October 18, 2017

Art Lynch: Defining ‘Value-Based Contracting’ Requires More Than A Few Words

By Art Lynch, President and Chief Executive Officer, Coventry

Art LynchValue-based contracting is one of the most talked-about topics at conferences, in stewardship meetings and in workers’ compensation requests for proposal (RFPs). But for all the discussion around the term, one thing seems missing: a common definition. Value-based contracting seems fairly straightforward to most observers and that might be part of the problem. Indeed, ask a half dozen people what value-based contracting means and you’ll get as many answers.

In conversations with clients and providers during the past six months or so, I’ve heard value-based contracting variously described as relating to case rates, pay-for-performance, risk-based payments, risk-reward, bundled payments and an outcomes-based payment model. To some degree, each is correct. Think of value-based contracting, or VBC, as a new name applied to several well-established concepts used in group health provider contracting on a risk-reward basis.

In its most basic sense, VBC focuses on paying for results, not process or fee-for-service. Value-based contracts would be more appropriately thought of as an umbrella term rather than a single idea. And there are several critical components to VBC.

Four elements form a meaningful workers’ comp VBC model
The variety of definitions industry watchers apply to VBC share the same objective: Each involves moving away from volume-based contracting or fee-for-service contracting by removing the financial incentive to treat more. A VBC model strips out the payment structures that reward activity over outcome.

There are several critical principles for constructing a sound VBC arrangement:

  • Predictive pricing for providers and payors: This requires reaching agreement with providers on what it takes to treat an overall illness or injury and deliver the injured worker to the condition he or she was in prior to the injury.
  • Alternative to fee-for-service: When a payment is rendered for each service there is a perverse incentive to do more in order to get paid more. Value-based payment models are designed to pay for better outcomes regardless of the services required to reach that outcome. That’s best for injured workers and for payors.
  • Shared opportunity for the provider and the payor: This concept centers on risk-reward and underscores the goals that provider and payor share. There is an upside and downside for both if the value isn’t delivered.
  • Outcomes focus: The model should be calibrated to deliver the correct mix of services so that an individual can achieve the best outcome.

If these core principles are intact, it is fair to consider the approach value-based.

Value-based contracting in group health
Value-based contracting has made much greater strides in commercial health care and government funded programs. The value-based ideals extend back to the origination of HMO models where medical groups or independent physician associations were paid per member per month to manage the wellness of members for whom they served as a primary care provider. This model has further evolved over the last few years under the Affordable Care Act and with the creation of Accountable Care Organizations (ACOs) in the provider market. These models meet the core VBC requirements because they pay a predictable price in which providers share in the upside and the downside for the health of their patient populations. Better outcomes meant patients didn’t require added services. There are other value-based models that are finding success in the group health arena. These include:

  • Case Rates
    Case rates are more of a hybrid contracting model than a pure value-based model. These rates cover the expenses of the outpatient facility or the ambulatory surgical center for a specific diagnosis or procedure (such as a meniscus repair, knee replacement, or shoulder repair) and do not cover the expenses billed by the surgeon, the lab or the radiologist. Because of this bifurcation, case rates are not a strict value-based model.
  • Pay-for-Performance (P4P)
    Pay-for-performance programs involve an incentive payment to providers (such as doctors and hospitals) for achieving a certain level of quality or efficiency. A set of cost and quality metrics determines whether a provider met the goals. Typically, the incentive payments are funded by holding back a portion of the provider’s fees for services rendered.
  • Bundled Payments
    Bundled payments work by grouping a defined set of services into an “episode” of care. This might be a hip or knee replacement or relate to conditions such as diabetes and asthma. The setup establishes a single fee to be paid to cover all providers involved. Bundled payment rates are based on the costs expected for a particular treatment, including expenses for preventable complications that might arise. The targets are designed to ensure that a drive for low costs doesn’t compromise quality of care.
  • Accountable Care Organizations
    Accountable Care Organizations transform care delivery by paying health systems and doctors based on their success at improving overall quality and efficiency. ACOs are integrated health care systems — including alliances of doctors, hospitals and other health care providers — that deliver and coordinate care for their patients.
  • Patient-Centered Medical Home
    The patient-centered medical home model provides additional compensation to primary care providers through a per-member per-month fee to cover improved care coordination and health outcomes for the member. As a result, it is expected that more primary care evaluation and prevention visits will deliver savings and benefits in other areas of the health care system. In essence, it pays to solve a patient’s health problem before it balloons into something more severe. In this model, the patient has an ongoing relationship with a personal physician. That doctor then leads a team that shares responsibility for the patient’s care and, in some cases, arranges for care with other qualified professionals.

The common purpose of each of these models is to reward quality of care over quantity of services. That concept aligns with the principles of VBC though what succeeds in group health isn’t always viable in workers’ comp. Next week we will dissect some of the differences between these models and VBC. We will examine the benefits and challenges of VBC in workers’ comp and what changes will be required to implement a successful value-based strategy.

About Art Lynch

Art Lynch joined Coventry Workers’ Comp Services in 2006 when Coventry Health Care acquired First Health, as Senior Vice President of Account Management and Strategy, overseeing account management and working with his team to develop and maintain strong lasting client relationships. He was named Chief Executive Officer in November of 2013 and is now accountable for the company’s overall revenue, operations, networks, pharmacy and care management products.

Prior to holding various leadership positions at First Health during his 16 year tenure, he led sales and operations for Ebtek, Inc., a firm based in Oak Brook, Illinois, specializing in providing human resources and insurance expertise to small businesses. Lynch received his undergraduate degree in Political Science and Psychology from Columbia University.

About Coventry
Coventry NewCoventry offers workers’ compensation cost and care management solutions for employers, insurance carriers and third-party administrators. With roots in both clinical and network services, Coventry leverages more than 30 years of industry experience, knowledge and data analytics. The company offers an integrated suite of solutions, powered by technology to enhance network development, clinical integration and operational efficiencies at the client desktop, with a focus on total claims cost.

Disclosure:
Coventry is a WorkCompWire ad partner.
This is not a paid placement.

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