**3. Five steps to value-based contracting**

Value-based contracting requires a clinical organization that is different to the traditional practice management. Several texts discuss necessary re-organization of clinical practice and the necessary infrastructure [11–16] etc. For the purposes of this chapter we assume that clinical delivery has been optimized and the provider of clinical services is ready to begin the financial modeling required to negotiate contract with a payer.

We illustrate the contract modeling and implementation steps in **Figure 2**.

Successful value-based contracting requires sophisticated analytics, and at the heart of the analysis is a robust data warehouse that integrates claims data, preferably with clinical data. The importance of claims data is often overlooked by providers, with their focus on clinical data, charts and electronic medical records. Healthcare claims in the US system are the basis of reimbursement, containing valuable information about the nature and diagnosis of a patient's condition, the treatment applied by the physician or health system, the place of service and (in the case of drugs) the therapeutic class and dosage of a drug. Complete medical and drug claims—claims that include all providers utilized by a population—are essential for financial contracting but are seldom present in provider records: they must be obtained from a payer. Providers rarely have as complete a view of the patient's care that the payer has (due to its contracts with multiple providers).4 Once a robust warehouse has been built, it is possible to begin the five steps to successful value-based contracting (**Figure 3**).

**Figure 3.**

*Five steps to successful value-based contracting.*

<sup>4</sup> For more detail about healthcare claims and the information they contain, see Chapter 3 of Ian Duncan: *Healthcare Risk Adjustment and Predictive Modeling 2nd edition*. 2018, New Hartford CT: Actex Publications.
