Value-based contracts fundamentally shift how provider revenue is generated and, therefore, may negatively impact financial performance generated through existing provider operations.1 However, by shifting to value-based contracts, your organization can optimize delivery mechanisms while protecting and potentially improving margins. On the other hand, maintaining the status quo while your competitors transition to risk-based payment models could easily lead to further degradation of your margins.
There are many challenges to successfully making this transition.2 A top concern is managing care delivery in such a way that a reduction in revenues from fee-for-service activities does not outpace the organization’s ability to achieve the goals associated with new performance-related incentives. It’s imperative for providers to develop a fully fleshed-out transition plan that accounts for the various changes in costs and revenue sources along the way. There are several areas on which to focus for success. In this article, we’ll review network utilization and cost reduction.
Optimizing the Network
Improved outcomes under value-based contracts often require that members receive coordinated care within the plan’s primary network, when possible and clinically appropriate. This helps the organization provide high-quality care while managing the costs to deliver care effectively. When negotiating a risk-based contract, it is important to understand how the benefit structure and outcomes hinge on the members receiving coordinated care within the primary network. There are several strategies that organizations can pursue:
Coordinate care within the network. In any given value-based contract, organizations need to focus on keeping their managed population aware of the benefits to them of seamless, coordinated care across a clinically integrated system. Quality of care is optimized through these risk-based arrangements, as the providers in the network are trained to deliver high quality care within their specialties, while also assessing potential gaps and needs for the member which may not otherwise be evaluated under a standard fee-for-service contract. Additionally, a value-based care model improves the patient experience. Patients are less likely to receive duplicative or unnecessary procedures as their records are centralized with all providers having access to the complete patient record. Further, by focusing on gaps in care within segments of the population, your organization has the opportunity to identify unmet needs and educate members about the range of care available to them across the network.
Be a partner with the payer in the creation of narrow or tiered networks. In establishing contract terms with commercial payers, there is an opportunity to make your organization more attractive as a business partner. If appropriate under the circumstances, consider identifying to the payer how your network could serve as a narrow or tiered network. Begin with analytics to identify providers who deliver the best care in terms of quality and cost. Then be sure to come to the negotiation table armed with that information.
Establish innovative value-based contracting models directly with employers. Expand your organization’s scope by negotiating directly with employers. Large employers often find high-performing organizations and systems more attractive to send their employees and members to for services.
Under any value-based contracting scenario, it’s essential to be able to effectively identify costs, both in terms of high-cost outliers and those costs within your network that may relate to unnecessary or duplicative efforts. Once these opportunities are identified, you are then in position to prioritize your efforts to reduce costs without sacrificing quality. Here are a few possible ways to do it:
Optimize technology and care management procedures. A robust technology platform is simultaneously going to help improve the way your care management team functions and eliminate unnecessary resources. I often come across organizations that are trying to engage in care management, but consuming a number of high-value resources through manual processes such as spreadsheets and other inefficient tracking mechanisms.
The investment in technology tools designed to combine health records and claims data will not only set the stage to improve efficiency, it will also help in identifying high-risk individuals who should be identified for care management and support. Look for technology that can help you gain insight into the comprehensive and complete history of a patient’s care, and plan for future utilization needs.
Further, because the benefit you get from your technology investment depends on how your people use it, it’s going to be equally important to commit sufficient resources to establish processes that are consistent with best practices for how your care management team will function under a value-based care arrangement.
Consider establishing care protocols, developing disease management programs and identifying preferred patient pathways throughout the care continuum. It is also worthwhile to develop a robust training plan for onboarding newly hired care managers.
Know, then reduce your total operating costs. Many organizations still struggle to understand their costs, particularly as it relates to managing a population under a value-based contract. It’s only after your organization understands all the costs associated with the risk contract — upfront implementation, operational expenses and capital investments — that you are in a position to truly improve efficiency without sacrificing quality. Examples of administrative costs to examine include staffing, technology and other overhead-related expenses. Being able to accurately calculate and apportion these costs to the population in question is critical to any strategy that is focused on achieving optimal efficiency and cost management for an organization.
Analyze data to reduce medical costs. For value-based contracts to work, a technology solution is needed to capture and analyze available data to identify opportunities for reductions in medical costs. Some organizations have found success in examining key metrics — length of stay, avoidable admissions and ER visits, unnecessary procedures and variation among like services — and consequently developed intervention plans to mitigate the impacts that drive their occurrence.
Yet, for others, tracking and measuring performance with enough granularity to drive success requires much more sophisticated resources and technology capabilities than those currently in place.3 The additional cost may impact the bottom line initially, but in the long run, I recommend implementing a healthcare enterprise data warehouse and an accompanying software technology to aggregate and produce meaningful and actionable insights. This will give you a powerful foundation for the type of analytics that can improve the care being delivered while also reducing the associated costs.
The primary idea behind value-based care is to reward improved outcomes over volume of services rendered, resulting in healthier and more satisfied patients for whom the cost of healthcare is lower overall. Results to date show that value-based efforts do have an impact on reducing cost and improving care.2 Taking these results into consideration, payers will look for financial arrangements that reward providers for value.
As you transition to value-based care, it is important to remember that every organization has its own unique opportunities and challenges, depending on the competitive environment, recent events or even leadership priorities. For that reason, it is important to manage expectations and continue to remind key leadership that there will be bumps in the road that may affect profitability in the short term. At the same time, these investments, when done correctly, will improve your network’s ability to provide care that delights patients, which can in turn position your organization for success in the medium- to long-term.
- RevCycle Intelligence. “Understanding the Value-Based Healthcare Landscape.” Accessed September 2017.
- Office of Inspector General. U.S. Department of Health & Human Services. “Management Challenge 2: Transitioning to Value-Based Payments for Healthcare.” Accessed November 2017.
- Managed Healthcare Executive. “Top Population Health Challenges Hospitals Face.” December 2016.