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How does value based contracting work?

Under the rising value based contracting model, hospitals, health care systems, physician groups, and other health care providers will take on more risk, and be responsible for delivering defined services to a specific population at a predetermined price and quality level. To read more on what is value based contracting please click here.

What is outcomes based contracting?

Rather than the reimbursement levels being based on input costs or outputs, outcomes based contracting is tied to a specific business outcome. Outcomes based contracting encompasses reimbursement levels tied to a specific business outcome in the target population.

What is the purpose of managed care?

The purpose for managed care plans is to reduce the cost of health care services by stimulating competition and streamlining administration. To read more on how does managed care work please read more here.

The purpose for managed care plans is to reduce the cost of health care services by stimulating competition and streamlining administration.

Managed care is an approach to the delivery of health care services in a way that puts scarce resources to the best use in optimizing patient care. Managed care systems incorporate tools that coordinate care in a cost-efficient manner through:

  • Implementation of population-based healthcare screening programs.
  • Use of disease and case management.
  • Development of integrated database that allows the measurement of in reduction and practice variation.
  • Use of heath outcomes research to identify the most cost-beneficial expenditure of healthcare resources.

Today, a dizzying array of managed care organizations are managing the cost and care of 85% of the U.S population.

Shifting from Fee-for-Service to Value-Based Contracting Model

Health care is experiencing dramatic modification because of the nation’s delivery system transitions to a value-based system from the fee-for-service approach. With increasing pressure from the U.S. government and employer groups to shift the focus of our health care system to improving outcomes, lowering costs, and increasing overall access to care, Managed Care is transitioning away from a fee-for-service model. The shift toward increased collaboration, outcome-based payment, and new benefit design is driving innovation in how we pay for health care and how health care is delivered.

Value-based contracting models represent an evolution in clinical and payment methodologies that will create quality and cost outcomes, foster greater accountability, and take advantage of innovations in medical technology. These contract models align incentives across providers, members, employers, and payers to improve clinical outcomes and the patient experience along with improving cost efficiency.

Value-based contracting is a contract with a provider that contains any of the following alternative payment methodologies:

  • A portion of the provider’s total potential payment is tied to a provider’s performance on cost-efficiency and quality performance measures. While providers may still be paid fee-for-service for a portion of their payments, they may also be paid a bonus or have payments withheld. For value-based contracts, this bonus is not paid unless the provider meets cost efficiency and/or quality targets.
  • Clinical integration fees paid to providers that are contingent on the provider engaging in practice transformation to adopt technology and processes that alter the manner in which they deliver care, such as a patient-centered medical home. A similar payment methodology may be utilized with other types of providers in addition to PCPs functioning as medical homes.

The types of process changes that have the best opportunity to drive value, based on our experience with other risk payment models, include:

  1.  Being accountable to the patient.
  2.  Creation of advanced care teams to include nurse care managers and pharmacists.
  3.  Automated processes to address prevention and wellness.

In respect to healthcare, a payment model is a methodology developed by payers for health care services. Currently there is a huge shift from the previously rampant fee-for-service payment model to a reimbursement methodology which encourages healthcare providers to deliver the best quality care as well as delivering the most reasonable costs.

Value based care is a reimbursement methodology that challenges the decade-old “volume-based care” associated with fee-for-service. The conventional fee-for-service (FFS) reimbursement model is slowly being replaced by value-based care. To read more about the differences, please see our full post here.

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