As the cost of healthcare continues to rise, both payers and providers continue the “triple aim” of delivering effective quality care while managing their costs. Value based care (VBC), or value based reimbursements, has emerged as an effective mechanism for achieving this goal. In fact, based on estimates developed by National Business Group on Health, almost 40% of employers are incorporating some form of value based incentives for their employee health plan . Moreover, there is increasing motivation and willingness amongst payers to move to value based care and away from the traditional fee-for-service payment structure.
It is important that both the payers and providers are aligned in terms of the methodologies and metrics used for evaluating performance and how “value” is defined and measured. In order to instill confidence for all stakeholders, it is imperative that the VBC evaluation framework be designed such that it is simple and transparent. To perform this type of evaluation, organizations must set up robust data and reporting frameworks that can provide insightful analysis to compare performance by peer provider groups. In this article, we have outlined an approach we used with one of our regional payer clients to design a quantitative methodology that represents the value of providers and provider groups. Please note that there is not a one size fits all solution for all providers and the appropriate methodology should be re-considered for a given arrangement. However, we believe this example is instructive.
A provider’s relative performance, or “value”, was evaluated through three key components: quality, efficiency, and cost. Together, these three components can be combined in the following equation in Figure 1.
Figure 1. Conceptual equation for calculating the value of a healthcare provider.
- Quality was evaluated through a variety of measures, including evidence based measures (EBMs) published by multiple organizations such as the National Committee for Quality Assurance (NCQA ), Agency for Healthcare Research and Quality (AHRQ ) and Choosing Wisely® . In our analysis of the providers, quality was defined by several specific EBM and MedInsight Health Waste Calculator (HWC) measures, tailored to each type of provider. For Primary Care Physicians (PCP’s), we identified 14 EBMs specific to primary care, and also assessed the provider’s overall Patient Harm Index (% of members with evidence of an unnecessary harmful service) and Wasteful Service Index (% of services measured that were identified as wasteful) as defined by the HWC.
- Efficiency was evaluated based on the utilization and number of healthcare services performed by the provider. For members attributed to one PCP, we also measured the total services performed based on the member’s claims in the following care settings: inpatient, outpatient, emergency department, professional, pharmacy, and ancillary. For each setting, resource use was measured using the MedInsight Global Relative Value Units (RVUs) product, which assigns an equal RVU value to similar types of services performed in similar regions in order to conduct fair comparison of resource utilization.
- Cost was evaluated as the as the overall cost of care provided and also in terms of unit price per service. We defined the overall cost as total allowed dollars and the latter as the allowed dollars per RVU.
One additional critical factor to manage in this evaluation process was to account for the case-mix and severity of members attributed to different providers. The resource use and unit cost for the providers was therefore risk adjusted using Milliman’s Advanced Risk Adjuster (MARA). Risk adjustment can be useful tool, but selecting the appropriate one for a given risk arrangement is outside the scope of this paper.
The practical evaluation of the three components of value was driven by the type of providers as shown in Figure 2.
Figure 2. Four major provider types that drive design of VBC evaluation
There were variations in terms of the metrics used for calculating cost, efficiency and quality for different types of providers. For example, ‘length-of-stay’ was an important factor for evaluating hospitals whereas PCP evaluations included preventative services rendered. These variations were especially nuanced when defining quality measures. A final composite provider score was developed by assigning flexible weight factors to each of these three components. This methodology for composite scoring was based on the MedInsight Provider Composite solution, a new product currently in development.
For this client, we calculated the provider composite scores along with other cost and utilization data, and leveraged the new capabilities within the MedInsight portal to create several dashboards. These dashboards focused on summarizing client provider systems, comparing their cost and efficiency, and identifying contract improvement opportunities associated with ‘lower value’ provider systems. Metrics such as attributed member months, risk adjusted relative cost of care, risk adjusted relative resource use, relative unit price, and the provider composite score were combined to categorize health systems into value tiers. Based on this methodology, clients have the ability to incorporate multiple data components into their value based contracting analyses and develop appropriate strategies for calculating reimbursement based on a provider or provider group’s value.
 Bruce Japsen, 2017. Forbes. Employers Accelerate Moves To Value Base-Based Care In 2018. Published: August 17, 2017. Available at: https://www.forbes.com/sites/brucejapsen/2017/08/17/employers-accelerate-move-to-value-based-care-in-2018/#5d009ebf1ec6
 NCQA. HEDIS and Performance Measurement. Available at: https://www.ncqa.org/hedis/
 Agency for Healthcare Research and Quality. CAHPS: Assessing Healthcare Quality From the Patient’s Perspective. Available at: https://www.ahrq.gov/cahps/index.html
 Choosing Wisely. Available at: https://www.choosingwisely.org/