The shift in healthcare from a volume-based to a value-based system is transforming passive payors for services into active seekers of high-quality, affordable care through newly established initiatives.  In this environment, value-based contracting is gaining traction.

With value-based contracting, everyone benefits.

  • Providers share in savings and receive incentives for reaching quality targets. Providers are rewarded for encouraging their patients to participate in their own care.
  • Payors realize lower utilization costs and increased payments from Medicare Advantage plans, which can attract a larger number of employers and members.
  • Employers are increasingly offering discounts on premiums to employees who engage in healthy activities and keep chronic diseases under control. Likewise, some raise premiums on employees who make unhealthy lifestyle choices. Healthier employees have fewer absences from work, perform better and are less costly to insure.
  • Patients experience a shift in focus away from sick care toward wellness care. By working more closely with their provider, they enjoy a better experience and, ultimately, better health.   

Payment model options

Pay-for-performance. This model rewards providers for adhering to pre-defined, evidence-based medical practices, levels of productivity and administrative efficiency, use of information technology, reporting of performance indicators and participation in performance-enhancing activities.
Shared savings. In addition to adhering to the pay-for-performance model, providers participate in a shared savings model. The funds come from savings earned by providing quality, necessary care for less than the previous year’s total cost of care (TCOC). TCOC savings are largely achieved through better management of chronic diseases, which lowers the number of Emergency Department visits, acute hospital admissions and high-cost radiology tests. The savings realized by this efficient care are shared between payor and physician.