Revenue Cycle Management (RCM)

Basics of Value Based Contract (VBC)

Defining Value-Based Contract (VBC)

A value-based contract (VBC) is a written contractual arrangement between parties in which the payment for health care goods and services is tied to predetermined, mutually agreed upon terms that are based on clinical circumstances, patient outcomes, and other specified measures of the appropriateness and effectiveness of the services rendered. In a value-based contract, payment is not dependent on the number of services rendered, it is instead influenced or determined by the value of care delivered to a population or specified group of patients. A value-based contract will reduce cost by eliminating inappropriate and unnecessary use of services.  Examples of VBCs are: Hospital and/or physician pay-for-performance contracts; Hospital and/or physician shared savings contracts; Bundled pricing models; Capitation or global budget contracts; and Private-label health plans with a private payer. 

Basics of Value-Based Contract (VBC)

A value-based contract can be any payment arrangement between buyers and sellers of health care services that have the following characteristics:

  • Identifies a set of outcomes, mutually recognized by payers and providers, that reflect the clinical or economic benefits expected from health care goods or services in therapy for a specific condition in a specific population.
  • Defines the measurement of specific clinical outcomes in real-world populations to include the specification of reference data sources, protocols, and processes used and the outcome thresholds that represent ‘good’ and ‘poor’ outcomes.
  • Specifies a formula that determines the net price to be reimbursed for goods and services rendered. The payment of the net price is contingent upon the achievement of specified measured outcomes. The mechanism of implementation also is specified, usually as a rebate. The contract terms also delineate auditing and adjudication processes acceptable to both parties.

Once a contract price is negotiated, the buyer of the health services whether private insurance payer or government payer incentivizes patients and physicians to allocate care to those individuals for whom it is expected to be most beneficial and cost-effective. Many of the health care goods and services subject to a VBC are subject to an evidence-based treatment protocol that documents a relationship between the impact on patient outcomes and certain patient characteristics. With protocols in place, payers, as the buyer of the specified goods and services, incentivize patients and their physicians to provide treatment according to the protocol.

Importance of Value-Based Care

Spend less on healthcare: In value-based healthcare systems, healthcare providers concentrate more on providing preventative care which is less costly when compared with the treatments for a chronic condition like diabetes, hypertension, or obesity. Also, the physicians and other healthcare providers focus more on the treatment methods which help patients to quickly recover from their illnesses and injuries more effectively. In this healthcare model, patients will have only fewer doctor’s visits, medical treatments, and medical procedures. This ultimately reduces its healthcare spending while improving its health conditions.

More patient satisfaction: In a value-based care model, patient satisfaction is the key to achieve a successful healthcare process. Unlike the fee for the service healthcare system, in the value-based care model, the physicians focus only on the necessary tests and treatments for patients rather than taking a lot of unnecessary tests with the money motive. So, with value-based care, patients feel very satisfied with their treatments.

More coordinated care: In a traditional healthcare model, healthcare providers don’t generally have the capacity or motivating force to work with different suppliers to give effective care for their patients. In a value-based healthcare system, there are incentives and improved technologies that enable providers to coordinate care. The integration produced by collaborative care creates better outcomes for patients because all of their healthcare providers work together to improve overall health.

Reduced risk for payers: The value-based healthcare system benefits patients, healthcare providers, and also payers. Value-based care lowers costs across the board, meaning that insurance companies have to pay out less money for the services their subscribers use. When insurance companies have lower costs, they are less likely to raise premiums and deductibles. Value-based payment also allows payers to increase efficiency by bundling payments that cover the patient’s full care cycle, or for chronic conditions, covering periods of a year or more.

We hope that this article has given you an understanding of the basics of value-based contract (VBC) and the importance of value-based care. MedicalBillersandCoders (MBC) is a leading provider of medical billing and coding services. Our billing and coding expertise over various medical specialties ensures quick and accurate insurance reimbursements. To get the latest updates on medical billing and coding, subscribe to our newsletter or visit our latest blog section.

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