Skip to content

What is value-based contracting?

Written by

Last editedMay 20202 min read

Over the past decade, the United States healthcare system has begun a serious transformation, with many stakeholders seeking to tie payments to value, rather than volume. That’s why we’re seeing an increase in value-based contracting, and while there are still serious barriers to widespread adoption, it’s likely that we’ll see more value-based contracts in the future. But what is value-based contracting? Find out everything you need to know about value-based contracting models with our definitive guide.

Value-based contracting definition

Value-based contracting, also known as results-based contracting, is a type of payment model that ties the price of a drug to how it performs. This is in stark contrast to other healthcare payment models, where the price of drugs is determined by data collected during clinical trials, a controlled environment that doesn’t always track with performance in real-world conditions. So, how do value-based contracting models work? It’s simple. If a drug delivers the desired outcome, payers (insurers, provider networks) pay the full price. If not, the payer may receive refunds or price reductions from the manufacturer.

Benefits of value-based contracting

Now that you know a little more about value-based contracting models, let’s look at the benefits of this payment model in more detail. First off, it’s important to note that value-based contracts limit the payer’s exposure to financial risk by providing price reductions or refunds for ineffective treatment. Beyond that, there are a couple of other key benefits associated with value-based contracting:

  • Improvement in patient outcomes – If payers can provide access to a greater range of medicines (since manufacturers are reducing their risk of exposure to suboptimal outcomes), patient outcomes could improve.

  • Reduction in medical costs – By helping to control diseases better, value-based contracting could lead to a reduction in medical costs through a reduction on hospitalizations, emergency room visits, and so on.

  • Reduction in the cost of medicines – Under value-based contracting, manufacturers may pay higher rebates for patients who don’t meet the agreed-upon outcome targets, which may potentially reduce the cost of medicines.

In addition, value-based contracting can help generate real-world evidence for the efficacy of a drug, which could lead to better healthcare outcomes in the future.

Barriers to implementing value-based contracting

There are a broad range of value-based contracting challenges that are limiting implementation in the United States. For example, questions have been raised around how value-based contracts will affect price reporting metrics, while there’s also uncertainty around the federal anti-kickback statute and rules about manufacturer communications from the U.S. Food and Drug Administration. Further regulatory issues may be found in Medicaid’s requirement for manufacturers to offer a price that’s equal to the best commercial discount price available.

It’s also worth thinking about the other value-based contracting challenges linked to implementation. Not only is it a challenge in itself to find agreed-upon outcomes that are measurable within a practical timeline, but in many cases, the infrastructure needed to monitor results-based contracts simply doesn’t exist. As you can see, while value-based contracting models may be beneficial for both patients and payers, there are still numerous barriers that need to be overcome.

Value-based contracting moving forward

By addressing some of the value-based contracting challenges identified in the previous section, it’s very possible that the number of value-based contracts could grow exponentially. Furthermore, the type of healthcare contracts available in the market could evolve and we may see a greater level of flexibility from policymakers, which could enhance the healthcare system and massively reduce costs.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

Get StartedLearn More
Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

Contact sales

Try a better way to collect payments, with GoCardless. It's free to get started.

Try a better way to collect payments

Learn moreSign up