5 Keys to a 'Win-Win' Value-Based Contracting Negotiation

Paul Weintraub and Marissa Burik

The phrase “value-based contracting” is both overused and under-implemented in healthcare today, leading to a general misunderstanding of its potential impact.

In the simplest terms, a value-based partnership represents a “win–win” for providers and vendors. The goal of a value-based contract is to derive value from efficiency, as opposed to price and quantity. Instead of pushing one another for savings of pennies on the dollar, value-based contracts task both vendors and providers to come up with creative ways to generate clinical and financial value from mutually beneficial improvements.

In effect, vendors and providers create a partnership. If done correctly, both parties are stronger working together than they could ever be working against each other. But these partnerships don’t just happen. Both parties need to be prepared and understand what is important to them when entering a negotiation.

Following are five key focus areas necessary for providers to effectively negotiate value-based supplier partnerships.

  1. Have an accurate understanding of the current state and a clear vision of the future: Prior to negotiating a value-based partnership, providers should equip themselves with operational, financial, and quality performance results to allow for more collaborative discussions with suppliers. This must be an honest reflection of the current state of not just the vendor, but of how the service truly works for the provider.
  2. Generate executive support, streamline contracts: Another essential but often overlooked component is generating executive-level support during the contracting process. Such support shows the importance of the relationship to both parties and promotes a higher level of contract compliance, thus increasing savings potential for everyone.
  3. Know your total cost of ownership: A value-based partnership is much more than a simple line item on the balance sheet. These agreements must take into consideration myriad cascading costs and operational factors that ultimately help to determine what the current total cost of ownership and what it will be once the final agreement is completed.
  4. Be transparent: Simply put, if suppliers and providers better understand what is going on within each other’s environment, inefficiencies can be identified and potentially mitigated or eliminated, benefiting both organizations. This requires a perspective that looks below the surface to determine the root cause of non-value-added activities.
  5. Metrics matter: The metrics used to measure a partnership set the tone for how information is leveraged. Certain metrics encourage both parties to drive improvement, while others are seen as bargaining chips.
Download: 5 Keys to a "Win-Win" Value-Based Contracting Negotiation
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