An Overview of the Value Based Contracting Model

Healthcare spending in the U.S has risen from about five percent of the total economy in 1960 to nearly 18 percent in 2016, currently totaling upwards of $3.5 trillion annually (1). According to a 2017 Commonwealth Fund report on the performance of health care systems in eleven high-income countries, the United States spends the most on health care, but ranks at the bottom in terms of performance, access, equity, and health care outcomes (2). As policymakers, health care providers, and healthcare professionals strive to improve clinical outcomes, reduce costs, and enhance the patient experience, there is now a growing interest in the value-based contracting model (3). The value-based contracting model is a health care delivery system in which providers are paid based on the health outcomes of their patients and the efficiency and quality of delivered services (1). Value-based contracting differs from the traditional fee-for-service model, where providers are paid separately for each medical service.

Proponents of value-based contracting argue that the overall quality and efficiency of care is enhanced as a result of the financial incentives provided to healthcare providers. The benefits of value-based contracts (VBCs) include providing patients and consumers with earlier access to biopharmaceuticals, offering more efficient pricing models, and reducing the payer’s risk of sub-optimal purchases (4). There are a few critical factors necessary for the success of value-based contracting. One of these factors is the ability to measure value (3). In order to implement VBCs effectively, there must be key metrics to measure baseline performance and performance over time. Such data is necessary to accurately define and isolate outcomes tied to specific products or capabilities (3). The way healthcare outcomes are measured must be objective and transparent to all involved. This will ensure that all implicated parties understand, accept and buy into the measures for improvement (3).

While the benefits of VBCs are valuable, there are some barriers and challenges associated with its implementation. One of these barriers is the fact that significant payer and provider infrastructure is necessary to monitor an outcomes-based agreement, even if there is already an established method of measuring value (3). Without the necessary infrastructure, there can be no reliable way to tap into the efficiency of a particular method of treatment or drug without accurate and precise data from patients. Perhaps the most significant challenge facing the implementation of value-based contracting is that it represents a shift in the business model from traditional fee-for-service to performance-based risk arrangements (3). Manufacturers would likely be reluctant to accept the financial consequences of their products, when they can’t control how a drug is prescribed or used. 

As the value-based contracting in the healthcare system is still relatively new, there are no best practice models in place yet. Moving forward, health care providers and suppliers will need to collaborate to identify and build upon their core strengths and augment those areas where gaps exist (3). There are a few ideas as to how to accomplish this goal. Expansion could be fueled by improved data systems, which can help create the mechanisms to monitor patient usage of biopharmaceuticals and their effects on health outcomes (4). Additionally, the increased use of accountable care organizations could lead to enhanced health system alignment between the providers and suppliers.

References

1. Fujimori, S. (2019, March 28). What is Value-Based Care, How it Works & Benefits I Aetna. Retrieved from https://www.aetna.com/employers-organizations/resources/value-based-care.html#acc_link_content_section_articleform_descriptionsections_par29_media_inpagetranscriptcontent_1
2. Schneider, E. C., Sarnak, D. O., Squires, D., Shah, A., & Doty, M. M. (2017). Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care. Retrieved from https://interactives.commonwealthfund.org/2017/july/mirror-mirror/
3. Tetreault, T. (2018, March 6). Value-based contracts – Creating win-win partnerships for health systems and suppliers: Value-based contracting is an important consideration in advancing value-based care. Retrieved from https://www.beckershospitalreview.com/healthcare-information-technology/value-based-contracts-creating-win-win-partnerships-for-health-systems-and-suppliers.html
4. Value-Based Contracts. (n.d.). Retrieved from https://www.npcnow.org/issues/access/provider-reimbursement/risk-sharing-agreements