The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleague Nesko Radovic and Jessika Garis of RSM US.

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Advanced PPM Topics: Payor Contracting Strategies & Value Based Care & Purchasing – 4 Key Takeaways

By Nesko Radovic and Jessika Garis

As value-based care gains momentum in the healthcare industry with over ten million Medicare beneficiaries assigned to an accountable care organization, providers and payors are looking for new ways to move away from traditional fee-for-service models and toward some form of value-based care. Experts at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 19, 2020 provided insights into how value-based care is affecting payor contracting and the impacts these changes are having on private equity investors.

Experts included Michelle Werr, Principal at HealthScape Advisors and Tom Goila, Partner at Comvest Credit Partners. Jessika Garis, Director at RSM US LLP, moderated the panel.

Here are four key takeaways from the panel discussion:

1. Physician Practices must understand the types of markets that are available and where those markets are heading, to position themselves for a successful value-based arrangement. As markets increasingly favor value-based arrangements, a practice’s position will depend on its line of services, current payor contracts, and financing mechanisms available. Practices must understand a variety of markets, from Medicare Advantage, which is leading the value-based care movement, to commercial markets, which are implementing new models, to Medicaid markets, which vary depending on the state and whether the state has a developed value-based strategy.

2. Payors and providers are shifting toward a more collaborative approach. More physician practices are engaging consultants or hiring business managers to understand the various reimbursement models and the impact that those models may have on their practices. Providers are also joining pilot programs without financial burden, which offer a practical view of the models’ application. Finally, practices are trending toward consolidation based on their specialty or geographic location to gain leverage over payors.

3. Private equity investors provide an opportunity for physician practices to increase their size and scale, and better position themselves to negotiate with payors. This leverage with payors is often a significant factor in staying profitable and competitive in the current market. As markets transition to value-based arrangements, investors will place value on practices that have experienced leadership, infrastructure and knowledge to pivot their practice to value-based reimbursement models.

4. Experts projected that moving towards value-based contracting will ultimately eliminate the risk of high healthcare costs associated with private equity investments in specialty care. This is an important part in providing price transparency and revealing the actual value that the physician practice supplies to the market. Based on that value, practices will attract payors and join in more value-based arrangements, resulting in overall growth in business.