting, the DOFR may also include administrative functions. If you are taking capitation, for example, you may want to be delegated functions such as referral management, claims process and provider contracting.
These functions have historically been reserved for payers because they have the necessary infrastructure in place. Assuming delegated functions from payers can provide your organization with greater control and management of your members’ medical spend. Consider creative contract parameters that will allow your organization to take on specific delegated functions that achieve short- and long-term goals, such as greater shared savings and improved continuity of care. If your organization does not have the infrastructure in place to take this on, consider enlisting a third-party vendor for help.
Outside of the medical costs and administrative functions you are responsible for, it is also important to have a negotiation strategy for other contract terms such as cost benchmarks – either retrospective or prospective models, member attribution methodologies, program framework such as DOFR and quality goals, or other provisions that could increase your chances for a successful negotiation.

Utilization Management and Care Coordination

When taking risk, things you may have previously considered insignificant suddenly become important. Utilization management and care coordination are good examples. If you are contemplating taking over these responsibilities from a payer for increased revenue and greater control, you need to have the right programs, workflows, policies and procedures in place. Many of these responsibilities are transaction-based and without a well-oiled transaction machine, you can fall out of compliance with timeliness or run into issues with transitions of care.

Network Design and Adequacy

Know what you are trying to accomplish when designing your network. Is a narrow or broader network best for your organization? Payers will likely want to know you have an adequate network of primary care physicians and specialists to care for and manage your population. While you’ll need an adequate number of providers in each specialty category, however, it must be balanced. Assess the network needs against population size. For example, you may not need a large number of cardiologists based on the needs of the population. So select those providers that are performing well and that will provide competitive rates. Alternatively, if you select too many of one specialty, you may see an increase in complex patients which could bring a disproportionate risk that isn’t adequately reimbursed. Most importantly, make certain that the physicians in your network are aligned and incentivized appropriately to deliver high-quality, low-cost care.

Reporting and Compliance

If you are delegated administration functions, there are reporting and compliance standards that you must adhere to. Medicare Advantage has some of the strictest requirements but each state also has standards for commercial and Medicaid payers. It’s imperative that you understand what must be reported to the pertinent government agency, as well as the agency’s quality and compliance requirements to support the payer contract. For example, referral authorizations need to be tracked, trended and reported at the end of each month.
Traditional relationships between providers and payers will continue to converge as providers take more downside risk and increasingly turn to outside organizations for help in the process. Enlisting a proven value-based care partner with expertise in negotiating and managing risk-based contracts, and to support you through the entire process, will enable you to achieve financial success and provide your members higher quality care, greater access and lower costs of care.


  1. Division of Managed Care Programs in the Center for Medicaid and CHIP Services at the Centers for Medicare & Medicaid Services, with assistance from Mathematica Policy Research. Medicaid Managed Care Enrollment and Program Characteristics, 2014. August 2017.
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