Examining Value-Based Contracts in Medicaid

By Rahul Lakhanpal, MBA

After years of the government and healthcare companies focusing significant attention towards improving outcomes and lowering costs in Medicare, many organizations have now shifted their recent focus to Medicaid. With over 94 million members and over $730 billion in costs[1], the government, managed care organizations (MCOs), and new companies must focus on innovative strategies to lower costs and help the most vulnerable and underserved populations. 

Learning from Medicare cost containment strategies, cost reductions can come from pushing alternative payment models, chronic disease management, strong primary care, developing effective standardized quality measures, and shifting to home care. That being said, reducing costs is easier said than done, as Medicaid is very complicated. Patients are complex and many require increased care coordination due to chronic conditions, mental health issues, and a high prevalence of socioeconomic challenges. Since Medicaid is funded through the states, each state legislature develops its own internal strategies to make the process more efficient. Unfortunately, this often leads to inconsistencies in regard to quality measures and benchmarks. Also, providers will often deprioritize care for Medicaid patients as reimbursement rates lag behind Medicare and commercial rates.[2] By combining these macro trends with a complex patient-base, value-based payment (VBP) arrangements present a potential solution, but one which must be carefully evaluated before progressing.   

At SpectraMedix, I’ve had the chance to dive deep into VBP, reading and understanding over 300 unique contracts. These contracts range across all lines of business, including Medicare, Medicare Shared Savings Program (MSSP), commercial, and Medicaid contracts. These arrangements exist between health plans and multiple different provider organizations, which include large health systems, Accountable Care Organizations (ACOs), Federally Qualified Health Centers (FQHCs), and even single primary care physicians (PCPs). VBP in Medicaid is rapidly being adopted by health plans, and recent state legislation is pushing Medicaid-focused hospitals towards upside opportunities for certain quality and utilization measures. As Medicaid continues to push towards VBP, here are a few ways health plans can begin shifting providers towards risk to build trust and cultivate long-term success. 

Picking the Right Provider Groups for VBP Contracts

When it comes to picking appropriate providers to contract with, there are multiple facets to consider. Although larger ACOs may service many of a plan’s Medicaid members, these provider networks often tend to focus more on high-dollar, at-risk lines of business (Medicare Advantage [MA], MSSP, etc.). Similarly, many safety net hospitals remain relatively limited with VBP models and infrastructure, though this may soon change with a few Medicaid waiver alterations.[3] In lieu of these large ACOs, health plans should look to contract with smaller PCP practices, FQHCs, Community Health Centers (CHCs), and safety net hospitals. In rarer occasions, health plans can look to contract with behavioral health, multi-specialty, and telehealth providers, though those contracts will tend to be simpler and remain in Pay for Quality (P4Q). Medicaid-focused provider groups like Cityblock, Equality, and Diverge are now focusing on Medicaid populations and are more likely to take on risk. A big challenge is attribution of members, as well as providers, for Medicaid members. Having a tight-knit ecosystem will be valuable to addressing attribution challenges. 

Starting with the Right Contracts and Measures

Selecting the right provider group for Medicaid contracts is important, but developing contracts which look at the right measures is essential. For providers who are new to VBP, we recommend selecting between three to five P4Q measures to start with. Common Medicaid quality measures include Cervical Cancer Screening, Child and Adolescent Well-Care Visits, and Prenatal and Postpartum Care, among others. Ultimately, plans and providers will differ in terms of which quality measures make sense to them based on their respective geographic initiatives. For better or worse, initial Medicaid VBP contacts are not truly financial incentivization, but more a way for both parties to get comfortable with the idea of value-based arrangements and taking on risk. As health plans become more sophisticated with risk arrangements, they should create a list of “non-negotiables” to avoid in future VBP contracts. For example, many organizations use the “PADU” system (Preferred, Acceptable, Discouraged/Disfavored, and Unacceptable) on each of their contract measures to determine if a value-based contract is acceptable. 

