The Rise of Value-based Contracts in Healthcare: Why More Provider Organizations are Opting for Them Outside of Medicare

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The Rise of Value-based Contracts in Healthcare: Why More Provider Organizations are Opting for Them Outside of Medicare

In recent years, value-based contracts have gained significant traction in the healthcare industry.

These contracts have proven to be a viable alternative to the traditional fee-for-service model that has dominated the healthcare landscape for decades.

While initially introduced in Medicare, they have now found their way into commercial payer plans and even government contracts.

In this article, we’ll explore why provider organizations are increasingly leaning towards value-based contracts, and why many are opting for them outside of Medicare.

Financial Incentives:

The fee-for-service model typically rewards healthcare providers for the number of treatments or services they provide, instead of the quality of care delivered.

This can lead to unnecessary procedures and tests that result in exorbitant costs for patients and payers.

On the other hand, value-based contracts offer financial incentives for healthcare providers to deliver high-quality care and positive health outcomes.

As a result, healthcare providers can focus on preventive care, reducing costs, and improving patient outcomes, leading to long-term financial benefits.

Quality of Care:

The implementation of value-based contracts outside of Medicare is driving increased focus and attention on patient care and outcomes.

For instance, private insurers adopt value-based contracting for effective quality assurance, improvement, and patient health outcomes.

Patients are at the center of a value-based model, and as such, Healthcare providers strive to improve patient outcomes and outcomes measurement.

This has culminated in improved patient experience, better healthcare outcomes, and reduced instances of healthcare-related injuries.

Customization and Flexibility:

Healthcare providers want to create care approaches that cater to the specific needs of their patients.

By using value-based contracts outside of Medicare, there is more flexibility to design alternative payment models that meet the provincial and local health targets.

Payers can also work with providers and redesign value-based contracts to generate high-quality care.

As a result, providers can tailor a process that generates optimal results, streamlined costs, better preventive measures, and improved patient satisfaction metrics.

Risk Management:

Value-based contracts come with a degree of risk for providers.

In the traditional fee-for-service model, fees are set, and providers are assured of payment, regardless of the outcomes.

However, the value-based model is performance-based, with payments tied to patient outcomes.

This provides enhanced risk management as providers become more proactive and take on responsibility for patient outcomes through pre-determined alignment mechanisms.

Besides, value-based contracts outside of Medicare allow providers to negotiate the risk arrangements and align risk-sharing arrangements that align with their goals, strategies, and organizational culture.

Population Health Management:

Value-based contracts are driving an increased focus on population health management (PHM) for many healthcare providers.

By utilizing predictive modeling and other advanced tools, providers can identify high-risk patients earlier and take proactive measures to prevent costly chronic diseases from developing.

PHM provides an avenue for hospitals to manage populations cost-effectively, provide adequate access to care, and improve overall outcomes for the communities they serve.


Value-based contracts have revolutionized the healthcare industry and have become a popular alternative to traditional fee-for-service models, especially outside of Medicare.

Given the increasing focus on ensuring high-quality care, patient outcomes, and cost-effectiveness, value-based contracts provide an attractive option for healthcare providers.

Moreover, they provide an enhanced ability to design care processes that are tailored to patients’ specific needs, customization options, risk management, population health management, as well as performance-based incentives that benefit both healthcare providers and patients.

Overall, the transition toward value-based care contracts is a positive step as it places the focus of healthcare delivery on achieving improved patient outcomes.

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