As healthcare moves toward value-based care, negotiating contracts that are provider-friendly and mutually beneficial has become increasingly important — and increasingly difficult. Contracts are shifting away from the known fee-for-service rate structure, toward models based on performance metrics, which can result in higher total revenue for providers (or not), but which are also often dependent on financial levers that may be unfamiliar.
When we negotiate agreements with providers, I often find myself thinking of a quote from Good Will Hunting: “You baffle me…. You spend all your money on these fancy books — and they’re the wrong books!”
We consistently speak with providers who aren’t sure what they need to negotiate in their value-based care contracts, so they focus on areas they know from FFS agreements — instead of the areas that will drive long-term impact with a successful partner. They also often fixate on these less critical details, while overlooking embedded “gotchas” that can support the broader goals of their organization, group, or clinic. In other words, you can spend time studying the contractual terms — and they may be the wrong terms!
With that in mind, we’ve outlined some key considerations below on how we advise approaching value-based care contracts and key areas of focus to help providers ensure their value-based care contracts are a win-win for all parties involved.
Define your goals and strategies
While you may be able to score some short-term wins, long-term partnership comes from successfully aligning your outcomes across your ACO or Payer partner; this is a hidden difference compared to FFS, which is generally geared around zero-sum rate-seeking. In value-based care contracting, the goal isn’t necessarily to “win” more share of a fixed pie, but to expand the pie by aligning your incentives across all stakeholders — it should be a win for you, your partner, and the patients. Contracts are fundamentally an allocation equation, where there’s a finite amount of resources a plan or ACO can invest in a PCP contract. While you might be able to score a short-term win, if these incentives aren’t aligned, it can often result in the ACO coming back to the negotiating table down the road when they can’t make the economics line up. Those who are building the best long-term relationships know this and come in with a negotiation strategy that ensures everyone is set up to win over the long term.
Know thyself
Understanding your data and the clinical needs of your patients is the backbone of any successful value-based contract negotiation. Collaborate to conduct a comprehensive analysis of historical claims data, patient outcomes, and utilization patterns — this analysis will help identify areas of improvement and potential cost-saving opportunities. By leveraging data-driven insights, both parties can tailor their contract to address specific healthcare needs and ensure optimal resource allocation.
Examples of where it’s good to understand what you’re optimizing for in a contract include:
- Total revenue vs. Guaranteed revenue
- Minimizing uncontrolled downside risk
- Growth opportunities
- Autonomy
Understand the financials
Frequently we see contracts that, at a glance, appear extremely rich — often based on incentive based payments. When you hear the ACO is paying “X” amount above Medicare, the devil is in the details. Dig to understand the economics of how the incentives are financed — you may be ok with it, but understanding the process is ultimately the key to knowing what your total revenue can be.
Examples of gotchas to watch out for:
- Rates: Some groups promise higher rates, but financially engineer the payments to be net of high fees, so a provider’s net take home ends up being much less after all reconciliation is complete.
- Annual Wellness Visits: Highlighted as a net increase, but ultimately added in as a fee via savings.
- Requirements: Strict requirements around what must be completed, and how it must be done, in order to earn a higher rate.
Termination
While negotiating a value-based care contract, it’s crucial to plan for the possibility of termination. Although both providers and payers/ACOs aim for long-term partnerships, circumstances may change that require the contract to be terminated.
When negotiating termination provisions, here are some areas to consider:
- Notice Period: Define a reasonable notice period that allows both parties to prepare for the termination (and pursue other programs or partners if needed).
- Non-compete: These are sometimes included and are not always a bad thing to have — non-competes, when done appropriately, signal a long-term commitment to the arrangement, and allow your partner to offer richer contract terms they can amortize across several years.
- Dates & Savings distributions: Understanding how a term will affect your savings distributions in the future. Early termination may mean that you forgo any future shared savings or quality payments; get a clear understanding of how this works to position yourself to get to a fair process throughout a potential termination.
Intentional collaboration
A value-based care contract should not always be considered a static document, as evolving dynamics may require ongoing monitoring, evaluation, and amendment. Regular performance assessments and data-driven feedback should be used to track progress, identify areas of improvement, and, in some cases, lead to adjustments to the contract. Regular meetings, open dialogue, and feedback loops should be established to address challenges, resolve conflicts, and ensure alignment of goals. Ultimately, as you want to align incentives — negotiating for support signals to your ACO that you are going to be a great partner and may actually get you flexibility in other areas.
Lastly, while much of the negotiation may occur during red-line processes, keep in mind that sometimes it’s easier to hop on a quick call and share context. The goal can sometimes get lost in the redline, and discussing areas you’d like to evolve gets you a much better result much faster. You catch more flies with honey!
Note: This post is meant for general educational purposes only. It is not legal or financial advice. Parties to negotiations and contracts should consult their own financial advisors, lawyers and other experts.
