Contract Design: Financial Options and Risk

Integrated care systems as well as accountable care organisations (ACOs) in the US and similar concepts in other countries are advocated as an effective method of improving the performance of healthcare systems. These systems outline a payment and care delivery model that intends to tie provider reimbursements to predefined quality metrics. By this the total costs of care shall be reduced. When designing healthcare options contractors are faced with a variety of financial options. The costs of market utilisation are highly relevant for the conception of healthcare contracts; furthermore contract-specific investments are an obstacle to the efficient operation of ACOs.

A comprehensive literature review on methods of designing contracts in Integrated Care was conducted. This article is the second in a row of three that are all published in this issue and contribute to a specific issue in designing healthcare contracts. The first dealt with the organisation of contracts and information asymmetries, while part 3 concludes with the question of risk management and evaluation. The specific research question of this second article focusses on the financial options and reimbursement schemes that are available to define healthcare contracts.

A healthcare contract is a relational contract, which determines the level of reimbursement, the scope of services and the quality between service providers and payers, taking account of the risks relating to population and performance. A relational contract is an agreement based upon assumption of a longer timeframe. A major obstacle to the practical implementation of healthcare contracts is the prognosis of the inflows and outflows due to the actuarial risks of the insured population. Financing conditions and reimbursement arrangements that are based on a prospectively determined fixed price, have a significant drawback: it is very difficult to take the differences in health status and the utilisation of distinct insured clientele (panel) into account.

The first two articles of this series on contract design have shown that complete contracts in healthcare are unrealistic. Healthcare reimbursement contracts are incomplete contracts with a high degree of uncertainty. In incomplete contracts specific contractual regulations are not made for any eventuality. For this reason it is important that the parties agree on the prevention of endogenous risks (asymmetric information after the conclusion of the contract) and on the procedure in the case of unforeseen circumstances (the risks of random, parameter risk and change risks to the healthcare program).