Value-based Care Contracting 101

Value-based care (VBC) contracting lays the financial foundation for every VBC program. Unlike fee-for-service models, these contracts reward providers for quality, outcomes, and cost savings, aligning economic incentives with patient care.

 

However, fee-for-service contracts continue to be a challenge for VBC. The pandemic led to a drastic volume reduction, which impacted FFS contract revenue ($15B loss due to volume dips).

 

During the pandemic, organizations with value-based contracts were able to pivot operations to maintain revenue even when the volumes dropped. VBC payments will increase rapidly in the near future as hospitals and physician practices look to protect themselves against future downturns.

 

 

How to succeed at value-based contracting

Revcycle Intelligence (of Xtelligent Healthcare Media) shared an in-depth article highlighting how to succeed at value-based contracting. We’ve summarized the most important takeaways below, organized into what to focus on before, during, and after contract negotiations.

 

Prior to engaging in contract negotiations:

• • Don’t treat physician engagement as an afterthought. Dedicate meaningful clinical leadership—more than just a token 0.2 FTE—to rally providers around your VBC goals.

• • Build a strong referral network that can be managed tightly with hospitals and specialists.

• • Make a meaningful investment in changing FFS workflows to optimize patient care and care coordination. Tracking and accountability are key.

• • Build strong financial models to estimate the cost of managing the patient population you might get. Include both medical and administrative costs, and test your assumptions.

 

Heading into contract negotiations:

• • Promote your organization’s quality metrics. Do you have longer clinic hours compared to your neighboring groups? Do you have better STARS/HEDIS scores? Are you leading in patient satisfaction scores?
  • Build an experienced team to handle payor contract negotiations. Every contract is unique, and the fine print matters. Most importantly, understand how your payor will attribute patients.
  • Don’t overcommit to collecting and reporting data you can’t reliably deliver. Prepare your IT infrastructure well ahead of time.
  • Make sure your payors will be good partners in promoting your group and helping you grow your patient base.

 

What to watch after the negotiation

• • Growth is key because organizations need a panel of patients for contracts to work, and those patients cannot all be high-risk. 
  • Keep close tabs on provider satisfaction, physician growth, and employer satisfaction with the care delivered. 
  • Noticeable dips in quality performance may need a change and possibly another negotiation round. Identify shortfalls early and frequently communicate with your payor partners.
  • Success begets success with payor contracts. 

 

Final thoughts: VBC contracting isn’t just a financial exercise

 

VBC contracting is a strategic shift. Start with strong internal alignment, understand the data and dollars, and choose payor partners who see value the way you do. Success builds on itself, and a smart first contract can set the tone for sustainable growth.

 

What is value-based care contracting, and how does it work?

Value-based care (VBC) contracting is a payment model in which healthcare providers are reimbursed based on patient outcomes, quality metrics, and cost efficiency rather than the service volume. These contracts align incentives across payors and providers to deliver better care at lower costs. VBC contracts often include shared savings, capitation, or bundled payments, making financial performance dependent on the management of a population.

How does value-based care differ from fee-for-service models?

Value-based care differs from fee-for-service (FFS) in rewarding quality over quantity. In FFS models, providers are paid for each service delivered, which can incentivize volume. In contrast, VBC models pay providers based on how effectively they manage care, reduce hospitalizations, and improve patient outcomes. This distinction became even clearer during the pandemic—organizations with VBC contracts maintained financial stability despite volume drops, unlike those reliant on FFS. What should providers do before negotiating a value-based care contract? Before entering value-based care contract negotiations, providers should: Secure clinical leadership to engage physicians early Build a reliable referral network with hospitals and specialists Redesign fee-for-service workflows for care coordination Develop financial models to project both medical and administrative costs Prepare IT systems to support data tracking and reporting These steps set the foundation for success and help organizations avoid underperformance after contracts are signed.

Why is patient attribution important in value-based care negotiations?

Patient attribution determines which patients a provider is responsible for under a value-based contract. It directly affects financial outcomes and care responsibilities. Misalignment or unclear attribution can lead to inaccurate performance evaluations or missed opportunities for care interventions. Understanding how your payor assigns patients prospectively or retrospectively during contract negotiations is critical for managing risk and ensuring success.

How can providers avoid overcommitting on data collection and reporting?

To avoid overcommitting, providers should evaluate their current IT infrastructure and data capabilities before entering into VBC agreements. Only commit to metrics you can consistently track, validate, and report. Collaborate with clinical and administrative teams to assess what’s realistically achievable, and invest early in systems that support real-time data sharing and quality reporting. This prevents penalties and builds trust with payor partners.