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How to know if value-based contracts are good for your practice :

December 7, 2016

Increasingly, health insurance carriers are implementing provider contracts linking quality patient care and cost savings to payment.

“In a value-based arrangement, risk is shifted to providers, and payers base payments on documented quality of care with the potential of shared savings. As a result, these arrangements usually involve more extensive data reporting and payer collaboration,” said Thomas F. Long, M.D., FAAP, former chair of the AAP Committee on Child Health Financing.

When considering a value-based contract, pediatricians first should assess the financial and administrative impact on their practice. To start, the practice needs to understand its costs of doing business, including how much it costs to provide certain services, procedures or for an episode of care. Identifying practice costs also includes assessing each physician’s productivity and costs.

Next, the practice needs to assess its payer mix and the proportion each payer contributes to practice revenue and costs. For example, if a payer represents 20% of the case mix, it also should account for at least 20% of the practice revenue. Reconsider contracting with payers whose percentage of case mix is greater than the percentage of practice revenue.

The practice also should review the carrier contract(s) and performance in light of administrative hassles (e.g., frequent claim denials and reversals, requests for reports, downcoding, bundling, ancillary carve-outs). These administrative hassles can be costly and erode the relative value of the carrier’s payment.

In a value-based contract, ensure the carrier thoroughly and clearly identifies the care delivery or quality performance metrics and how the physician(s) and practice are measured. The practice needs to assess the proposed payment methodologies, such as how the prices are set, the type of benchmark data being used and how the risk is shared.

The practice also needs to clarify with the carrier the method(s) used for attribution of patients and costs to the provider. Managed care contracting as well as value-based payment rely on attributing patients, the cost of their care and outcomes to the provider.

Further, the practice should consider issues beyond the physician’s control, i.e., noncompliance on the part of the patient. Unless attribution models are transparent and appropriately assign patients and costs, physicians will be rated inappropriately and may be disincentivized to accept challenging patients, thereby adversely affecting access to the medical home.

While value-based contracting has the potential to enhance income when established benchmarks are met, it also entails risk to the practice. Following these guidelines will enhance your ability to assess carrier contracts and their impact on your practice.

Financial solvency and profitability are critical not only to your practice but also to patient access to pediatric services.

Dr. Lander is chair of the AAP Private Payer Advocacy Advisory Committee.

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