Prioritizing Value: A Step-By-Step Approach to Collaborative Supplier Agreements

The center of the change in healthcare is a punctuated shift from volume to value. First of two parts.

Due to rising costs, operational inefficiencies, and inequity in access to care, the healthcare industry is under tremendous pressure to find a new way forward. COVID-19 has put more light on these issues, making the need for transformation both urgent and inevitable.

At the center of this change is a punctuated shift from volume to value, where suppliers, health systems and providers, and payers look beyond their individual economics toward the outcomes they bring to the broader ecosystem, their communities, care teams, and patients. However, change doesn’t come easy in an industry as complex and regulated as healthcare. It requires a thoughtful strategy and a stepwise path, in which benefits accrue along the way. Most importantly, it requires collaboration and joint focus on value, a view that promises each stakeholder in the relationship — suppliers, providers, payers and, ultimately, patients — a collective win.

Value-based agreements (VBAs) reorient the economics of business relationships within healthcare based on mutually agreed on performance levels for upside and downside risk. Healthcare systems and providers, payers, pharma/medical device manufacturers, and other suppliers are steadily increasing their participation and the volume of these agreements. Yet, significant impact on outcomes is elusive for many. VBAs are often difficult to operationalize, administer and scale. Traditional risk/reward trade-offs often cause each party to maximize their own self-interest over the collective benefit of the whole. Additional challenges include:

  • Difficulty of sharing data between parties to create an accurate picture of contract performance.
  • Sensitivity about control of the data and trust in each parties’ data sources and accuracy.
  • Delay in data availability and data set variability.
  • Differences in terminology, nomenclature and definitions.
  • The challenge of coordinating the planning and execution of programs across supplier, health system and provider, and payer entities.

Whether or not your organization is ready to fully embrace VBAs today or will ultimately engage in shared risk contracts, there is little doubt that the value your service, product or offering delivers must be understood, measured and communicated with your partners and customers. As a supplier to the healthcare industry, it’s prudent to progressively engage in a stepwise path to address the challenges of building trust, addressing data sharing issues, and improving your ability to collaborate with your partners and customers by focusing on value in advance of contracting.

Building a Foundation of Trust

None of this happens without trust between the contracting parties in a relationship. This trust depends on a mutual understanding of the shared and individual goals of each party and transparency into whether these outcomes are being achieved over the course of a relationship. Trust, of course, isn’t established overnight — nor does it happen by chance. It requires a structured, intentional stepwise approach to collaboration. Three important steps are:

1. Alignment on a shared definition of value that becomes the north star for the relationship, ensuring that each party is speaking the same language in describing what success looks like. Understanding mutual readiness, experience with value management, data culture and competency, the track record in similar agreements, desired speed to value, and the like can go a long way in setting the stage. Is the eventual goal strategic in nature, impacting multiple aspects of value across the relationship? For example, is the partnership about reducing total cost of care across multiple clinical service lines, or is it narrowly focused on one product or offering, such as reducing blood glucose levels in a specific population cohort?

2. Next, a performance baseline should be defined. Each partner should consider:

  • What measures and milestones are most closely aligned with target outcomes?
  • What are the hypotheses regarding the potential impact of the product?
  • What research has been done to explore these hypotheses?
  • What data sources are available from each party?
  • What is the availability, quality and timeliness of the data?
  • How will progress in the relationship be measured?

3. Finally, once goals for the relationship and the performance base have been established, the parties in the relationship can — then and only then — start thinking about outcomes-based contracts. Initially, these relationships will focus on joint learning and collaboration; over time, they may become performance based with specific incentives or penalties for value realization and new value creation. Eventually, they may evolve to incorporate risk and qualify as a value-based agreement.

Author Information

Dave Duke is the co-founder and chief community officer at MetaCX, which has pioneered a new value-based approach for achieving shared success in B2B ecosystems. Prior to MetaCX, Duke led customer success at Sigstr (acquired by Terminus) and held various customer management roles during his tenure at ExactTarget and Salesforce Marketing Cloud. Duke also is the host of Revenue Revolutionaries, a podcast that showcases today’s best revenue and customer leaders and other big thinkers.