Decoding Legalese of Value-Based Contracts

Episode Overview

• Previously there has been a lack of relationship between providers and payers; and with the shift towards value-based care, it is vital for those relationships to improve  
• Risk sharing requires the provider to agree to be responsible for a specific set of services and the costs associated with such services, which can include hitting certain performance measures. The elements need to be entered into the agreement otherwise there’s no obligation for the payer to honor those terms.
• With all risk-based contracts, it key for providers to include protections.  Such as, for example, that the financial arrangement doesn't kick in until a minimum number of members assigned to the provider has been reached.  Also, if there is a change in that threshold for two consecutive months, the payment bumps back down to the traditional fee-for-service rate.

Transcript:

Daniel Marino: Welcome to another episode of value based care insights I'm your host Daniel Marino. In previous episodes we've spent quite a bit of time talking about value-based contracting. And in working with many of the providers there's been quite a few questions about how we set up a successful value-based contract. How do we optimize our performance to create a level of success that not only is good for our patients, but is good for our physicians? And frankly it's scary for our physicians as you move from fee-for-service to fee-for-value and frankly it's scary for health care leaders as well. I've often said that if you're a system CFO or a hospital CFO it's easy to determine whether you have a good fee-for-service contract or not. It's typically whether your rates actually produce a positive income stream or at least allow you to increase the amount of patients that you're seeing or something of that nature so it's fairly easy to. To assess whether you have a good contract or a bad contract when you move into fee for value, though it's different. Because there's a lot of other factors that come into play.  We're measuring quality, we're measuring costs, we're measuring our performance and all of that is tied to some level of an outcome and it's difficult to measure. So through some of our listeners and through some of the comments that we've heard a lot of the questions have come up around, how do we create the right level of protections In a contract in an agreement with the payers to ensure that not only are we successful, but that, as we begin to move forward with value-based care and be able to manage our population, we're actually getting the right level of credit for the performance and outcomes we’re creating. 

Well I’m very pleased today to have a wonderful guest, somebody who I've known for quite some time. An industry leader in the legalities of health care and contract law. Hal Katz is a partner with Husch Blackwell, he's had 25 years plus of experience in health care law as a national practice working with many health care providers across the country. With a large focus and managed care large focus and network development just a wealth of experience so I’m happy to have him on the show today.  Hal welcome! 

Hal Katz: Thank you so much for that kind introduction, great to be with you today. I think you nailed it with the setup for our conversation. It’s a scary time for providers, moving from fee for service to value-based arrangements and it's a very different business model, so the points you raised are right on target.

Daniel Marino: Absolutely and I'll tell you how I think back over how the relationship with payers has evolved. It certainly has changed, I think it’s changed more recently over this last year and a half than it has, I think, probably in the last 15 to 20 years prior to that. I am seeing a lot more challenges that are occurring between the relationship of the payers and the providers. I don't think there's ever been a really great collaboration, but it seems like it's even worse now. It's even harder now to get a level of collaboration between payers and providers in such a way that it's mutually beneficial to both parties. What are you seeing as you're working with providers and even working with payers across the country?

Hal Katz: Dan, I am seeing some real challenges, and I think it's related to a couple of factors. Primarily, it is the result of non existent relationships or minimal relationships between providers and payers back in the managed care days when in the mid 80s, through the early 2000s when managed care was getting started and then fairly established in many parts of the country, there was a lot of regular interactions between health plans, payers, and providers. It was necessary for those risk sharing arrangements and more involved contractual arrangements. Over the last I would say five or so years those arrangements have decreased, surprisingly. I know we've had accountable care organizations with medicare, but that has been a rocky road and serious managed care and value-based arrangements have been slow to really get traction across the country. And so the relationship between the payer and the provider has been thinner. There's been a lot of turnover within payers and payers have had a hard time retaining qualified and experienced provider reps and network representatives and developers.  So providers are often starting over each time there's a contract issue or a new contract opportunity with a payer, and I think that's created some real challenges and there hasn't been the same interest or willingness to to invest in those provider relationships and support the development of a provider or an arrangement with the provider, because those kinds of products and those kinds of arrangements have not been a high priority for either the payor or the provider in most markets.

Daniel Marino: yeah I agree with you, I agree with you and I think, building on some of that as well the relationship piece is so critical. But we're also seeing that payer seem to be shifting the risk to the provider community; they want the providers to assume more risk around cost of the care that's being delivered, around where the patient is is going, and I think it's also then fueled these different types of contracts that we're starting to see and it's also fueling a quicker need to move into fee-for-value, but to assume some level of a risk-based contract. Are you saying the same thing as you start to have some of these conversations with providers?

