Jul 15 2020 | Thought Leadership | By

7 Steps for Getting the Optimal Value-Based Deal from your Health Plan Partners

Craig Enge, Senior Vice President, Lumeris

Regardless of the quality of care delivered, contracting can have as much or more impact on the financial success of your health system. The road to value is littered with health systems that performed well, engaged in a value-focused process, yet still categorized their contract as a failure. But getting the right deal from your health plan partner goes far beyond the push-pull over the same dollar that drives fee-for-service (FFS) negations.

Value-based contracts are admittedly more complex than fee-for-service contacts and are greatly enhanced by a cooperative process—which is foreign in typical health plan and health system negotiations. How can your health system achieve better value-based contract deal terms their health plan partners? The guide below provides some key factors that health systems should consider:

1. Assess impactability of the population: Perhaps the first question to reflect on is: is this a good payer and population to undertake a value-based contract? Not all situations are appropriate for a risk contract. Value-based care has been shown to improve access, lower costs and increase quality. When pursuing a value-based contract, the health system should have a plan on how they will improve the cost, quality, or access of the population—will the population be “impactable”?

2. Find a collaborative payer: You often have a different relationship with a value-based partner than you do in a fee-for-service situation; there is more interdependence on the outcome. Therefore, health systems should choose their partners wisely.

  • Which payers have a significant number of members in your system?
  • Does one of your payers have a history of being collaborative?
  • Are any payers more innovative than others?
  • Has any payer shown more alignment to your mission or goals?

A collaborative partner will come to the table with an open mind to work out issues and partner on solutions.

One of the big questions for a health plan partner is “are you willing to share outcome risk”?  How risk is shared is vitally important to the outcome. If you are just starting out, taking on a small portion of risk then planning to grow that portion over time is a wise approach. This strategy allows the organization to get operations in place to execute on the contract provisions.

The ideal state of risk is when the payer and provider share in a “risk pool.” This is created by clearly identifying the financial goals of the contract, putting the savings related to meeting those goals in a pool and sharing the pool at the end of the year. This approach can go a long way toward better aligning the payer and provider on the same side of the table: what’s good for one will be good for the other.

Most importantly, it avoids the trap in most fee-for-service contracts where you are negotiating over your share of the pie. Oftentimes, a payer can change benefit structures to their advantage (and the providers’ disadvantage) after the established pricing of a contract. In contrast, under the shared pool approach, you are collaboratively trying to grow the pie together by meeting goals tied to optimal health outcomes, which makes each piece bigger.

3. Align with the payer’s goals: Truly understanding the payer’s primary needs and limitations gives you greater clarity to getting to an optimal deal. While overall quality is the big driver, what other goals are important? Growing lives? Lowering costs? If you each articulate your key goals, you may dispel assumptions and find that it’s easy to “give” on less important aspects. Perhaps the first-year goal should be establishing trust in a payer-provider partnership.

4. Get access to the right data: Risk-based contracts require that you not only know who the members are, but also that you have access to their claims history, even if they don’t consistently use your health system. But getting usable data is a significant process.

You need to make sure the payer’s data is clean and actionable, and that they are willing to share it regularly (e.g., monthly) in a format that you can process. Ask for sample data, a data map or fields and a reference from someone they have traded data with before. You should have teeth in the contract for a failure to produce usable, clean data in a timely manner. Payers are used to providing reports, not raw data—and therefore they may need to be educated on why the data is essential to treating patients in a risk pool. Adopt this mantra: no data, no risk.

5. Share responsibilities: There is a long list of activities both the payer and provider engage in to maintain a member. When you share risk, those activities often overlap. Each organization should come prepare a list of activities to be done and how they will be assigned. Who will do care management? Case management? Discharge follow up?

Identifying and aligning around these activities will lower cost of care and likely be a better experience for the patient. Both sides should have some transparency and oversight over the shared goals. This is sometimes referred to as a division of financial responsibility (DOFR). However, consider your internal capabilities and infrastructure before undergoing these conversations.

6. Determine level of risk: Establishing value is a straightforward exercise. But how will you determine value?

  • What will the benchmark be on which you calculate value?
  • What attribution model will be used?
  • Will the attribution be prospective (forward-looking) or retrospective (backward-looking)?
  • How will new members be treated?
  • What will be the quality goals?
  • What are the access expectations?
  • What is the network definition?
  • What is the process you will use if the risk model needs to be recalibrated (Note: this happens OFTEN!)

Health plans are accustomed to calculating member risk and health systems should contract with an experienced partner to ensure you understand the risks and rewards as well.

7. Build a long-term relationship: Ensure you have an ongoing process for keeping the partnership healthy. Determine a reporting structure and cadence around key issues such as cost and quality. Who is responsible for reporting them and when? Routine joint meetings should be established (e.g., 2-4 times per year) where key stakeholders all come to the same table. Each party should assign a key contact that can be reached first when questions or issues arise. Lastly, if you have more than one risk contract, make every effort to streamline quality goals and calculations across contracts. A variety of goals with different calculation methodologies will create extra work on your side and will (understandably) frustrate your providers about which goals to manage.

Before you Sign

There is near-universal agreement across the US that value-based care is essential to maintaining our system with high quality and more sustainable costs. While it is noble to begin delivering care with higher value in mind, you’ll never get there if you aren’t paying attention to the other side of the equation: the contract itself.


Not sure where to start? Talk to one of our advisors.

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