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Letter to The Editor

Why We Really Do Value-Based Contracting

Authored by

Ira Klein, MD, MBA, FACP


Senior Director of Quality, Strategic Customer Group, The Janssen Pharmaceutical Companies of Johnson & Johnson


J Clin Pathways. 2018;4(5):15. doi:10.25270/jcp.2018.06.00021

Much has been written in the past few years on the growth of value-based contracting. Previous analyses have explored factors leading to success, advantages over standard contracting, and legislative and administrative mechanisms to facilitate this approach. The authors of the Pharma Insights column in the May 2018 issue of Journal of Clinical Pathways (JCP), make a great addition to the discourse on this topic: they provide a discussion on value-based contracting between payers and manufacturers, touching upon interest drivers for and implementation barriers to value-based agreements.1

Missing from much of the current discussion of value-based contracting, which tends to center on mechanics, is a basic consideration of why value-based contracting is good for patients in the first place. This is unfortunate, because an acknowledged, mutual focus on patients is the main ingredient in successful value-based contracting. Once that is in place, everything else falls in line: patient focus produces trust, the grease in the gears of arrangements that are both medically and financially successful. 

Patient-Centered Goals 

Whether public or private, the strongest arrangements reflect Triple Aim goals, established a decade ago by the Institute of Medicine2 as a standard for patient-centric care. I’ll offer 2 examples:

  • The Center for Medicare and Medicaid Innovation has tried to make it easier for providers to focus on patient care. The agency devised advanced alternative payment mechanisms to smooth the interactions between payers, pharmacy benefit managers, delivery systems, and manufacturers. Often mirrored and mimicked in the private sector, these interactions give a window into the motives and incentives behind patient-centered initiatives. 
  • The National Quality Strategy3 believes that value-based contracts might be especially effective in addressing 6 health care challenges: community and population health; effective clinical care; efficiency and cost reductions; patient safety; communication and care coordination; and person and caregiver centered experiences and outcomes. These areas are important both on a technical level, and because they keep the focus on the problems of the patient. 

Technical frameworks of this kind lay the ground rules for discussions of mutual goals. They provide common ground to build trust and sharpen our focus on improving patient care as defined by the Triple Aim.

Forming a Foundation of Trust

The importance of trust in value-based contracting cannot be overstated. In the end, value-based contracting is relationship-based contracting, and for any relationship to work trust needs to be there. (Also, trust is a handy yardstick by which to measure the prospects of any potential agreement.) A main ingredient of trust is respect for your partner’s business needs. Naturally, contracts must recognize contingencies, pitfalls, and opportunities for successful expansion. 

Quality is also core. A value-based contract without a plan for continuous improvement is hardly worth the effort. Partners should agree to quality measures and a path for total quality improvement, and, in that spirit, establish joint operating committees that meet regularly; they should also set up timelines for sharing important data. The essence of quality is a question familiar to anyone who has ever been a provider of care: “How can I make you better?”

Better Outcomes for All

After all, patients are why most of us were drawn to health care to begin with. Attempts to reform health care delivery in recent decades have sometimes, if unintentionally, underemphasized patient concerns. With value-based contracting, patients are at the center. It makes financial success contingent on patient welfare and brings us back to place where we caregivers can operate with comfort. 

If we do value-based contracting right, and seek to understand our partners and our patients, we can establish trusting relationships that benefit payers, providers, and patients alike. With strong, trusting relationships in place, we can have conversations about the clinical significance of what we hope to do, and about why a value-based contract could be better for patients than an administratively easier, financial-only, negotiation.

Value-based contracts have the potential to renew our focus on patients, which returns us to the essence of why we are in health care to begin with. 


1. Buyse M, Carter S, Sarnataro K. Factors influencing the implementation of value-based contracting between pharmaceutical manufacturers and payers. J Clin Pathways. 2018;4(4):27-30.

2. Institute for Healthcare Improvement (IHI). IHI Triple Aim Initiative. IHI website. Accessed May 29, 2018.

3. Agency for Healthcare Research and Quality (AHRQ). About the National Quality Strategy. AHRQ website. Updated March 2017. Accessed May 29, 2018.

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