Shared savings contracts have gained significant popularity in the healthcare industry as a way to align the interests of healthcare providers and payers. These contracts aim to improve patient outcomes while reducing costs, and they have been proven to be effective in achieving these goals. If you are a healthcare provider or a payer considering implementing a shared savings contract, this article is for you. In this comprehensive guide for 2023, we will discuss everything you need to know about shared savings contracts, including what they are, how they work, and why they are beneficial. So, let’s dive in!
Table of Contents
- What are Shared Savings Contracts?
- How do Shared Savings Contracts Work?
- Benefits of Shared Savings Contracts
- Key Components of a Shared Savings Contract
- Common Pitfalls to Avoid
- Best Practices for Implementing Shared Savings Contracts
- Examples of Shared Savings Contracts
- Shared Savings Contract Template
What are Shared Savings Contracts?
Shared savings contracts, also known as gainsharing agreements, are contractual arrangements between healthcare providers and payers that incentivize cost savings and quality improvements. These contracts typically involve a predetermined benchmark or target for cost savings, and any savings achieved beyond the benchmark are shared between the provider and the payer. The goal is to encourage providers to deliver high-quality care efficiently, resulting in better patient outcomes and reduced healthcare costs.
Shared savings contracts are often used in value-based care models, where providers are reimbursed based on the quality and effectiveness of the care they deliver, rather than the volume of services provided. These contracts can be applied to various healthcare settings, including hospitals, physician practices, accountable care organizations (ACOs), and more.
How do Shared Savings Contracts Work?
The specific details of shared savings contracts can vary depending on the parties involved and the healthcare setting. However, the general structure remains consistent. Here’s a step-by-step overview of how shared savings contracts work:
- The provider and the payer negotiate and agree upon a benchmark or target for cost savings. This benchmark is typically based on historical data or industry standards.
- The provider delivers care to patients as usual, aiming to achieve the best outcomes while minimizing costs.
- The payer regularly evaluates the provider’s performance against the benchmark and calculates the shared savings based on the achieved cost savings.
- If the provider surpasses the benchmark and generates cost savings, the payer shares a portion of those savings with the provider.
- The shared savings can be distributed in various ways, such as through a fixed percentage split or a performance-based formula agreed upon in the contract.
It’s important to note that shared savings contracts often have a risk-sharing component to ensure accountability. Providers may be responsible for sharing in the losses if they fail to meet the cost-saving targets or if the quality of care declines.
Benefits of Shared Savings Contracts
Shared savings contracts offer several benefits for both healthcare providers and payers. Let’s explore some of the key advantages:
1. Improved Patient Outcomes
Shared savings contracts incentivize providers to deliver high-quality care and focus on improving patient outcomes. By aligning financial incentives with patient health, these contracts encourage providers to implement evidence-based practices, enhance care coordination, and prioritize preventive care.
2. Cost Reduction
One of the primary goals of shared savings contracts is to reduce healthcare costs. By promoting efficient resource utilization, eliminating unnecessary procedures, and encouraging preventive care, these contracts can result in significant cost savings for both providers and payers.
3. Enhanced Collaboration
Shared savings contracts foster collaboration between healthcare providers and payers. These contracts require open communication, data sharing, and joint decision-making to achieve the cost-saving targets. This collaboration can lead to improved care coordination, reduced duplication of services, and better overall healthcare delivery.
4. Financial Incentives
Shared savings contracts provide financial incentives to healthcare providers for delivering cost-effective care. By sharing in the cost savings, providers have the opportunity to generate additional revenue while improving patient outcomes. These incentives can help attract and retain high-performing providers in value-based care models.
5. Alignment of Interests
Shared savings contracts align the interests of healthcare providers and payers, shifting the focus from volume-based care to value-based care. By rewarding providers for achieving cost savings and quality improvements, these contracts encourage the adoption of value-based care practices and support the transition to more sustainable healthcare models.
Key Components of a Shared Savings Contract
Shared savings contracts typically include several key components that outline the terms and conditions of the agreement. While the specific details may vary, here are some common components you can expect to find in a shared savings contract:
1. Agreement Overview
The agreement overview provides a summary of the shared savings contract, including the parties involved, the effective date, and the purpose of the contract.
The definitions section clarifies any key terms or acronyms used throughout the contract to ensure a common understanding between the parties.
3. Scope of Services
The scope of services outlines the specific healthcare services or procedures covered by the shared savings contract. It may include details such as the patient population, the healthcare setting, and any exclusions.
4. Performance Metrics and Benchmarks
This section defines the performance metrics and benchmarks against which the provider’s performance will be evaluated. It may include quality measures, cost-saving targets, patient satisfaction scores, and other relevant metrics.
5. Payment Methodology
The payment methodology section describes how the shared savings will be calculated and distributed. It may include details on the payment schedule, the percentage split, any risk-sharing arrangements, and the reconciliation process.
6. Data Sharing and Reporting
Data sharing and reporting requirements are crucial for monitoring and evaluating the provider’s performance. This section outlines the data that needs to be shared, the frequency of reporting, and any data confidentiality or security measures.
7. Governance and Decision-Making
The governance and decision-making section defines the roles and responsibilities of each party and establishes a framework for joint decision-making. It may include details on the governance committee, conflict resolution, and dispute resolution processes.
8. Term and Termination
This section specifies the duration of the shared savings contract and the conditions under which either party can terminate the agreement. It may include provisions for early termination, contract renewal, and notice periods.
9. Confidentiality and Non-Disclosure
Confidentiality and non-disclosure provisions are essential to protect sensitive information shared between the parties. This section outlines the obligations of each party to maintain the confidentiality of the contract and any associated data.
10. Legal and Regulatory Compliance
The legal and regulatory compliance section ensures that the shared savings contract adheres to all applicable laws, regulations, and industry standards. It may include provisions related to fraud and abuse, anti-kickback statutes, and compliance with federal and state healthcare programs.
Common Pitfalls to Avoid
While shared savings contracts offer numerous benefits, there are also potential pitfalls that both providers and payers should be aware of. Here are some common pitfalls to avoid when implementing shared savings contracts:
1. Inadequate Data Infrastructure
Shared savings contracts require robust data infrastructure to accurately measure and evaluate performance. Inadequate data systems and poor data quality can hinder the effectiveness of these contracts. Providers and payers should invest in data analytics capabilities and ensure data accuracy and completeness.
2. Unrealistic Performance Targets
Setting unrealistic performance targets can demotivate providers and lead to dissatisfaction with the shared savings contract. It’s crucial to establish achievable benchmarks based on historical data and industry standards. Regular performance evaluations and feedback can help providers continuously improve and meet the targets.
3. Lack of Care Coordination
Shared savings contracts rely on effective care coordination to achieve cost savings and improve patient outcomes. Inadequate care coordination can result in fragmented care, increased healthcare