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Home / News & IndustryManaged Care Insight and Analysis
Updated: February 2, 2010
Payor-Provider Contracting In Era Of Value-Based Purchasing Payment Reform Models

What will managed care contracting be like over the next two to three years or longer?

Obviously, there are different contracting and different geographical locations that give rise to different types of contracting issues, according to Russell Foster, principal with pmpm® Consulting Group.

And, managed care contracting in the months and immediate years ahead will be under the shadow of any form of healthcare reform. Change is coming, said Foster, and certainly with reform, there will be changes and modifications in contracting.

"The current level of healthcare expenditure we know cannot be continued, we need to find ways to moderate the costs if we are going to be able to deal with the cost issue going forward and to ensure that more of the uninsured receive better care," he said

Foster acknowledged that the issue of improving quality has not really been completely addressed despite much effort underway to define quality. The quality issue "figures" into the managed care contracting equation.

Under healthcare reform, what are the payors and what are the providers looking to do to bring value in to the contracting equation, Foster pondered. We see in the macro sense we’re heading in the direction of value-based purchasing.

"What we call value-based purchasing payment reform models are all starting to take center stage," Foster said.

Citing fee-for-service and full risk capitation, he said neither of those models has played out successfully in all markets. "The value proposition for both of those left a lot to be desired," he observed.

"The clear direction is that value-based purchasing is what’s coming. It will very soon be center stage for most contracting activity in the years to come," he believes.

Focus On Outcomes

While there may be varying definitions of value- based purchasing, Foster said it really comes down to "elements of improving quality outcomes, patient satisfaction and reasonable cost or lower costs.

"Without the outcomes, without the satisfaction, and without the reduction in costs we are not going to be able to demonstrate the value proposition," he suggested.

The models that represent value based purchasing range from shared savings and gain-sharing types of arrangements to narrowing of networks, said Foster. Contract with specific providers that have demonstrated the ability to deliver high quality care at lower costs and are more focus on bundled episodes of care and evidence informed case rates. Both of these are in demonstrations throughout the country and in operation in certain parts of the country, he said. There will be much more to come in those two areas in the near future, he added.

Foster also pointed to the "clear direction" toward growth in the medical home area as a way of improving quality and reducing costs.

"Capitation has always been kind of a negative word, but its somewhat redefined in this global payment model with performance incentives," he said. "Global payment," Foster said, "is another word for the risk capitation that we’ve all come to know as the ‘C’ word in the past but with the added twists of pay- for-performance and other performance incentives built to demonstrate cost reduction and the quality that can come with capitation."

The traditional fee-for-service models, that still exist and are still in plenty of places around the country, he said, are the primary method of payment. that Foster believes is, over time, going to give way to value-based models. "It’s pretty clear that reimbursement systems built around volume and intensity are not going to be able to demonstrate the value proposition that’s needed. It’s going to require fundamental change by providers that accept fee-for-service to bring value to that methodology."

Foster believes that if fee-for-service is going to continue it will have to come "with a demonstrated value to the payor." If that happens it will reaffirm the fact that managing care isn’t enough by itself, "it requires both the management of care and the management of costs."

The responsibility, he believes, is "not only on the payors’ but the providers’ to work with their partners, hospitals and health plans that they serve or the employers they serve in a PPO environment. They are going to need to work together as partners to demonstrate their ability to managed care and costs."

Foster made his remarks during a recent audio conference on managed care contracting "Managed Care Payor-Provider Contracting: New Directions, Risks and Strategies" sponsored by the Managed Care Information Center. A CD-ROM of the program including all slides and handout materials, is available. For more information, visit www.healthresourcesonline.com/edu/mcc09.htm

Address: pmpm® Consulting Group, 1425 River Park Drive, Suite 230, Sacramento, CA 95815


  This article was taken from:
The Executive Report on Managed Care

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