Enabling, Tracking, and Incentivizing the Providers

When a health plan enters into a value-based contract, it’s their responsibility to equip their provider networks with a strong VBP infrastructure to ensure long-term success. These solutions should allow providers to understand their goals in financial terms and point them in the right direction on how they can improve. Having successful providers in VBP arrangements will ultimately lead to both more savings and more providers willing to take on risk in the future. Health plans must commit to investing in tools for providers, as they must align incentives with PCPs to ensure buy-in. Given Medicaid arrangements are often less complicated than Medicare or commercial arrangements, simple solutions with clear actionable insights are key. These solutions should evaluate the contract at a holistic level and help provider networks to understand the best actions to take to ensure contractual success. To ensure optimal provider performance, health plans can best support providers with a clear transparency on how quality and/or utilization performance has translated into earned and unearned payouts. These analytics tools should focus on Medicaid provider needs and handle necessities like multiple member attribution, roster and member management, utilization analytics, and rewarding providers for taking on sicker patients.
It’s important to remember as a health plan that if you supply providers with analytics tools, you need to make sure they’re comfortable using them. Providers must have marketing materials and recordings on how to utilize the product before leveraging it. Health plans can help providers by having a support network or even dedicated team members who can travel and meet providers to assist them in onboarding. Both health plans and providers must effectively communicate to understand what is working and what is not. If providers are struggling, health plans must have a plan of action to help course correct.

I recently attended the 2023 National Association of ACOs (NAACOs) Conference and sat in on a provider enablement panel. Despite being Medicare focused, I thought many of the techniques covered were relevant, including engaging with providers one-on-one, encouraging financial transparency, teaching simple tech skills, keeping things clinically meaningful and patient-specific, and forming some type of internal competition or reward system for providers enrolled in value-based contracts. 

Different Payouts for Different Provider Groups

Payouts can be based on Taxpayer Identification Number (TIN) or come through the VBP program entity. If the VBP entity is paid out, the process is relatively straightforward, as it adheres to the terms of the contract and the entity deals with specific provider payouts. If the payout is TIN based, each TIN can have a unique payout cycle which must be discussed and negotiated with the providers. A recent example I have seen is tiered payouts with expanding performance needed in different quality measures on an annual basis. I have seen splits for upside-only and shared risk vary considerably based on the measures and utilization metrics being evaluated. Having a strong payout schedule mapped out for future years and explaining it to your provider networks is important for long-term VBP adoption.

Behavioral Health (BH) and Telehealth. The Next Frontiers in Medicaid VBP?

Although not as prevalent yet in VBP arrangements, behavioral health (BH) and telehealth in Medicaid are critical to improving quality-of-care outcomes and reducing costs. Most BH and telehealth VBP arrangements are P4Q or basic shared savings based on utilization reduction. Behavioral health measures often include screening for depression, patient health questionnaire (PHQ) referrals, and follow-up hospitalizations for mental illness. Within telehealth, contracts are usually either pay-for-performance or P4Q, with many having per member per month (PMPM) incentives on reduction of utilization. Again, a big challenge is attribution, and thus having a tight-knit ecosystem is key.

Along with BH and telehealth, Social Determinants of Health (SDoH) and Health Equity continue to show the importance of effective care within Medicaid. I look forward to tracking the inclusion and evolvement of these important factors within value-based contracts over the next few years. 


As it stands, value-based contracting in Medicaid is in its early stages and offers health plans the ability to help providers become more comfortable with moving towards risk. Before health plans enter into VBP arrangements, they must speak directly to their providers and understand what tools are necessary to help make them successful. As VBP evolves, health plans will have the ability to alter their contracts to maximize their ROI from different provider networks and eventually get to shared savings. But again, a limiting factor is a provider’s comfortability, thus making provider enablement through technology and oversight critical. As a member of SpectraMedix, I’m excited to be at the frontier of the VBP revolution, driving both health plans and providers towards success in risk arrangements. 

Please feel free to email me at rahul.lakhanpal@spectramedix.com with any feedback or questions. I look forward to a hearing from you and hope you find this to be a helpful resource. 


  1. Abou-Atme, Z., Alterman, R., Khanna, G., & Levine, E. (2022, December 16). Investing in the new era of value-based care. McKinsey & Company. https://www.mckinsey.com/industries/healthcare/our-insights/investing-in-the-new-era-of-value-based-care 
  2. How differences in Medicaid, Medicare, and commercial health insurance payment rates impact access, health equity, and cost https://www.commonwealthfund.org/blog/2022/how-differences-medicaid-medicare-and-commercial-health-insurance-payment-rates-impact 
  3. Wang, S., Gonzalez-Smith, J., Smith, C., Fisher, E. S., Smith, M. D., McClellan, M. B., & Saunders, R. S. (n.d.). Value-Based Care And A Path To Achieve Comprehensive Care In The Safety-Net. https://www.healthaffairs.org/content/forefront/value-based-care-and-path-achieve-comprehensive-care-safety-net 

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