New approaches to contracting are necessary to meet new ACO’s challenges
Accountable Care Organizations (ACO) are popping up all over the country. The ACO concept centers around healthcare organizations banning together to provide overall care coordination for a single patient event or multiple events. In doing so, the ACOs would guarantee a flat rate per episode of care, or a monthly rate per covered lives to third-parties payers. This is a new way of doing business in healthcare that is still just in a pilot stage for most ACOs, but can be a reality for supply chain professionals who need figure out a foolproof way to guarantee their supply chain supplies and purchase services cost also under these new and risky agreements.
With these facts in mind, our industries’ traditional price per unit or price per activity contracting approach won’t work under the ACO’s cost structure, since price increases and yearly contract renewals will be obsolete. We need to find new approaches to contracting that are absolutely necessary to meet the new ACO’s challenges.
Solutions from other industries
Therefore, I always find it helpful to look to other industries for solutions to our healthcare challenges. One such solution, pioneered by Kate Vitasek, supply chain consultant and educator, is Vested Outsourcing. It’s a term that means, “Creating outsourcing relationships where companies and their suppliers become vested in each other’s success.” The multifaceted goals of Vested Outsourcing for healthcare organizations and their suppliers, which are different from traditional contracting, are:
- Focus on outcomes, not transactions: Both parties agree to align their interests around more efficient, higher quality and low-cost solutions than is presently are being provided for multiple years (e.g., 5 or more).
- Focus on what, not the how: Less emphasis on things and process and more weight given to performance expectations. In short, let the experts do their job without dictating how they should their do job. All they need to know is their scope, not boundaries.
- Agree on clearly defined and measureable outcomes: Outcomes are to be expressed in terms of a limited set of (ideally five) high level metrics. Less is more under these agreements.
- Optimize pricing model incentives: Structure pricing that incentivizes best price/service trade-offs. Under these arrangements your suppliers are rewarded for solving your problems and then not penalized for costs that they don’t control (e.g. fuel, transportation, postage, chemical increases, etc.).
Build a governance structure that creates insight, not just oversight: Employ a panel of internal experts (i.e., performance committees) to help you manage individual contracts that improves performance – over time. These committees’ charge is to collaborate with your suppliers in improvements, not hang them out to dry.
These Vested Outsourcing goals might seem formidable considering the bid, negotiate and forget mentality of our present contracting regiment. Yet, in the new ACO environment these principles are the foundation of a fluid, progressive model that can quickly be altered as your ACO’s goals and patient population requirement’s fluctuate.
That’s why the old way of contracting for products and services at newly formed ACOs no longer will work, and why new tactics must be experimented with, like Vest Outsourcing, to meet the new challenges of the new healthcare economy we live and work in.
