The Impact of Value-Based Contracts on Independent Practices

In an effort to improve quality and contain costs, payers are moving away from fee-for-service contracts in favor of a value-based system, incentivizing physicians for cost containment and quality of care rather than volume. Aetna, a Fortune 50 commercial payer, along with other partner organizations, predicts that by 2020, as much as 75 percent of its business will be in value-based arrangements.

Likewise, CMS unveiled a plan to shift $362 billion of its non-managed-care budget to accountable care, bundled payments, and other payments that may offer rewards or institute penalties based on performance and cost savings.

With this shift, independent providers in small practices who employ limited staff support for payer negotiations are often ill-equipped to successfully broker value-based contracts. Other prohibitive factors include limited patient populations, which mitigate the ability of independent practitioners to spread risk, and IT and EHR systems which lack the sophistication to measure performance at the granular level required under value-based contracts.

As a result, the shift to value-based contracting has served as the catalyst for many independent practitioners to align with clinically integrated organizations (CIO), which place a premium on quality measurement and cost containment.

A CIO is a type of physician group contracting, which is based upon the development of a robust quality improvement program with accountability among independent physicians and hospitals or health systems. It rewards and integrates physician members around a common commitment to quality measures based on scientific evidence and cost improvement.

Alignment through a CIO with other physicians and healthcare organizations allows small practices to effectively manage many of the challenges faced negotiating value-based contracts independently. For one, alignment means risk is shared across a larger and more medically diverse patient population.

Membership in a CIO in a healthcare market like Phoenix also offers the added benefit of protecting the independence of participating providers. While other large health systems pursue growth through aggressive physician-employment strategies, CIOs offer providers the benefits of an integrated contracting environment while safeguarding their business autonomy.

Additionally, and perhaps most importantly, CIOs are often led and governed by the organization’s physician members, who are charged with establishing quality benchmarks and clinical processes aimed at improving care and containing costs. With the right hospital and health system partners providing the financial and operational bandwidth and contracting support, clinical care decisions remain where they belong: In the hands of patients and their doctors.

For their part, physicians who align with CIOs are entirely accountable for the care they provide and must report, share, and benchmark their quality data with the network. With that in mind, it’s vital for physicians looking to join a clinically integrated network to select one whose initiatives and benchmarks align with their personal goals for providing care.

Fortified by the participation of a large number of physicians and mature health systems focused on improving care and managing costs, CIOs are equally appealing to payers actively developing value-based contracts. As CIOs gain popularity across the country, more payers and large employers are seeking alignment with clinically integrated networks to curb costs and offer more competitive, complete health coverage.

Phoenix Children’s Care Network (PCCN) is a CIO whose early quality and cost-savings results are promising. It represents an alignment among community pediatricians, pediatric specialists, and Phoenix Children’s Hospital and its numerous satellite clinics, all focused on the delivery of high-quality, coordinated, cost-effective pediatric care. PCCN membership includes more than half of all pediatricians and 80 percent of pediatric specialists in the Phoenix metropolitan area.

Early indicators show PCCN’s efforts to improve care and control costs are working. From October to December in 2014, Phoenix Children’s Care Network providers decreased the cost of care for the 50,000 patients it serves under Mercy Care, a not-for-profit health plan for Arizona’s Medicaid population. The care PCCN provided to these patients exceeded state quality standards in the following measures:

• Ensured babies under 15 months of age were seen at specific milestones

• Children 3 to 6 years of age received their well exams and preventive services on time

• The number of young adults 12 to 21 years of age attending their annual wellness visits increased, ensuring they enter adulthood healthy and with proper care

PCCN's success has come through facilitation of improved communication among participants and utilizing evidence-based clinical care guidelines developed by physicians. Participating providers and hospitals realize financial incentives for the delivery of high-quality, cost-effective care.

Chad Johnson is senior vice president of Phoenix Children’s Care Network. Mr. Johnson formerly served as the Chief Executive Officer at Children’s Health Network in Minneapolis, Minnesota.