Editor’s Note: The United States is undergoing a transformative shift in how we pay for healthcare, moving from fee-for-service models to accountability-based models. In a recent article published in the March issue of Executive Insight, summarized below, Manatt Health defines the key terms used in contracts implementing accountability-based models—and reveals how they can impact the value proposition of these arrangements for both plans and providers. Click here to read the full article

Value-Based Contracting Models

Any model that compensates providers based on factors other than simply the volume of services provided can be categorized as value-based contracting. Contracting models employing bonuses/withholds or shared savings retain many of the features of a fee-for-service arrangement but with a value-based purchasing overlay. Providers receive most, if not all, of their standard fee-for-service payments for a given service. At the end of the year, the plan assesses whether a provider is eligible for bonuses, a repayment of the portion of fees withheld, or shared savings based on utilization, quality, or some combination.

In contrast, contracting models using global budgets represent a significant departure from fee-for-service arrangements. Providers may continue to receive a portion of their fee-for-service payments, but nearly all of their total compensation is based on patient utilization and quality scores.

Key Terms in Value-Based Contracts

Value-based contracts feature key terms that may dramatically impact the value proposition of the arrangement yet be unfamiliar to plans and providers, including:

  1. Expenditure benchmarks

When negotiating the approach for calculating the expenditure benchmark, plans and providers must agree on:

  • Their approach to risk adjusting the benchmark to account for the acuity of the patient population attributed to the provider.
  • The frequency with which the benchmark will be adjusted in case of changes in the overall health of the patient population.
  • For multiyear contracts, the trend factor for the expenditure.
  • If and when the benchmark will be reset. (Providers prefer benchmarks based on spending levels prior to the value-based payment arrangement. Plans, in contrast, prefer that benchmarks be reset to reflect spending levels while the value-based contract is in place.)
  1. Patient attribution

Patients can be attributed to providers on either a prospective or retrospective basis. Providers generally prefer that patients be attributed to them at the beginning of the year, so they can target coordination and outreach efforts. Conversely, plans prefer that patients be attributed at the end of the year, so providers are encouraged to improve quality and reduce costs.

Parties must also agree on how to attribute patients. For example, patients can be attributed based on a primary care provider selected by the patient or plan, or on where the individual received specified services.

  1. Quality metrics

Quality metrics take on increased importance in value-based contracts, as payment is tied to performance. The parties must agree on the metrics and their associated performance targets, as well as on who will be responsible for data collection. Providers prefer metrics that assess activities that they perform, while plans prefer those tied to enrollees’ health outcomes.


Each contract negotiating process will differ. The key to success across the board, however, is ensuring that both parties understand fully the impact of various contracting terms on the arrangement’s overall value.