Understanding Value-Based Contracting: Step Three - Managing the Contract

This is the third of our six-part series on the steps to demonstrate value for payers when engaging in a value-based contract relationship.

By Ian Duncan, PhD FSA MAAA, Chief Actuary at Arbital Health

In the first post of this series, we discuss preparations to take when considering engaging in a risk-based contract. Our second post deals with the ways to design the contract. In this post, we’ll delve into the important task of managing the contract and answering the question: How do I monitor the contract to maximize gains and accurately reserve capital? 

Management guru Peter Drucker once famously said, “What gets measured, gets done.” That sentiment can clearly be applied to the important task of managing your value-based contract. Signing the contract is not the end, it’s just the beginning. 

Something that is not well done in our industry is translating the projections in the contract into an operational model that enables you to track outcomes against plan. Too often the final reconciliation takes place a couple of years after the start of the program. That’s too late to find out whether you’re going to meet the requirements of the contract and get paid for the risks you’ve taken on.

Hope Is Not a Plan

Once the contract is in place, you need to have the mechanisms in place to track performance against projection. In my experience, there often appears to be a tendency with VBC programs to expect that things will evolve successfully because the program is being managed by smart people with good tools. There is an assumption that the program will just deliver the results we expect. Unfortunately, hoping that this will happen doesn’t work. I can’t emphasize enough the importance of having, and sticking to, an operating plan that allows you to track and compare results. 

Manage the Metrics

Setting up and reporting on clear metrics is vitally important to realizing the value of your VBC program. Establishing and tracking metrics such as expected number of patients identified, patients engaged, and the amount of utilization to be taken out of the system monthly are key to meeting program goals. Most importantly, tracking metrics on a regular basis allows you to quickly see if you appear to be deviating from the plan.

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