Provider Considerations for Value-Based Care Contracting

The shift from fee-for-service (“FFS”) models to value-based care (“VBC”) represents a transformative trend in healthcare delivery. VBC contracting aims to improve patient outcomes while controlling costs by linking payments to performance and quality metrics. However, as the popularity of this paradigm grows, providers must carefully navigate the complexities involved to ensure financial sustainability and operational success.

Based on our experience as a trusted actuarial consulting firm assisting provider organizations in structuring these agreements, below are six critical considerations:

1. Shared Savings versus Shared Risk Contracts

VBC contracting typically falls into two categories: shared savings and shared risk. Shared savings models reward providers for reducing healthcare costs while maintaining or improving quality. Conversely, shared risk contracts require providers to share financial losses if costs exceed agreed-upon benchmarks.

Before committing to either arrangement, providers should assess their organization’s financial resilience, care management capabilities, and readiness to assume risk. Shared savings models may be a good starting point for a provider group’s first contract, while shared risk contracts suit more experienced providers with robust infrastructures and data capabilities.

2. Re-Setting Target Medical Loss Ratios for Future Years

Medical Loss Ratios (“MLRs”) are critical benchmarks that represent the proportion of premium revenue spent on medical claims and healthcare quality improvement. Providers need to monitor the performance of MLRs closely and anticipate adjustments for future contract years.

Re-setting target MLRs requires careful analysis of historical performance, anticipated cost trends, and changes in patient population health. Partnering with experts at an established actuarial consulting firm can help providers set realistic targets and ensure financial sustainability under evolving contract terms.

3. Quality Measures

VBC contracts often include incentives such as quality measures. The most common measures are the Healthcare Effectiveness Data and Information Set (“HEDIS”), used to assess care quality. Providers should prioritize initiatives that improve scores in key HEDIS domains, such as preventive care, chronic disease management, and patient satisfaction.

By aligning care delivery processes with HEDIS requirements, providers can enhance outcomes, secure performance-based incentives, and strengthen payer relationships. Leveraging technology and analytics tools can streamline the tracking and reporting of HEDIS measures.

4. Managing Significant Healthcare Costs

A small percentage of patients often account for a significant portion of healthcare costs. Effective management of this patient base is essential to the success of any provider organization. Strategies include proactive care coordination, utilization management, and patient engagement programs. The inclusion of stop-loss insurance, particularly for shared risk arrangements, is also common.

Actuarial analysts can help providers identify patients with the potential for significant healthcare costs early, enabling them to implement personalized care plans and focus on reducing avoidable hospitalizations. Providers can also partner with a seasoned actuarial consulting firm to consider stop-loss insurance options as a way to mitigate risk.

5. Alignment of Goals Across Stakeholders

Contracts often require collaboration between multiple stakeholders, including payers, providers, community organizations, and government agencies. Misaligned goals can lead to inefficiencies and undermine contract success.

It is essential to establish clear objectives around quality metrics, cost savings, and patient satisfaction early in the negotiation process. Defining shared goals ensures that all parties work cohesively toward achieving value-based outcomes.

6. Data Integration and Analytics

At the core of any VBC arrangement is a robust infrastructure to monitor performance, track outcomes, and identify cost-saving opportunities. Providers must be able to effectively track and analyze the claims data for the affected population, perform incurred but not reported (“IBNR”) calculations, develop utilization analyses, calculate the medical loss ratio, and develop financial performance calculations. Providers may also consider partnering with third-party firms specializing in predictive analytics to drive informed decision-making.

Partnering for Success in Value-Based Care

VBC contracting presents an exciting opportunity for providers to drive better outcomes for patients and the healthcare system as a whole. By focusing on shared savings versus risk, re-setting MLRs, prioritizing quality measures, managing high-cost claimants, fostering alignment across stakeholders, and effectively tracking performance, providers can thrive in this evolving landscape.

Working with an experienced consulting partner can mitigate the challenges. Perr&Knight’s team of experienced actuaries provides expert guidance in risk assessment, contract structuring, and performance optimization to help providers achieve their goals on the journey toward value-based success.

Contact the team at Perr&Knight today to learn more about Value-Based Care provider contracting.