The concept of outcomes-based contracting today is far removed from the original intent, and, with a growing emphasis on disincentives for consumer non-achievement, has the chance to be a very real boomerang in the next 18 months. The implementation of the Affordable Care Act, in which accountable care vies for attention with the health insurance marketplace rollout, will complicate the problem and cause higher costs and lower health engagement.

When value-based benefit design (VBBD) was gaining speed in 2008, the darling of the discussions was the incentive. Pioneers large and small were highlighting their successes in engaging chronic care patients for better adherence to clinical protocols (exams, tests, refills) and the total cost of care for newly adherent patients helped to bend the cost curve down. Lost in much of the storytelling was the earlier focus on identifying the risk to the covered population, achieved mostly through health risk assessments that led to reconfiguring benefit designs and communication to achieve the outcomes of better care and cost control. VBBD, then, was an incentive-based component for health engagement, getting non-compliant beneficiaries to use appropriate care resources and stick to the plan.

Outcomes-based contracting (OBC) was a bold concept in 2008 in which the purchasing of health care services would be at least partially tied to the improved engagement and adherence of the insured consumer. The goal was to accent and reward those providers - primary care, efficient hospitals, local urgent care centers - to provide efficient and effective treatment for non-emergent care. OBC was first focused on the reorganization of the formulary based purchases of pharmaceuticals so that rebates eventually would have lower dominance and better adherence would have higher incentives or formulary placement. When it was presented, at a seminar in April of 2008, it was met with a frosty reaction. Yet, within two years, pharmaceutical companies were asking for advice, modeling, and offering outcomes-based contracts, the most profound of which was the Cigna-Merck contract built only partially on Merck formulary positioning. A little-known clause in the contract included accelerated rebates for improved adherence to guidelines or improved movement to diabetes glucose-control goals, no matter what drug the patient was on - and that was the game-changer.

Also at the seminar that April, the idea of paying physicians more for primary care that engaged more patients in preventive care was introduced as a support for the primary care medical home efforts underway. After all, the relationship between the physician and the patient has been shown, time and again, to be the most trusting and the most influential for starting the patient on new care and keeping him or her adherent over time. Included in this was the caveat that regular communication from all care-touches (care coordinators, pharmacists, educators, etc.) would be imperative and therefore these folks, too, should be rewarded within the outcomes-based structure. It was fortified, later, with incentives for doctors, pharmacists, health plans and even benefits consultants that recommended changes based upon improvement in the care and functionality of the workforce.

More companies initiated value-based incentives, but not necessarily following the recipe for success set by the early adopters: they would leave out the frequent messaging, or they would forget to create opportunities for communicating peer successes. Some, impatient for the achievement of "bending the cost curve," began to use disincentives to engage folks, and this was supported through the new behavioral economics' mantra that "people are more afraid of loss than of future reward." The benefits message became, "Get your screen, or physical, or refill completed or pay a higher premium." The message of outcomes-based contracting began to shift.

Now, even the ACA speaks to incentives/disincentives for achievement of goals, reflecting what has become a natural extension of the value-based construct. In the first national demonstration of OBC, CMS is using outcomes-based contracting in the manner it was meant to be: to pay for better outcomes and better quality from the delivery side of the system.

The key message of VBBD is that it simply won't work if the individual is incented, or disincented, to change behavior without the coordinated incentive for the care provider (doc, wellness company, care coordinator, pharmacist). By promoting the desired outcomes in the delivery system, the push-pull effect is established and new balance in the trusted relationship of clinician and patient can be achieved.


Rewarding quality

When engaging the consumer/patient, a suite of levers (incentives or disincentives) may be used to engage and support the behavior change desired for reduction of risk or improvement in wellness, such as reduced out-of-pocket costs for annual screenings. If there is not a coordinated suite of levers for the provider organization to better manage those patients who are not in compliance with guidelines, then the provider organization suffers through loss of revenue - there is imbalance. If adherence to the treatment plan is the focus of the suite of levers, then time for counseling about the importance/challenges/costs must be considered, and the levers, including the reimbursement strategies for the physician/clinician/pharmacist/health promotion practitioner, must be aligned to include this additional time as well.

If the dividends of reduced health risks and costs are shared across the stakeholders, then everyone wins. The goal is to find that balance, which is best established through engagement and accountability that focus and work together to produce healthier people, healthier organizations and healthier communities.

But the real science of motivation is fundamental to making this work. Instead of considering carrots or sticks, the science of neurotransmitters provides insight on the best practices. When offered a reward that is meaningful to the recipient, the brain releases a transmitter called dopamine, also called the well-being hormone.

Now consider the disincentive. When the message is "do this or else there is a penalty," the neurotransmitter involved is norepinephrine, the fight-or-flight hormone. Think of penalty messages, and one that comes up is "April 15 is the deadline to file your personal income taxes with the IRS." The reaction is not usually one of well-being, but rather one of, "I have to, but I hate it."

What is interesting in these examples is the result: both accomplish a behavior for those who participate. But the add-on for dopamine is that short-term memory portals open, and they don't with norepinephrine. This means that if the goal is behavior change that is sustainable, the feeling of well-being is stored and retrievable every time the behavior is performed. That does not happen with norepinephrine. Behavior change will happen with both, but with the dopamine release, eventually the incentive will become intrinsic, as it is part of stored memory. This is the goal of an external (money, food, days off) incentive: to become an internal (I do it because it will make me feel good) incentive.


