Winning in the world of value-based contracting with aligned outcomes

Value-based contracting for medical surgical products and pharmaceuticals has the opportunity to provide big value for both providers and suppliers. Contracting this way requires work for both suppliers and providers to ensure that outcomes are measured and tracked appropriately. Featured in this interview is Myla Maloney, Vice President, Strategic Accounts, Applied Sciences for Premier Inc. Myla's

healthcare career has spanned roles in sales training and leadership, account management, strategy and leading initiatives to improve the quality of patient care.

MM: As health systems continue to align around a value-based healthcare economy, traditional contracting mechanisms are no longer sufficient. When payment models were less sophisticated, a price per unit approach was often enough and could be included in the total costs used to set reimbursement rates. More recent shifts to shared savings and bundled payment models have really altered this dynamic, moving providers away from a volume-based system toward alternatives that reward total cost and quality outcomes. When the metric for success is oriented around wellness and savings generated, that, in turn, drives health systems to demand proven outcomes and contingent pricing contracts that guarantee them. Health system leadership is open to the idea that a product may cost more upfront if there is ample evidence to indicate a reduced total cost of care over the long term. They are less open to being “guinea pigs” and are starting to demand contracts that share the risk they assume. In other words, if they agree to try a more expensive product, they want to know the supplier has skin in the game and is liable for at least some of the overruns if total cost and quality goals are not met. Value-based contracting enables this sharing of risk and allows suppliers to differentiate themselves in a market that is trying to commoditize them.

MM: In the right situations and with the right partners it is not just possible, it is a reality. Premier^® and its members are realizing early successes with value-based contracts secured from both med surg and pharmaceutical suppliers. We are collaboratively creating contractual agreements that lay out specifically what providers should expect in terms of outcomes associated with the use of contracted products or services and what “protection” they will have if the result is anything less. Suppliers win in this practice, as evidence-based provisions in the contract language and a shared assumption of risk creates a clear differentiation and guaranteed return on investment, thereby making it easier for the health system to justify standardizing around the contracted products and services. Through this process, we weed out those concepts that just do not make sense for a health system or even the supplier. More importantly, we also help match suppliers and health systems whose strategies are aligned. We would consider it a bad day if one of these contracts fails as a result of misalignment. We bring the right people to the table for this discussion to ensure value-based contacts will succeed as a catalyst for the improvement of healthcare across the United States.

MM: There are two areas that we get pushed on the most from suppliers and members. The first is around the impact of reimbursement regulations on outcomes-based contracting. This is a hot topic and one that is being looked at by a multitude of stakeholders. I believe there will be flexibility in the future that will allow suppliers to create value-based contracts with stronger linkages to outcomes. The second is around the data needed to validate these types of contracts. Premier will continue to leverage our

industry-leading data assets on approximately 45 percent of all hospital discharges with our members and suppliers to meet their evolving needs, including value-based contracting.

To learn how Premier is addressing new contracting strategies, visit premierinc.com/supplychain.