What do risk-based contracts allow both payer and provider to do?

Risk-based contracts allow both payers and providers to share financial risks and rewards. This arrangement fosters a collaborative approach where both parties have a vested interest in the efficiency and effectiveness of health care services.

In this model, providers may receive higher payments if they successfully manage care and keep costs down, while also assuming the risk of potential losses if expenditures exceed certain thresholds. This incentivizes providers to focus on quality and outcomes rather than the volume of services, encouraging them to implement strategies for preventive care and chronic disease management.

By sharing risks, both parties can align their goals towards improved patient outcomes, cost control, and overall system sustainability. This is an essential element in transitioning from traditional payment models focused on volume to newer models aimed at value-based care.

Other options, such as maintaining fixed payment rates or utilizing standard fee-for-service payments, do not facilitate this shared risk paradigm and instead reinforce a more traditional structure that lacks the collaborative incentive for managing healthcare costs effectively. Establishing caps on service utilization addresses controlling costs but does not embrace the mutual risk-sharing dynamic that is fundamental to risk-based contracting.