The Fourth Pillar of Value-Based Care: At-Risk Vendor Contracts
Public and private payers have been aggressively pursuing value-based arrangements to incentivize high-value care. These arrangements typically fall into one of three categories:
- Value-based payment (VBP) models for providers
Value-based payment models in this category include ACOs, episodes of care, partial and full capitation, etc. The primary goal of these models is to pay providers based on the value of the care they provide rather than the volume of patients treated.
- Value-based insurance design for members
Value-based insurance design, or V-BID, is meant to incentivize members to choose or comply with high-value care. This could be through selectively reducing co-pays for high-value drugs or care.
- Outcomes-based contracts (OBC) for pharmaceutical manufacturers
Rebates and pricing for pharmaceuticals can be based on outcomes achieved for specified populations. Outcomes can be simple, such as medication adherence, or can be related medical outcomes.
While these three channels each play in a role in the shift from volume to value, there is a fourth option.
At-risk contracts create opportunities for vendors
Payers they are inundated with new digital health apps, software, and other vendors who have a tool that may impact internal operations, care received by members, or both. One of the challenges faced by payers is deciding which, if any, of these tools to implement, often with little credible information about what the impact is going to be.
Enter at-risk contracts for vendors. The beauty of at-risk contracts is that a payer doesn’t necessarily have to know up front the impact or value of a tool to use it and be sure that there will be a positive ROI. If you tie reimbursement to performance, the ROI is built in.
How do at-risk contracts for value-based care vendors work?
At-risk contracts can be used for any tool, platform, service, app, etc., that affects plans or members. There are typically three parties involved: the payer, the vendor, and an independent neutral third party to evaluate the impact.
Contracting arrangements can be flexible and could include a single three-way contract between all parties. Or a payer could have a contract with the vendor and a separate contract with the third-party evaluator.
The potential value proposition must be well defined, delivering one of the following:
- An impact on members that can be measured with claims
- An impact on operations that can be measured with internal data
The payment to the vendor can then be tied to total cost of care savings or operational savings, which are measured by the independent third party.
Considerations for implementing at-risk contracts
To implement an at-risk contract, the vendor must be able to:
- Identify which members or operations are impacted by the vendor and when
- Availability of vendor data, claims data, and/or relevant operational data that can be merged
- An approach to construct the counterfactual (what outcomes would have been absent the tool or intervention) for comparison
The payer and vendor should be able to identify if the first two requirements could be satisfied for a given tool. The evaluator can then design the approach for building the counterfactual. This approach may include constructing a comparison group, exploiting time trends, or a combination of the two.
What can be learned from an evaluation
In addition to quantifying ROI and the impact on total cost of care or other outcomes, an evaluation can incorporate qualitative approaches to understand why the impacts are achieved.
Qualitative vendor risk evaluation can include semi-structured interviews, surveys, or focus groups with various stakeholders to better understand the context in which implementation is occurring and which underlying factors contributed to success or caused challenges.
Qualitative vendor risk assessment is particularly important when moving from the pilot stage to broader implementation. At that point, certain characteristics of the pilot population or setting might be affecting outcomes in a way that may or may not happen in the broader population. Findings from qualitative work can also inform potential changes to programs or tools that could further increase impact.
Qualitative and quantitative vendor risk evaluation approaches can both be used to understand the impact on health equity. This is particularly important where interventions, such as those built on artificial intelligence or machine learning, may have bias in the underlying data. Evaluations can measure overall impact, as well as the impact on disparity, and whether there was a differential effect between patient subpopulations.
Benefits of using an independent third party to lead a vendor risk evaluation
The approach to measure the savings or impact needs to be designed by experts trained in health economics who are experienced working with these data types.
If these at-risk contracts are to work, there needs to be trust in the approach, which an independent evaluator brings. Further, an independent evaluator can help scale evaluations for multiple tools or interventions, assuring similar approaches are used, where appropriate, and reducing the cost per evaluation. Lastly, when the evaluation is complete, the independent third party can assist with dissemination of the results through publication, conference presentation, or other strategies. The independent nature of the evaluation brings credibility and objectivity.
What programs or tools are you using right now that have unknown impact? Get clarity on value with at-risk vendor contracts.
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