Hal Katz: I definitely see a desire now to shift that risk more to the provider and that's really challenging because most providers aren't in a position to appreciate, assess or manage.

Daniel Marino: Yeah they're not ready to move into risk and it scares them.

Hal Katz For sure.

Daniel Marino: So as organizations and providers start to move from fee-for-service into fee-for-value. And this is a question that comes up to me quite often. What are some of the key elements that you see that are really critical to make sure that we need to have in a contract that spelled out that maybe protects the providers? And to kind of cue it off there, one of the things that come to mind is data sharing. Are there other things that you're seeing that are really key things that are areas of protection for providers?

Hal Katz: Definitely Dan. As I'm sure you've covered in your past episodes, risk sharing involves the provider agreeing to be responsible for a specific set of services and the costs associated with those set of services and can even include hitting some specific performance measures. In order for the provider to have the financial outcome that they're expecting and the basis for them saying, Okay, this is going to be a good contract for us to enter into, each of those elements has to be covered in the actual terms of the agreement. Those fundamental assumptions have to be written into the agreement, otherwise there's no obligation on the payer to honor those terms, or to create that arrangement. So how members are assigned to the provider, what specific services are the providers going to agree to be responsible for? What measures they're going to be responsible for have to be spelled out in the agreement.

Daniel Marino: Yeah I agree and oftentimes what I see when I'm helping organizations to negotiate some of these contracts is how the providers are looking at what's quality is different than how the payers are looking at quality. I think another issue is just that level of data sharing. The payer has the claims data which is really powerful. Not only does it tell the provider what's occurring with their patients in their organization, but it also informs the provider what's happening outside their organization. And the provider has the quality data so you need to bring the two together to truly impact a lot of the outcomes of the patients that you're managing. How do you build those protections in there?  And I guess second to that have you seen any contracts where data is not included in those in those fee for value contracts?

Hal Katz: Sadly Dan, yes. Unsophisticated providers have entered into those agreements where they don't put any affirmative obligations on the payer to provide those regular reports to the providers. But what you're alluding to is absolutely something that needs to be written into the agreement, there needs to be a specific provision in the agreement that the payer provides monthly, quarterly and annual reports that include the kind of information that the provider is going to be relying upon not only to manage the the care they're providing but also to know how they're doing in delivering the care and meeting the performance measures. So those are quality related, that's encounter related. It's also financial reports, especially if the provider is participating in our risk pool or being paid on a per member per month basis so more of a capitated kind of value-based arrangement.

Daniel Marino: I'll tell you how I don't know how a provider can be successful if they don't have access to the data I had an opportunity, about a year ago, to help an organization negotiate a contract with a payer and this organization had I don't think it had a very good relationship with the payer to begin with. This organization did have some pretty good data and had some pretty good quality, and this was the first time they were actually moving into a value-based contract. It was just a performance based contract. But the payer was adamant that they were not going to share their data and how can you, In my mind, how can you be successful with that? And my advice to the provider organization was you need to walk away. You can't engage in a successful value-based contract, without being able to to share data and that was a little surprising to the payer, because I think the payer thought well, heck we've got an opportunity to to move into a new value-based contract here this organization is going to be excited and yet when they said well look if you don't give us the data we're not going to engage, I think that was a little surprising to them.

Hal Katz: And that has to be just an unsophisticated payer who hasn't had much experience with value-based arrangements with providers, it almost feels bad faith, you can't get to your destination, you know driving in the dark and that's what. participating in a value-based arrangement without data is equivalent to there's no way you know where you're going you're it's guesswork.

Daniel Marino:  I agree so when you think about value-based contracts, there's a balance between the cost of managing the population that you're contracting around. And then there's the quality outcomes right there's a balance, and I think a big differentiator, a major differentiator between value-based contracts that are occurring now and the hmo contracts that occurred. In the early 2000s, and you alluded to this, in the early 2000s it was all about cost, quality really wasn't a part of the equation. Now under valued-based contracts, quality is very much a part of that equation. How are you seeing in your contracts, what does that balance look like, is it still predominantly cost management driven? Or are you seeing a pretty good balance between managing the costs and maybe coming in under the cost threshold, but ensuring that you are delivering up to a certain quality threshold as well?

Hal Katz: Great question Dan I would say, on the medicare managed care side and medicaid managed care side it's pretty balanced, but on the commercial side i'd say it's much more financial still.

