5 contracting keys for success in an alternative payment model

Physician practices across the country are weighing a variety of payment models presented by commercial payers. If you’re trying to determine whether these models, which are meant to improve patient care while lowering overall costs, will work for your practice and patients in the long run, don’t miss these key factors.

To help practices make the most informed decision, the AMA is offering two new resources as part of its Professional Satisfaction and Practice Sustainability initiative to help physician practices thrive in the new health care environment. These resources cover essential information about two types of contracts that many commercial payers and physicians are entering into: pay-for-performance (log in) and bundled (or episode-based) payments. 

In pay-for-performance, a payer evaluates physician performance on defined metrics and compensates accordingly—such as through a bonus on top of fee-for-service payments if the physician has hit defined targets. Such a bonus is typically paid out on a quarterly or annual basis.

The bundled or episode-based model entails a single payment from the payer that covers services delivered by multiple physicians during a single episode of care or over a specific period of time. The various physicians may be able to share in any savings if care is provided for less than the total payment and quality metrics are met.

More detailed definitions of the two payment models are provided in the AMA’s resources, as well as explanations of some of the key contract provisions for each. Among these provisions are ones that define the term of the agreement and patients involved, as well as ones that set up how physicians will engage with payers, be evaluated and get paid.

Here are five key elements of contracts that you need to understand as you consider your options:

• Term of agreement: Three- or five-year terms are common in pay-for-performance and bundled payment contracts. The term may not be negotiable because payers tend to create models based on specific timeframes. It may be wise to focus more on how the contract governs termination and post-termination obligations—in this way, you can ensure the possibility of an exit before the term is over if the arrangement is not working out.
• Patient assignment: Frequently, this aspect of a contract is a focal point of physician-payer negotiations. Either party’s risk can increase or decrease depending on how the patient population included in the model is defined. You should ensure that the contract  includes specific health factors, such as body mass index, as baselines for patient assignment. Other aspects to consider include whether a patient will be assigned to an individual physician or group practice, and how costs will be reconciled if a patient receives emergency or elective care from someone else.
• Access to timely data: Access to meaningful performance data in a timely fashion  is crucial to being able to gauge a program’s ongoing success. Real-time access to a data portal may be available, but if not, alternative ways to access data should be available. Contracts also should clearly spell out physicians’ obligations for data reporting to ensure a robust feedback loop.
• Evaluation: While ongoing data access will allow your practice to keep tabs on performance, the contract also should include a performance determination calculation. This calculation may include variables spelled out in other contract provisions, such as those related to patient assignment, performance period and risk adjustment. Risk adjustment is important, or else patients who are outliers could negatively affect performance.
• Payment: Among the terms to be considered here are the timeframe for payment and reconciliation—such as within 30 days of the end of each performance period—and processes for appeal. A shorter payment and reconciliation timeframe may be better for cash flow but less accurate than a longer one. Deductions for case management or administrative fees also should be considered. The contract also should specify the appeals process, in the event your practice contests a payer’s decisions related to performance, payment and reconciliation. At a minimum, this should be a reference to the plan’s pay-for-performance appeals process.

These elements apply broadly both to pay-for-performance and bundled or episode-based contracts, but the resources for each type of model also specify certain provisions that are unique to each. For example, specifying the timelines for conferral of “gold standard” status for physicians in pay-for-performance or listing the specific CPT® codes of services included in an episode of care for episode-based models.

Alternative payment models are just one major change that physician practices are grappling with in this transformative era for U.S. health care. The AMA is committed to providing the resources to support and guide practices in making the right choices and achieving the best results.

Participating in one of these new payment models may not be right for every physician group, but by understanding the basic contract elements, it is possible to move forward with confidence, align these models with existing practice goals, and achieve stronger outcomes for patients while improving your practice’s sustainability.