By understanding the top 5 most common pitfalls in value-based contracting, providers and payers can effectively navigate the complexities of value-based contracting (VBC). In this blog by Senior Solutions Advisor, Ernie Valente, he’ll go over the top 5 pitfalls including risk adjustment, accidental and cost-outlier cases, and more. 

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Pitfall #1 - Inadequate Risk Adjustment Strategies

Savings are evaluated by comparing costs before and after program initiation. A significant percentage of health plan members change each year, causing big shifts in risk profiles. This is especially true for smaller VBC programs. To keep things fair, solid risk adjustment measures are crucial. This way, providers get rewarded for real improvements, not just random risk changes.

Pro tip: Appropriate risk adjustment can level the playing field for the provider, ensuring the payer is paying for real change, not risk fluctuations.

Pitfall #2 - Oversight of Accidental and Cost-Outlier Cases

Many VBC programs lack strategies that consider costs from accidents or severe illnesses. These cases can mess up your cost expectations. When setting up a VBC program, be realistic about what the program can handle and exclude extreme cases if necessary.

Pro tip: The contract should align with realistic expectations for program impact on unusual cases, and these cases should be excluded if no significant impact is anticipated.

Pitfall #3 - Impact of Unit Price Changes

Monitor unit price changes year over year, as they can inflate your costs. Prices often go up due to negotiations, and VBC providers have little control over this. But adjustments should be made to keep things fair as unit price changes in VBC programs. 

Pro tip: Unit price changes over time should be adjusted to ensure fairness for VBC providers.

Pitfall #4 - Adverse Selection Risks

Be cautious of adverse selection in VBC programs which can skew risk assessments. Participants often self-select, leading to higher risks for some groups. For instance, people from emergency departments might have worse health than those from wellness centers and bring higher risks with them. Understanding and adjusting for these selection biases is critical.

Pro tip: Adverse selection should be evaluated against program design, and payment models may need adjustment to address this issue effectively.

Pitfall #5 - Complex Exclusion and Inclusion Criteria

When evaluating a VBC program, consider factors like population characteristics and legal requirements. This includes age, certain diagnoses, and other participation criteria. Proper exclusions ensure the program targets those who will benefit most. This ensures fairness and mitigates potential risks and challenges, leading to the successful implementation of the VBC program.

Pro tip: Evaluation of the VBC program should include: population characteristics, legal requirements, and program-specific factors influencing the payment model and contract.

The Bottom Line

Accorded Acumen empowers organizations to perform scalable actuarial and med econ analytics in-house, reducing the need for traditional vendors and external consultants. 

Benefits

• Enter into value-based care contracts confidently with the right insights, at the right time
• Free engineering teams from building VBC analytics tools, allowing them to focus on core business products
• Increase the productivity and satisfaction of actuarial and analytics teams through automation
• Align teams with the latest actuarial insights in one place to optimize efficiency

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