7 tips for successful value-based care contracts


Clear contracts with payers are critical as physicians enter into value-based care arrangements. During a recent webinar presented by the American Bar Association, legal experts provided guidance on how doctors can successfully draft pay-for-performance contracts and prevent disputes with payers.

1. Clearly define terms

Contract terms and definitions should be clearly outlined and understood by both parties before value-based agreements are signed, said Melissa J. Hulke, a director in the Berkeley Research Group, LLC health analytics practice.

Melissa Hulke

Melissa Hulke

It may sound simple, but Ms. Hulke said she often sees contracts with ambiguous terms or contracts in which important clauses are omitted. For example, some contracts leave questions about what is included in a bundled payment. If unclear, one party may later argue that a particular service should be carved out, while the other party argues that the service should be included, Ms. Hulke said. Ensure that carve-out services or procedures are well defined within the contract, she stressed.

“Contract terms become central to resolving differences, so it’s important the contract is well defined, especially when moving away from fee for service,” she said. “These are more complex arrangements.”

Another area that needs thorough definition surrounds referral volume. Contracts can include the phrases, “predominately refer” or “primarily refer,” without defining the meaning of “predominately” or “primarily,” Ms. Hulke said.

“If that’s not defined in the contract, it’s hard to establish a benchmark to not only project the provider’s performance under the arrangement and how much revenue they can expect to receive, but it’s hard to know if you’re meeting that benchmark, as well,” she said. “I strongly encourage that if [a term states] “primarily, predominately, [or] mostly refer,” that you have a specific percentage benchmark included. That will help to avoid any disagreement later on.”

2. Review payment calculations

Ensure that payment formulas are examined and agreed upon.

Denise Hanna

Denise Hanna

Business teams on both sides of the deal should review the contract terms and understand the formulas well before contracts are completed, said Denise E. Hanna, a Washington health law attorney. Include examples of different scenarios within the contract regarding what will happen if quality metrics are reached or not, Ms. Hanna said.

“I think that should be baked into the contracts of today because they are so complex and there is so much money at stake,” she said. “Walk through that compensation exhibit, walk through the examples of what’s supposed to happen.

If not in agreement with calculations, talk to the payer’s financial personnel about how the numbers were reached and try to resolve any differences.

3. Monitor results

Actively monitor projected-to-actual financial performance under the contract. If performance is not being monitored and results are not being tested, it’s impossible to tell whether the contract is succeeding or failing, Ms. Hulke said.

It’s a good idea to monitor projected-to-actual financial performance monthly or at least quarterly, she advised.

“Tracking budget to actual performance and investigating successes and failures are important if the contracts are material to the provider’s business,” Ms. Hulke said.

4. Institute time frames for government methodologies

Be specific about when contracts are linked to Medicare reimbursement methodologies.

If commercial payers are tying payment rates to government programs, which often occurs, contracts should include whether the reimbursement is based on Medicare rates and methodologies as of a particular date and time, according to Ms. Hulke. For instance, the contract could specify that rates are tied to Medicare methodologies at the time the contract was executed. Alternatively, contracts could allow the physician payment rate to fluctuate depending on changes the government makes to Medicare rates and methodologies during the span of the contract.

“If this is not defined, when Medicare makes a change, the parties may have differing opinions on the appropriate rate of reimbursement that’s being paid,” she said.

5. Structure around state and federal laws

Conduct a regulatory analysis before inking any value based payment arrangement/transaction, and structure and document around potential legal constraints, Ms. Hanna said.

Know the laws in your state, she advised. Some states have requirements for provider incentive programs, while others may have rules for provider organizations or intermediaries that assume certain financial risk. When working with federal health care payers, review the Stark Law and Anti-Kickback regulations and ensure that if triggered by the arrangement, the venture falls within an exception of the statutes. Other legal considerations when drafting contracts include:

• HIPAA and state privacy laws.

• Antitrust laws.

• Telemedicine and telehealth laws.

• Medicare Advantage benefit guidelines for programs designed for specific Medicare Advantage populations.

• Scope of practice laws applicable to mid-level medical providers.


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