How to know if value-based contracts are good for your practice
RichardLander, M.D., FAAP
Private Payer Advocacy
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
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
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
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.