Over the past 20 years, we’ve seen an evolution in payor contracts from fee-for-service to value-based care (VBC). This evolution is occurring across payor types: Commercial, Medicare, and Medicaid. In recent years, many providers have signed VBC contracts, which often provide better reimbursement rates as a reward for improvements in care delivery and care outcomes.
Specifically, a significant number of providers signed incentive-laden 5-10-year VBC contracts in 2020 moving away from traditional fee-for-service models, which helped improve their financial positioning throughout the pandemic. However, recent economic shifts have changed the landscape in which these contracts exist. Current contracts fail to take into account the rate of inflation and heightened financial distress we are seeing in the industry today. They also do not take into consideration the fact that many COVID-19-era government relief options — such as the CARES Act, Provider Relief Fund, and American Rescue Plan of 2021 — are sunsetting.
Simply stated, VBC contracts negotiated pre-pandemic are not only obsolete but likely contain pricing provisions that do not consider either unprecedented cost increases or difficulty in meeting performance incentives due to changes in patient behaviors. The result is an urgent need to reassess payor contracts of all types across all payor types.
However, before you renegotiate your contracts, you need to carefully consider your organization’s structure and business model so that you can ensure you’re working toward the best possible outcome.
To begin, take some time to examine the following considerations:
· Market Position: Having greater market share often leads to better-negotiated rates. Your organization should understand its market position before renegotiating its VBC contracts to understand what advantages you may have.
· Total Reimbursement & Total Value: Assess your total reimbursement rates, base reimbursement, and incentive reimbursement opportunity.
· Current Yield: Determine the percentage of total cost and the value of your denials and write-offs.
· Fee-for-service vs. Risk-based Models: Fee-for-service-based models should assess their steerage. Risk-based models should identify actuarily sound allocations, percentage of premium reconciliations, and risk adjustments/risk scores.
· IT Infrastructure: Evaluate your IT infrastructure. For example, is your EHR system set up for data analysis and able to benchmark KPIs? It’s important that your systems are designed to provide this information for negotiations and to ensure you have a complete picture of your patient population.
· Business Structure: Some provider organizations benefit from VBC models more than others. For example, a primary care provider (PCP) is more likely to coordinate along the continuum of care than a specialist. This enables the PCP to potentially have more control over the cost of care and revenue streams than specialists, making them a better candidate for a risk-based contract.
Carefully considering these six factors is a crucial first step to renegotiating your value-based contracts. Once you’ve made these considerations, you’re ready to move forward.
Ready to get started renegotiating your value-based contracts? Read our insight to get five tips for negotiation success.
HENRY KOTULA 