Resources

Resources

Hear from NextGen's expert advisors with insights and advice on the evolving COVID-19 pandemic and beyond.

Read Blog

The financial and clinical challenges you face now are evolving rapidly. Here are resources, solutions, and ideas we think will help.

Read Now

NextGen Advisors

How to Manage Risk in Value-Based Contracts 

By Dr. Martin Lustick

Subscribe to receive email updates as new information becomes available.   Subscribe now

Blog Home    How to Manage Risk in Value-Based Contracts 
Showing of results

In his June 8th blog, Chris Emper alluded to provider survey results that revealed a significant level of concern regarding downside risk in their ACO agreements. He explained CMS’s response that assured participants they would not be financially harmed by the pandemic. As providers turn their attention to commercial contracts, they would be well advised to pursue opportunities to manage risk during these particularly uncertain times. Following are some approaches to consider.

Review Your Contracts
If there is not already a “force majeure” clause in your contract, that might be the first thing to consider. A force majeure clause is a “contractual provision which excuses one or both parties’ performance obligations when circumstances arise which are beyond the parties’ control and make performance of the contract impractical or impossible.”1 While potentially helpful these clauses are no guarantee as the precise language is unique to each contract and they offer varying degrees of enforceability across states.2

A related issue is to ensure that there is a clear process for dispute resolution. While it’s important to have precise language in the contract regarding details of the financial terms and quality measures, it is likely that situations arise where the parties either interpret the language differently or particular circumstances are not anticipated in the contract. In that case, a sound dispute resolution process can go a long way toward helping manage risk and build trust.

Narrow Your Risk
Narrowing your risk corridor is a straightforward, but blunt force approach to mitigate risk. This would involve a symmetric reduction to both your upside opportunity and downside exposure within a given contract. Another option would be to lower your threshold for stop loss.  While that protects you from an unexpected rise in high cost claimants, it also lowers your upside potential to the extent that there may be significant cost savings opportunities among high cost claimants.  

A more targeted approach to the same issue would be to exclude certain categories of costs that you have the least control over.  For example, if your group has no OB/GYN or neonatology, your ability to manage high risk newborns would be very limited. In that case, it would be wise to exclude in-hospital newborn care from your budget.   

Reassess Quality Clause
In contrast to anticipating and excluding targeted areas, you might also consider a couple of more indirect ways to lower risk. One is to reassess the quality clause in your contracts. Even though it is typical for quality measures to be clearly specified in the contract, it may be worth reviewing what is measured, how the targets are set, and whether quality is just a gateway measure or if it is more directly tied to your upside and downside risk.  Depending on your organization’s strengths and strategy, there may be an ability to both reduce risk and increase opportunity in this arena. 

Reexamine Attribution 
A final aspect of the contract you may want to reexamine is its attribution specifications. You should get credit for all of your patients for whom you’re driving value, and not penalized for patients over whom you have no control. The method, timing, validation, and adjustments to your attribution should all align with those goals.

As the federal government has demonstrated a commitment to value-based care, so too must commercial insurers. In order to ensure those commercial strategies are sustainable, providers will need to be vigilant and apply adequate time and resources to keep each contract aligned with their strategy.

1,2.https://www.akerman.com/en/perspectives/the-coronavirus-and-force-majeure-clauses-in-contracts.html


Dr. Martin Lustick

Senior Vice President, NextGen® Advisors

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care…

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care.

Dr. Lustick earned a BA in History from Cornell and an MD from Columbia. After completing his pediatric residency at Children’s Hospital National Medical Center in Washington, DC, he was in clinical practice for 17 years with Kaiser Permanente of the Mid-Atlantic States. While there, Dr. Lustick held various management and leadership roles, including chief operating officer for the 800-physician medical group. He oversaw development of their hospitalist program, population health capability, and open access delivery model.

Dr. Lustick then served as chief medical officer for ThompsonHealth—a small health system in Canandaigua, NY—where he provided clinical oversight for hospital, SNF, nursing home, IT, and out-patient physician practices.

In 2005, Dr. Lustick assumed the role of SVP & CMO for Excellus BCBS which covers 1.6 million lives comprised of Medicare, Commercial, and Medicaid. In his 13+ year tenure there he led a variety of strategic initiatives, including a patient-centered medical home program which served as the foundation for the plan’s value-based payment strategy. He also led the implementation of an automated authorization program for care management services, development of a clinical quality improvement strategy, and creation of innovative programs in management of low back pain, screening and prevention, opioid addiction, and chronic disease management.

Dr. Lustick has also been very active in the community, serving on boards and committees confronting issues such as: healthcare capacity planning, Health Information Exchange, mental health, substance use disorders, social determinants of health, and childhood obesity.

Learn More

Get in touch with Dr. Martin Lustick

The financial and clinical challenges you face now are evolving rapidly. Here are resources, solutions, and ideas we think will help.

Read Now

Follow us