The Basics of Medicare Advantage and Value-Based Contracts

By DataLink’s value-based care team

The Centers for Medicare & Medicaid Services contract with Medicare Advantage organizations. These MAOs create Medicare Advantage plans, for example, Aetna, Blue Cross Blue Shield, and Humana. Medicare recipients can then choose between traditional Medicare or a Medicare Advantage plan.

MAOs build their Medicare Advantage provider networks through provider contracts, often via a Medicare Advantage value-based contract. MAOs’ Medicare Advantage plans are graded on their performance annually through a Star Rating system. 

The Star Rating is a five-level scale, with one being poor and five being excellent. It’s compiled by looking at improvement, HEDIS, pharmacy, HOS, CAHPS, and admin. 

Understanding value-based contracts

A value-based contract is an agreement tied to specific measures of effectiveness and appropriateness. Providers can earn additional incentives for the value of the care they provide, not just for the quantity of services rendered. 

Medicare Advantage plans value-based contracts aim to improve patient outcomes and the health of the population as well as lower the per capita cost.

A value-based contract typically has value levers. A few that you might see in a value-based contract include:

  1. Utilization rates: emergency department visits, hospital admissions and readmissions
  2. Risk adjustment improvement: HCC code capture
  3. Quality metrics: Annual visit completion rates, HEDIS / Part D measures

Tips for success in value-based contracts

It’s important to know your contract and to:

  • Identify the value levers for your value-based contract
  • Understand the metrics you’re being scored on 
  • Weigh the impact of each metric on your overall payout
  • Strategize accordingly and choose the right value-based contract
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