Negotiating Favorable Value-Based Contracts with Payers

March 14, 2018
Gabriel Perna

As more and more payers offer value-based contracts, how can practices negotiate favorable terms in this strange new territory?

Whether you like it or not, the era of value-based contracts is upon us.

While the majority of health care is still fee-for-service based, there is an emergence of value-based care touching every cornerstone of the industry. Major private payers, such as Anthem Blue Cross, reportedly paid out nearly 60 percent of reimbursements in 2017 through value-based contracts. Other major payers are moving in the same direction, including the one that sets the tone for the rest: the Centers for Medicare and Medicaid Services (CMS).

CMS not only has an ambitious goal of 50 percent of payments through value-based contracts by 2018, but it's administering the Quality Payment Program (better known through the acronym that passed it into existence - MACRA). QPP incentivizes reimbursement based on outcomes through either its Merit-based Incentive Payment System (MIPS) or the Advanced Alternative Payment Method (APM) pathways. By early next decade, a practice's Medicare payment will either get boosted or dinged, up to 9 percent in MACRA, partly based on outcomes and other value-based metrics.

Experts say the program also gives practices a good indication of how value-based programs will be set up, as CMS typically influences other payers. "I think MACRA has done a good job establishing a framework for these [value-based] contracts. Many of the ACOs and payers are modeling the fundamental level of the value-based contracts on the MACRA structure," says Winsor, Conn.-based David Williams, consultant at Milliman, an independent actuarial and consulting firm.

Practices seeking to avoid value altogether will be left disappointed. Experts say it's time to shift their thinking and start tackling value-based contracts head on, by negotiating more favorable terms for their practice. 

"As practices think about this transformation, it's critical they a) understand the population they serve; and b) the relationships with they have with payers. They need to start having new conversations about if they are going to take on more care for wellness and prevention and things that keep people away from the health care delivery system," says Austin, N.M-based Tamm Kritzer, principal at CliftonLarsonAllen LLP, a consulting firm.

Experts say there are three specific strategies practices can employ in the transition to value-based contract negotiation as a good starting point.

Strategy 1: Data is Your Friend

Among experts there is a universal agreement: The shift to value is predicated on showing payers that practices are collecting and analyzing data. As Williams says, it's hard to measure success without data.  In fact, Milliman's three pillars of a successful value-based contracting strategy (transparency, stability, and control) involve substantial data gathering. Because payers have their own information to gauge and negotiate a value-based contract, practices need to ensure they are tracking the right metrics.

So what exactly are the right metrics? It depends on the practice, says Steve Selbst, CEO of HealthCents, a Salinas, Calif.-based consulting firm. Some can be pretty simple, he notes.

"If practices are using EHRs 100 percent of the time, they can safely agree that's one of the [bases on how] they're going to be measured. Same sort of thing when it comes to generic medications and things of that nature. So the practice needs to assess whether it has the systems in place to meet the goals of the value-based program they're being presented with," he says.

As conversations shift beyond simple data points like EHR usage and medication adherence, Kritzker says that there needs to be an agreement between payer and practice on the metrics which are impactful and can reduce the cost of care.

In any sense, Selbst says data collection comes down to a practice's technology. It must capture the information to demonstrate the outcomes it is achieving, he says. Williams says most of the components of the value-based contract - risk adjustment, attribution, in and out-of-network usage - come from claims data. He says it would be ideal to tie this claims data to the EHR and clinical data. It also should be done independently of the payer.

"There is so much more complexity in a value-based contract than a fee-for-service one; so much more you have to track and improve upon," says Williams.

Strategy 2: To Join a Group or Not?

Independent practices are seeing more options to experience a "power in numbers" philosophy by joining independent physician associations (IPAs), accountable care organizations (ACOs), clinical integrated networks (CINs), and other value-based arrangements. While there are differences between each one, these arrangements typically allow physicians to remain independent, while benefiting from a larger conglomerate for purchasing, infrastructure, and to ease the burden of reporting.

Whether or not joining a group is beneficial as the practice transitions into value is up for debate, experts say. On the pro side, the obvious benefit is that independent practices can leverage strength in terms when negotiating favorable rates in contracts with payers. Furthermore, an IPA will allow them access to better tools. The most obvious being around better technology.

"In addition to infrastructure, in theory they bring population health reporting tools and best practices around team-based care. They should and could help a smaller entity implement these best practices," Kritzer says. CINs are more about geographic alignment more than anything else, she adds.

Not everyone should jump into one of these arrangements though, cautions Selbst. He says that many practices, he has found, will prefer to negotiate its own contracts, rather than go through an IPA. In particular, specialties may find that certain metrics and outcomes are unique to their practice, while a larger organization might not have those tied into the value-based contract.

"It all depends on what they are negotiating power is. If they can join an IPA and can get what they need at higher rates vs. negotiating an individual agreement, the IPA might be better. In general, if you can get the same or better [rates], my experience is most practices would prefer to control the agreement themselves. Things can change at the IPA. They're only going to have an opt in [to the contract], opt out vote," Selbst says.

Strategy 3: Tiptoeing into Value

An important thing to note, experts say, is that on the whole, fee-for-service is still very much the predominant method of reimbursement for practices. According to the 2017 Physicians Practice Compensation Survey, 65 percent of physicians have no compensation tied to value-based care, 16.6 percent have only 1 percent to5 percent of their reimbursement tied to value. While value is coming, it's still not here for many physicians. As such, practices can tiptoe their way into these arrangements while they're still in a fee-for-service world.

A good way to do this, according to Selbst, is through the inclusion a value-based component of a fee-for-service contract. This would mean most of the contract would be typical fee-for-service, but a small percent would be based on qualitative, quantitative, and efficiency-based measures.

Moreover, Kritzer notes that the government is slowly introducing CPT codes through Medicare that include a value-based component. For example, chronic care management (CCM) and transition care management (TCM) both generate revenue for the practice but don't require a face-to-face visit, rather care provided outside the office.

"This is a subtle change, but it's a transformative one. Unless we can create revenue for non-visit work, it's difficult to create incentivizes whereby providers are going to change their patterns," she says.

Closing Advice

Selbst says practices need to focus on clearly and squarely on providing value to the payer, in terms of clinical benefit and cost savings. These benefits may be service-, product-, geographic-based, or simply based on the patient population you serve, he says. Either way, it has to make good sense to the payer to give your practice more favorable terms of the value-based contract.

Kritzer says to practices need to understand that switching to value is incredibly hard work and won't be done in one fell swoop.

"We have an entire generation of providers, an entire health care delivery system that was literally formed [around the concept] that our job is to take care of sick people. In the course of the decade, the message is changing and we're now telling people we need to take care of people in a way that they never get sick," she notes.