The boomerang

By refocusing the outcomes-based contract on the consumer, and coupling it with a rise in deductibles and out-of-pocket limits, there is a three-point attack on the consumer every time he or she needs to use the health system. No dopamine, more norepinephrine. Fight or flight, not, "Gee, that feels good, I'll do it again." To train the consumer to not use inappropriate services, fight-or-flight may be appropriate. To train the consumer to use the right resources, including self-care and prevention, use the "feel good" response and store the memory.

Even if the physician has the reimbursement OBC that rewards the time to converse with the patient, the patient is getting, at best, a mixed message and often will not be compliant and adherent. There is unspoken conflict, and everyone's metrics are at risk for going badly.

New research published in Psychological Science, a journal of the Association for Psychological Science, shows policies that carry higher premiums for overweight individuals are perceived as punishing and stigmatizing.

In one study, 126 participants were told that due to rising health care costs the company had to change its benefit policies, due in part to the increase in overweight employees. Participants were shown one of four final policy decisions: a incentive plan that offered a $500 premium reduction to "healthy-weight people;" a disincentive plan that increased premiums of overweight people by $500; and two other plans that resulted in a $2,400 insurance premium for overweight employees. Participants viewed the disincentive plans as punishment for being overweight and were less likely to endorse them. By validating the "feel-good" versus the "fight-or-flight" response, the incentives can attract more participants.

Value-based benefit design needs to be focused on the consumer-patient with communication that makes the reward meaningful and actionable. Providing an outcomes-based goal that will provide a reward for goals that the patient/consumer sets - and understanding that these may be first steps to the grander goal - can work because it is rewarding the behavior that will be required to achieve the grander goal. But creating an OBC goal that demands getting to a number will cause the people who are most at risk to fear the task and be frustrated trying to accomplish it.

How can we get back to the balanced approach of aligning incentives for quality? When the service and intervention contracts are built on improved health outcomes, all of the participants in the contract move away from widget pricing (commoditized units of service) and achieve solid economic footing through predictable use of resources, including primary care, urgent care, biometric screens and more. This alignment spreads rapidly through a community, as physicians and hospital systems realign processes on quality and efficiency, manufacturers and health plans align incentives with measurable health improvement, and benefit designs link the consumer-clinician-plan sponsor into a seamless system of performance improvement.

Businesses require functionally fit workforces that support global competitiveness. Providers - clinicians, health promotion practitioners, pharmacists - require appropriate time and resources to engage and promote behavior change. Plan sponsors and suppliers require models that identify appropriateness of intervention and incentives driven by effect and effort to achieve them. Communities require an appropriate mix of business, revenue and services that promote economic growth and health within their borders.


Avoiding the boomerang

Outcomes-based contracting can be inserted into every contract, not replacing the whole contract, but putting a risk-bearing clause that will reorganize the services into producing a healthier person and financial predictability. Incremental goals in the insurance plan design can promote the healthier behaviors to the beneficiaries even if the final goal is not achieved in the plan year. Consider who benefits from each change or lever that can be deployed. Do some suppliers benefit more than others? Find ways to align a few of the goals so everyone can participate in the reward.

Are there segments of the population who are more at-risk, harder to engage, or beyond the reach of the current plan design? Because of this increased risk of failure (defined as failure to engage or adhere), is timing (longer time to achieve the engagement), staffing (investment of resources), and/or infrastructure causing friction that can be smoothed? In this case, use a value-based incentive approach to the at-risk population to improve participation in the behaviors, even if the ultimate goal is not achieved.

In fact, this expansion is happening: in national surveys produced and measured in 2009, VBBD was codified, but no outcomes-based contracts for consumers or services were reported. In the 2010 survey, a few questions regarding outcomes-based contracts were inserted. In 2012, there were more questions on outcomes-based endeavors and the application from the respondents was broader.

VBBD links the covered life to suppliers that produce better clinical and financial outcomes, rewarding better engagement and measurable outcomes. The dividends, calculated in metrics such as reduced inpatient or outpatient days, reduced waste, reduction in absenteeism, are reinvested as new risk arises, behaviors slip or new technologies are uncovered that improve efficiencies of care. In every case, the long-term system strategy is focused on outcomes, beginning and ending with engagement and shared accountability.

Any measurements, interventions, and potential improvements to the system of accessing or paying for health must not be static. Instead, innovation will drive new concepts that will improve the system over time, if, and only if, the development of new interventions coupled with the purchasing/ payment for the new interventions are aligned to support the ultimate product: the engaged and accountable individual who uses the information to manage their own health and economic improvement through engaged, accountable providers.

If too much pressure is put on any of the parts of the triad, there will be stagnation and pushback. That is the reason for rethinking how and when to use the outcomes-based contract. It can be used with consumers to set goals and move toward them, but insisting on attainment may well be self-defeating. Better to use incentives that are meaningful for each of the stakeholders and increase variation over time.

In an outcomes-based contract, the strategy is to improve accountability for health care outcomes that will result in better health quality and predictable economic trends. The engagement of the beneficiaries is improved, and the aligned responsibility for outcomes from the service providers ensures that every stakeholder is working to produce better health.

Outcomes-based contracting can become the mirror image of VBBD for the service providers, with hard metrics and goals to be achieved, because these reinforce the practical behaviors in business: efficiency, repetition, reward. VBBDs have shown that they can be replicated across large and small employers for better behaviors that lead to better outcomes. Avoid the boomerang by understanding the recipient of the message: humans react better to incentives that promote behavior change and store the memory. Systems react better to goals that are tightly defined so teams can monitor the metrics. These are very different applications, and success will occur when the differences are acknowledged.

Reach Nayer, president of, at or (314) 422 4385.

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