VBC Contracting: Challenges and Keys to Success for Health Plans

By SpectraMedix Team

The number of value-based contracts across the healthcare industry is rapidly increasing, yet many health plans still struggle with the value-based contracting process. A primary reason for this is that payers do not have the resources or expertise to manage all of the different components that go into creating and implementing contracts that improve quality while yielding savings. Additionally, health plans must convince skeptical providers that value-based contracts are designed to be mutually beneficial arrangements.

An effective value-based contracting process needs to allow health plans to design and evaluate performance scoring methodologies, risk assumption options, and other contract terms across all lines of business. It should empower them to collaborate with their provider networks to identify, evaluate, prioritize, and impact the value levers or performance indicators that affect utilization, cost, and quality.

In this blog, we’ll present key questions that payers need to answer as they continue to navigate the disruptive process of adopting value-based contracts, and lay the foundation for creating mutually beneficial arrangements that lower costs, improve quality, and produce better outcomes.

Challenges of Effective Value-Based Contracting

A 2018 survey of 120 commercial insurers found that nearly two-thirds of their payments are tied to some kind of value-based arrangement. The transition period hasn’t been a seamless one though, as health plans across the industry wrestle with how best to address the many challenges inherent in value-based contracting. These include, but are not limited to:
  • Juggling variables that impact contract structure, such as market definition, costs, attribution, terms, and budget.
  • Identifying and positively impacting the value levers that that drive improved outcomes and financial performance for both payer and provider.
  • Frequently and accurately reconciling contracts so that you can improve performance during the year to maximize dollars and ensure there are no surprises at the end of the year
  • Creating high-performance networks, including determining a common measure set, quality benchmarks, and cost benchmarks and anchoring them to VBC contracts.
  • Incorporating social determinants of health (SDOH) and behavioral health factors into contracts.
  • Getting providers comfortable with taking on more downside risk.
  • Engaging specialists within your value-based care programs.

It’s incumbent on health plans to determine how best to prioritize these challenges based on the make-up of the organization and the needs and goals of the organization. Addressing these challenges involves significant, often overlapping, effort from the various stakeholders. Utilizing analytics to recognize and assess starts the journey, while operationalizing the mechanics of reimbursement finishes it. In the end, better patient outcomes at lower costs is the overarching goal.

Achieving Structure, Simplicity, Consistency, and Transparency in Contracting


Last year, SpectraMedix conducted a poll of health plan executives and professionals, asking “What are the biggest obstacles you face in implementing VBC contracts?”

VBC contracts are often developed as one-offs, using excel or some other similar tool. Health plans require a system that allows team members who are not sophisticated with VBC contracting to model and create a contract without specialized knowledge. Plans need to be able to do this before negotiations even begin so that they can decide what types of contracts and terms to offer their provider community. If plans are in direct negotiations, they need to be able to run a pro forma analysis that follows the terms of the proposed contract using the plan’s own data to understand how that contract would work and the providers’ baseline performance moving forward. The tools and process should support commercial, Medicare, Medicare Advantage, and Medicaid business lines across the entire spectrum of VBC types, including shared risk and full capitation.

Why do health plans need have the tools and processes in place now to develop and scale value-based contracts?

  • Most health plans and government agencies have a public objective to get their business transitioned to VBP by a specific date.
  • Success is measured by quality improvement and savings generated vs. what would have happened without the VBP contract.
  • health plans need to be adaptive in their contract terms to ensure success for their provider groups. If provider groups aren’t successful in a shared-savings program, the program won’t be successful.
  • Transparent contract modeling helps eliminate uncertainty for the health plan, such as:
    • They will design the wrong program
    • Their providers are not going to participate in any shared savings
    • They will offer a “bad contract” to providers
  • Transparent contract modeling helps eliminate uncertainty for providers, such as:
    • They won’t be rewarded for doing good work
    • The terms of the contract are so complicated that they can never win and never understand
    • They’ve been burned in the past by other savings contracts they have gone through


Health plan executives have a difficult task in implementing more risk-based contracts with their providers. Ultimately though, it is to everyone’s benefit—payer, provider, and patient—as the long-term objective is to improve quality and lower costs. A payer’s ability to identify and prioritize the value levers that have the biggest impact on performance, and then pull those value levers to improve performance, will come out ahead. To achieve this, payers need a solution that is:

  1. Efficient—Enables users to model a VBC contract in under an hour.
  2. Simple—Provides the ability to model and understand a VBC contract with limited external support (actuarial, medical economics, etc.).
  3. Accurate—Delivers a proven methodology to develop a VBC contract.
  4. Consistent—Avoids the variability of manual efforts.
  5. Permanent—Provides for the storage of contract terms, both considered and implemented.
This blog post is based on our SpectraMedix white paper titled "Value-Based Payment Contract Modeling: A New Guide forHealth Plans and Providers". This post covers the first section of the paper, while a second post to come will cover the other section.

Tags: Health Plans

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