3 tips for negotiating value-based contracts

June 1, 2018

Physicians can best prepare for success by working with payers on the right parameters.

Despite mixed signals from Washington, D.C., most healthcare stakeholders expect the transition to value-based care to gather steam in the coming years.

For example, a 2017 Quest Diagnostics survey of 450 primary care physicians and health plan executives found that 82% said the transition to value-based care will continue, regardless of changes to healthcare policy in the nation’s capital. In other words, expansion of alternative payment models is inevitable, and nearly everyone in the industry will need to adapt.

For most physician practices, the transition to value-based care will not be quick or easy. This notion was underscored by the Quest survey, which revealed that just 43% of physicians said they have the tools to succeed in a value-based world.

Clearly, many physicians face significant challenges as the healthcare system evolves from the fee-for-service payment model to value-based care. For physicians, getting value-based care right starts with negotiating the correct terms in value-based contracts with payers.

Here are three key steps physicians should follow to successfully negotiate beneficial value-based care contracts with payers. The tips are based on the assumption that physicians who are negotiating value-based contracts have performed adequate due diligence to ensure that the opportunity makes sense, given their practices’ key characteristics such as patient mix and risk tolerance. Also, because value-based care is still in its early stages, the transition to this new model is ongoing and evolving, meaning no one has all the answers yet.

Find a partner with the right skills: Data forms the basis for any contract negotiation, so practices need a partner that knows how to compile, mine, and effectively document internal claims and patient data that clearly illustrate the practice’s history of delivering high-quality, cost-effective care.

In some cases, that expertise is in-house, but others may benefit from working with technology and analytics partners that have deeper experience in designing, evaluating, building, measuring, and negotiating value-based reimbursement contracts while also aligning financial goals with improved patient outcomes. Another option is to leverage the knowledge of colleagues-physicians you are friendly with, a specialty institute or your state medical society, for example.

Regardless of what partners you choose, walking into a contract negotiation with quality and cost information in-hand will give the negotiators a sense of confidence, and show the payer that the practice is providing a valuable service to its members.

Realize that the negotiation is only the first step in the process and that you will need to continue to collect quality measures, and interpret payer reports as contract reconciliation occurs and rates adjust over time. So, these skills will be, at a minimum, needed periodically as part of your practice management contracting cycle.

Understand your data and practice readiness: To build a mutually beneficial relationship with payers, physicians should keep in mind that both parties ultimately have the same goal: providing their patients and members with high-quality healthcare in a cost-effective manner. Certainly, both parties haven’t always seen eye-to-eye in the past and won’t always in the future, but that shared goal should form the foundation of any physician-payer relationship.

That similarity provides physicians with an opening to increase their bargaining power with payers-demonstrating through quality measures that they do, in fact, already provide quality care at a reasonable cost to their patients. It’s all about leveraging the data available to a practice to develop a full picture of the patient care the practice provides, such as cost, quality, utilization, and population health.

Know what services you perform well, and how you compare to other practices in the payer’s network. How does your quality performance compare to nearby, competing practices? Do you have the highest volume of patients? Some payers may share this data, and some may not, but physicians should always press them for it.

It may be a heavy lift, but if you’re able to conduct an analysis of how your practice would’ve performed under a value-based contract versus its actual performance in a fee-for-service contract, it will greatly enhance your understanding of the risks and opportunities available to your practice under value-based care.  

Know what is, isn’t and shouldn’t be negotiable: Many medical practices, particularly smaller ones, are unlikely to possess enough leverage to generate significant-or perhaps any-rate concessions on the part of payers. But the choice of quality measures included in the contract is open for discussion.

Carefully consider which quality measures will generate the most benefit for your practice. For example, consider a primary care practice that is seeking a value-based contract around a bundle of care for type 2 diabetes. There may be several options for quality measures including hospital readmission rates, total cost of care, percentage of avoidable complications and more.

It’s important that physician practices choose quality measures in which they have a significant opportunity to improve, which will enable them to gain higher margins on the associated services as they progress. In other words, ask, “Where is our opportunity to improve patient outcomes while reducing the volume of services being delivered?”

Understand that value-based contracts for certain conditions may not always make sense. For example, it may not be beneficial for a primary care physician to enter into a value-based agreement with an orthopedic group for knee-replacement bundles because the physician does not serve as the primary driver of resource decisions for these cases. However, the physician may have the opportunity to use those initial value-based contracting discussions to deepen the relationship with the orthopedics group, providing another avenue of practice growth.

Value-based care is transforming how care is measured, paid for and contracted, and will affect all players in the industry. Payers will continue the movement towards value-based contracting instead of relying on the fee-for-service approach, and providers that prepare for this change instead of reacting to it will benefit the most. While many primary care physicians face significant challenges in transitioning to a value-based world, the first step to success is negotiating the right contracts.

Kevin Mehta serves as chief technology officer for Payformance Solutions. Mehta focuses on building data-driven, turnkey software solutions that provide payers and providers with the technical tools and resources needed to design, evaluate, build, measure, and negotiate value-based reimbursement contracts.