Outcomes Based Contracting - A New Purchasing Paradigm
In my former role as Director of Benefits for a Fortune 500 company for 25 years, the traditional model of purchasing health care related services often frustrated me. In the past, most payment models were based on widgets of service. In the case of medical providers, the payment was based on the number of services performed; for consultants, it was on the number of hours consumed. Brokers got a percentage of the total premium paid to the health plans or third party administrators, and the disease management and health promotion entities were paid on a fixed per member per month basis. None of these reimbursement models actually paid the entities on the outcomes they delivered. They were guaranteed their piece of the pie, no matter what happened to the patient and their quality of health.
This traditional model is undergoing a very dynamic shift that will significantly change how services are purchased from medical professionals, consultants, brokers, and health promotion and disease management entities. Many purchasers are getting smarter and more demanding. They are applying well-known and proven purchasing disciplines to other aspects of their business, which is linking the reimbursement of services to measurable performance and quality metrics. They don’t reimburse suppliers for defective products that don’t meet pre-determined quality or performance metrics. A similar concept is taking hold in the health care space known as "Outcomes Based Contracting," originated by Cyndy Nayer, who has published the concept through the Center for Health Value Innovation. In an Outcomes Based Contract, reimbursement for services is partially or totally dependent on the parties achieving agreed upon outcomes. Outcomes can be transitional, such as improved engagement or more people participating in the program, or goal-oriented, such as achieving a level of hypertension control or using appropriate services.
For instance, health promotion and disease management partners’ revenue would be based on getting the population to achieve agreed upon health outcomes, instead of a guaranteed fixed revenue of so much per member per month. For medical professionals, instead of paying for every widget of service, including complications from poor quality care (preventable infections, errors, etc.), payment would be based on a total episode, where the risk and cost of poor quality care becomes the medical professionals' responsibility. The same is true of the consultants and brokers, instead of them getting guaranteed revenue up front, their revenue would be based on how well they delivered what was promised. In the broker world, this will become a very important development, as they will no longer receive the same level of reimbursement from the health plans with the Affordable Care Act, and they will need to negotiate their reimbursement directly with plan sponsors.
I tried implementing an “outcomes based contracting” model in my company, and was met with fierce resistance from our health plans and consultants. We moved ahead anyway and experienced success, but not without some miscalculations along the way. Having strategic partners that have had experience with outcomes based contracting and have developed tools like OHM would have moved the process forward much quicker, and saved the investment of significant resources.
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