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How to prepare for risk-based contracts | Viewpoint


With value-based care gaining popularity, hospitals must be ready for the growing certainty of risk-based contracts.

Modern healthcare systems utilize the fee-for-service payment model, which depends on quantity rather than quality. Hospitals are paid for services performed rather than outcomes achieved, meaning patients receive more treatments and more bills to pay.

TJ Redington, CEO of The Redington Group. (Image provided by the author)

TJ Redington, CEO of The Redington Group. (Image provided by the author)

A potential answer to healthcare’s rising costs is fee-for-value, which benefits health systems, patients and providers by saving money, leading to better outcomes, and paying out a portion of savings to the physicians. However, many hospitals have hit the brakes for one reason: risk-based contracts.

A risk-based contract between hospitals and health insurance companies makes the hospital responsible for the costs of the population they cover.

Risk falls on the providers’ shoulders because, while each patient requires different types of care, providers must give everyone the care they need without going over a specific total cost for the entire population. An unexpectedly high expense for a complex medical condition can be catastrophic and expensive, especially if a hospital is unfamiliar with ways to mitigate the bottom-line impact.

Health systems can take a few steps when preparing for fee-for-value, ensuring everyone is aligned, educated and ready to manage a risk-based contract.

Strategic alignment of shareholders

Step one ensures everyone in the hospital—physicians, C-Suite members and the board—is ready for a risk-based contract. The transition won't be easy—it's like changing an airplane's engine in the middle of a flight. You don't want the hospital to fail before you start; everyone needs to know your hospital is transitioning and how to do so without incurring undue risk.

I'm fond of the adage, “Never eat alone.” You don’t need to become a salesman but must build interest, especially among clinicians, since they drive the plan’s success. Different groups will require other framing methods. For example, physicians want to improve patient care and would be interested in the payout from the money saved. Once the physician team is poised to start, getting your CEO's or board's approval can be more manageable.

It’s critical to communicate throughout the entire process. Consider scheduling a monthly meeting between all stakeholders to keep everyone in the loop.

Care redesign

Step two involves bringing together the risk-based contract with your preferred method of care redesign. There are two types: accountable care organizations and clinically integrated networks.

In both types, healthcare providers come together to provide high-quality, evidence-based patient care, leading to lower costs and better outcomes. However, ACOs are bound by the Centers for Medicare and Medicaid rules, making them more expensive and cumbersome.

A CIN is a separate legal entity that allows participating physicians and the hospital network to share in the savings. CINs provide arguably more benefits: higher savings, lower turnover, better patient outcomes, and it offers higher visibility to clinicians and other stakeholders, leading to immediate feedback and sooner course correction in risk-based arrangements.


The final step involves the implementation of data and infrastructure. The data you’re looking for is historical patient health data, which shows claims and health conditions; this can help identify prominent medical issues and who needs the most care. Finding these patients is much simpler than it sounds. A third party can use the hospital’s existing IT infrastructure with no additional investment to merge patient historical claims with the medical record.

After these steps, it's time to roll the plan out. However, it's not a hands-off process; hospitals must consider measuring success and how much to pay providers once the savings are calculated. Hospitals could consider money saved, clinical improvements, and patient satisfaction for measurements. A third party must also conduct fair market value tests with distribution payouts to ensure providers get appropriate compensation.


With fee-for-service becoming less of a revenue stream and fee-for-value showing more promise, hospitals and provider networks must be ready for the transition. Although the risk may feel overwhelming, this plan can help your hospital get on the way to thriving in a risky environment.

About the author

Dr. TJ Redington is the CEO of The Redington Group, a consulting group that designs and implements clinically integrated networks.

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