Daniel Marino: That's interesting.

Hal Katz: Medicare is holding the health plans to quality measures. That's a big part of those contracts, both with cms for medicare and and for the applicable state for medicaid and contract decisions are made, based on those quality measures, so it becomes really, really important for them to make sure that they're hitting those quality measures.

Daniel Marino: That makes sense to me, too, because I think when you think about the Medicare advantage plans they're very focused on their star ratings, the star ratings are predicated on the quality that is being driven off of how you know the providers and how they're managing their plans and so forth. So, you're absolutely spot on, quality is a big part of that. But I guess in the commercial world right there's really nothing that's connecting quality to whatever that performance outcome is of the contract. I guess it's really up to the providers to build it in.

Hal Katz: yeah definitely.

Daniel Marino: Well, and I think it also puts the providers in an interesting predicament. Especially clinically integrated network or even an ACL that is really focused on engaging the population, reducing the cost even risk stratify in their population so they're helping some of these high risk patients are managing the rising risk population you can't just manage it around cost, you have to manage it around the quality outcomes.

Hal Katz: For sure

Daniel Marino: Incorporating that it is critical.

Hal Katz: It is, because they're so connected and the impact on the provider is going to be greater than the impact on the payer if quality measures aren't hit, especially as you get more into the full risk contracting model. Poor quality is going to result in higher costs in the end, and the provider is going to be impacted and that's going to come out of their pocket.

Daniel Marino: Right. Are you seeing that the quality measures that are claims based are the HEDIS (The Healthcare Effectiveness Data and Information Set) measures or are you seeing some of the quality measures being more clinical outcome measures, or is it a combination above?

Hal Katz: It depends on where the arrangement falls on the continuum of the value based contracting model. Is it value based lite where it's a traditional fee for service payment with a kicker based on some key performance measures being more. I can see that being actually a hybrid all the way out to more of the fully risk based contracting model, but they really do vary. I would say, most of the time it's heavy on the HEDIS side, though.

Daniel Marino: That's what that's what I've seen too, and I guess it kind of gets back to what we had talked about early on. The the payers are building these contracts around what they know and what they can manage right, and they have the claims data so they're they're building these around the heat measures because frankly that's the data that they have, I think it is really important for the providers to present their case that look, it's not all about how we're managing the claims, that's important, but it's really around how we're managing the clinical component of the of the patients and the clinical outcomes. I've often said the claims value, the claims data tells you what's going on, but it doesn't tell you why it's happening, the why comes from the clinical data, and if you can mirror the two you've got a great story to tell.

Hal Katz: For sure.

Daniel Marino: So Hal um let's talk a couple of minutes about some of these risk based contracts and you alluded to to this around around some of the data and so forth, some organizations, some clinically integrated networks, or a CEOs that become a little more mature are starting to assume some levels of downside risk and the the payers are definitely putting pressure on these organizations to assume some level of downside risk. But it's very scary for organizations. It's scary for the physicians because they don't want to have to write a check. It's scary for the CFO, because they're seeing shifts in utilization from inpatient/outpatient and trying to manage and cover the variable costs as well as the fixed costs and so forth. What are some of the elements, or some of the protections that you see that are important to include in a risk based contract or a downside contract, if you will? 

Hal Katz: The first thing is making sure that the group, let me say we're going to assume that the provider has run the financial modeling necessary to understand how this is going to impact the organization from a traditional fee-for-service payment arrangement to value-based. And in running that model they've identified how many members is the minimum number of members where it makes sense to have this value-based arrangement. Whether it's a good portion of their reimbursement being based on the quality measures or it's a bundled arrangement or it's a capitated arrangement. How many members is that? 500 members? Or is that 1000 members? So that the the value-based component that financial arrangement doesn't kick in until you have that minimum number of Members assigned to the provider and then there's also some protections we build in so that that if there's a change in that threshold, if it falls below that minimum number for two consecutive months it bumps back down to the traditional fee for service rate. That is one main protection.

Daniel Marino: That's a great point, because I'll tell you the modeling is critical, but understanding what you're contracting around I think is equally important, otherwise you're going into this a little bit blind.

Hal Katz: Definitely. The other important provision to include is how that reimbursement rate gets adjusted. Again, it depends on the kind of value-based arrangement being entered into, but if the risk loss or the acuity of this population is greater than what was expected, or there's an increase in the premium that the payers getting for this population that were responsible for. That increase passes through the value-based arrangements. It's a percentage increase in the PM or in the risk pool or the amount available for the incentive payment.

