How can companies ensure a meaningful Return on Investment (ROI) after they contract directly with providers (or other point solutions)? Performance guarantees? Value-based care?

Short answer: Both.

Long answer: If we consider value-based contracts to be an evolution of performance guarantees, implementing a value-based strategy becomes critical for any care delivery model.

Value-Based Contracts and Performance Guarantees

The majority of HR and Benefits professionals are familiar with performance guarantees (PG). A PG represents a contractual obligation between a plan sponsor and a provider to achieve certain performance objectives. PGs incentivize providers to deliver high quality service by putting fees at risk for performance falling below expectations or projections. (Note: Service Level Agreements, or SLAs, is another common term used in contract language. Both PGs and SLAs accomplish the same purpose and are structured similarly, and can be considered synonyms.)

The goal of VBC is similar in that it holds providers accountable for the patient care they deliver, but it goes a step further by incentivizing providers to improve clinical outcomes, reduce cost of care and shift away from fee-for-service (FFS) revenue.

Both PGs and value-based contracts shift risk from the payer to the provider by making compensation contingent on results. While PGs only represent penalties for unmet contractual commitments (read as: downside risk for the provider/supplier), value-based contracts introduce varying levels of shared risk and savings potential (Table 1). For example, in a shared savings value-based payment model, the provider is paid a percentage of net savings achieved, while the payer retains any losses. This gives upside potential for the provider to exceed expectations and receive financial reward. And while PGs can be introduced to contracts with any provider, value-based arrangements are specifically relevant to providers who aim to impact population health and claims spend.

Table 1 | Comparison between value-based contracts and performance guarantees

Introducing CARROT, Contract Addendum for Retrospective Reimbursement on Outcomes-based Treatment

If you are still wondering what the difference is between value-based contracts and PGs, you’re asking the right question. At the extreme, they can seem completely different. For example, capitation, where a provider is paid a fixed fee for all the healthcare services a patient may receive during a specific period of time, is a value-based contract that does not require any guarantees, as all of the financial risk is already assumed by the provider.

However, PGs and value-based contracts are not mutually exclusive. In fact, providers and payers have tried to turn standard contracts into value-based agreements with PGs, such as ROI or trend guarantees.

Historically, these provisions have been extraordinarily difficult to implement. They require actuaries on both sides to share data, mutually define the approach, and provide retrospective accounting. This process often involves an actuarial consultant to mediate. And even then, the provider is usually the one adjudicating for themselves.

To simplify the terms, we have developed CARROT — Contract Addendum for Retrospective Reimbursement on Outcomes-based Treatment.

CARROT is a standardized cost of care performance guarantee that enables value-based contracts. Stay tuned for more details on CARROT, and how Accorded can administer CARROTs as an impartial third party.

When to consider value-based care

If you are an employer/payer that wants to ensure pricing is aligned with ROI and to select providers who can drive the most clinical and financial value to your organization, value-based contracts can help you to maximize your healthcare investments. Instead of wondering if the cost of care savings projections will come to fruition, a value-based contract with a CARROT ensures the cost of care impact is being measured and met.

If you are a provider that is confident in the value you provide and is seeking a way to prove it and be rewarded, then value-based contracts can enable the proper financial incentives. Specifically, adding a CARROT to the contract allows you to minimize the payer’s reluctance in adopting VBC.

Implementing a value-based arrangement can be operationally complex and costly, requiring actuarial methodologies to assess risk and impact pre-contract, and to adjudicate on cost of care outcomes. However, with the right tools and standards, this experience can be simplified.

How Accorded helps payers, providers, and everyone else

At Accorded, we believe all healthcare stakeholders should have access to reliable risk management capabilities in order to accelerate the shift to VBC and usher in the next generation of care delivery.

By providing the CARROT framework, Accorded standardizes and simplifies value-based contracts for common adoption. Furthermore, the Accorded Platform adjudicates the CARROT, eliminating the actuarial and administrative burden of reconciling claims and value determinations.

Accorded translates powerful actuarial methodologies to user-friendly tools for a transparent and value-centered approach to the entire contract lifecycle between payer and provider. The Accorded Platform enables users to: forecast savings opportunity of a provider solution on a payer’s population; design and evaluate contract terms across different outcome scenarios; monitor and adjudicate provider performance using an impartial, actuarially sound approach.

We can support any and all steps of the process, regardless if there is a contract in place or not. Find out how to implement CARROT or whether your existing contract is delivering on not just experience but on reducing total cost of care.

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