Contract terms more nuanced

June 1, 2013

ACOs, bundled payment, shared savings require new capabilities and new culture

 

Market dynamics will drive future contracting trends. However, certain strategic capabilities are lacking for payers and providers, according to industry experts.

“If you’re in a market that hasn’t done any risk sharing or if you’re in a market where your competitors aren’t doing certain things, there’s more of a wait and see attitude,” says Mike Meyer, president of Meyer Consulting. “If your competitors are doing things, you feel pressured to respond.”

More than half of respondents to the company’s recent survey of contracting executives said they are actively participating in accountable care organizations (ACOs). The average number of members in in their ACOs is 46,900, and the average number of years of participation is 2.1.

Meyer also says the managers working on new contract arrangements need different skills than in past. Negotiations between payers and providers today might include consideration for risk management or technology support, for example, rather than just bickering over payment rates.

In fact, payers are looking for provider leaders to recruit for their contracting teams and vice versa.

If a large percentage of ACOs fail to meet expectations, the reason will center more on execution rather than the ACO concept itself, Meyer says. The practice of medicine is changing quickly, and ACOs and other up-and-coming contract arrangements must be able to keep up with new trends in care delivery such as personalized medicine, for example.

“It’s not just market specific; it’s entity specific,” says Aran Ron, MD, physician partner for Meyer Consulting.

Some payers lack the infrastructure for innovation, he says. Specifically, they will increasingly need to be able to provide subcapitated arrangements and support providers with timely information to help them manage risk.

Provider solutions

“Providers are waking up and being part of the solution rather than just being on the complaining side of the debate,” says Cynthia Ambres, principal in the advisory practice of KPMG as a partner in their Global Healthcare Center of Excellence. “For many years, you heard from physicians who just didn’t like the reimbursement.”

Ambres says bundled payment will drive more providers into taking responsibility for patient outcomes and the cost of care. And at the same time, providers need to be the ones managing care and communicating back to the payers what is appropriate for patients, including treatment and actual costs.

“These are big changes in the culture of care in the United States and that’s why we are struggling so much,” she says. “These are changes in physician behavior, how insurers pay, how providers accept payment and how they distribute it.”

Contract terms will likely stretch across multiple years to allow for investment and improvement. Especially in shared savings arrangements, savings will take time. Likewise, payers will want more information on just what it is they’re paying for.

“It’s no longer just about numbers,” Ambres says. “How can we change the way payments are made and move out to three year contracts that are longer and establish a commitment between the payer and provider that was not there before?”

In some cases, the negotiations might be continuous to figure out what works.

Over the next few years, payers must make a bridge for providers a they move from higher revenue to higher margin. She says that will be a precedent moving forward. Providers’ revenue is going to decrease under many innovative contract arrangements, and “that’s not a conversation they like to have,” Ambres says.