Value-Based Contracting in Health Care

A growing topic in healthcare in the United States and other countries is the decentralization of risk from the ultimate healthcare payer (insurance companies and government in the United States; national health systems in other countries) to providers of healthcare services. Healthcare providers have traditionally taken clinical risk.1 However, payers are increasingly looking to providers to assume financial risk, in addition to the risk of clinical quality and outcomes of their managed populations. Numerous different types of contracts are being signed between providers and payers: pay for quality; pay for performance; shared risk and shared savings arrangements; bundled payments, accountable care and capitation (full or partial risk). Any contracting entity must decide what is the right form of contract to enter, what contract features to include and what price to offer the payer and what risk the entity is assuming in doing so. The assessment of opportunity, design of the contract terms, pricing, risk management and outcomes evaluation for these contracts are increasingly complex exercises. This chapter covers these issues, including the actuarial mathematics of contract risk assessment and mitigation, taking the reader through the 5 components of a Value-based contract.