Daniel Marino: I agree, and so then being able to manage that, especially if there's changes in that premium becomes important. Where do you see stop loss provisions coming into play, where do you see risk reserves coming into play? Do these become part of the contracts? Are these protections that the providers can consider? Are they engaging in these discussions, in these contracts with the payers?

Hal Katz: There is. Almost always the health plan is going to drive the stop loss requirement or the stop loss coverage and they'll usually included in the agreement if the the providers taking on significant downside risk and then there's a negotiation of those terms, does the payer obtain it and charge the cost to the provider, does the provider, have the opportunity to get it themselves so long as it meets a minimum requirements? If it's not in the contract, but the providers aren't sure how they're going to do, financially, it is something good to explore on their part.

Daniel Marino: I would agree with you, but i'll tell you I'm a huge proponent of really modeling out the population and understanding what you're getting into and even running different scenarios right sensitivity analysis based on risk stratification of the population, changes of acuity, being able to understand what the different cost factors are. I think if you can model that going in, then you could represent that in the contract, but equally important than once the contract is signed, you then have a path that you can start to operationalize that will help you drive to that success of that contract. I think, without having those pieces it really leaves the provider very vulnerable.

Hal Katz: For sure. The last thing I'll say on the contract issues, is that any obligation that you are expecting or depending on the payer to perform, in order to be successful under this arrangement, really needs to be written into the agreement. You know, for example, if we're relying upon the payer to have good rates with a hospital, or have ambulatory surgery centers included in the model, or sufficient specialists of a certain specialty included in order for us to be able to manage the cost and the quality. Those kinds of provisions need to be written into the agreement because you can do the greatest job possible, but if you need that facility to admit your patients or you need physical therapists to do the follow up care and you're on the hook for the the outcome, including the costs, but those providers aren't available because they couldn't get good contracts with them, then this is not going to be a successful arrangement.

Daniel Marino: No that's a great point and that having that will blow up the whole contract. That'll blow up your whole ability to manage the care, not only the cost piece, but certainly the quality piece here you're absolutely right well Hal this was this was great I’ll tell you there's just so many things to consider as provider organizations start to enter into not just value-based contracts, but eventually move into these to these risk based contracts and it's a scary time for a lot of providers. Even the ones that I think i've had a lot of success in value-based care, they're still a little bit concerned. Any final thoughts, any pieces of advice you'd give to providers or maybe some of the health care leaders that are listening in?

Hal Katz: I think we're moving to value-based. When we get there, to the point where it represents a substantial part of any provider's line of business, that's TBD. Is it five years from now? 10 years from now? We don't know. But I think that there's still work that providers can be doing to prepare themselves, understanding their organization, understanding their costs, understanding their quality levels, and then as soon as that first step, the next step would be to explore some value-based lite kind of opportunities with the payers to experiment, a little bit into work on building a better relationship a deeper relationship with the payer so when the market starts moving more toward these value-based arrangements, the providers will be prepared.

Daniel Marino:  That's a great point and I'll tell you building the relationship in my mind is so key because if you're going to be successful, you need to have that collaboration. I couldn't agree with you more. Hal, this was fantastic. I really appreciate your time and your insights provided to our listeners. If any of our listeners want to get a hold of you directly, you want to share your email and your contact information?

Hal Katz: Absolutely. First you can find me on Linkedin and I am very responsive on Linkedin. I'm Hal Katz, at Husch Blackwell. My email address is halkatz@huschblackwell.com. If you don't find me on Linkedin you'll find my website and my phone number. Give me a call. I'd be happy to talk to you.

Daniel Marino: Great well thanks again Hal, really appreciate your time and we'd love to have you back sometime down the road to share additional insights.

Hal Katz: Dan I appreciate the invitation, and I would love to do this again sometime.

Daniel Marino: Well, to our listeners Hal brought up some great points today and as we've talked about many, many times moving into value-based care is inevitable. It really comes down to preparing the providers and understanding what you're getting into. As Hal mentioned, making sure that the contract clearly represents where you are and where you want to go. And then having that right level of protection, but still being able to collaborate, at the same respect, will really drive the success. So, again, thanks to Hal for a wonderful discussion today until next time, I'm Daniel Marino everyone have a great day appreciate you listening. Thank you very much.

About Value-Based Care Insights Podcast

Value-Based Care Insights is a podcast that explores how to optimize the performance of programs to meet the demands of an increasingly value-based care payment environment. Hosted by Daniel J. Marino, the VBCI podcast highlights recognized experts in the field and within Lumina Health Partners.