Preloader Icon



Back to Home

Value in Healthcare

May 10, 2017

By: Victor Lee

What is Value in Healthcare?

Dr. Victor Lee is the Vice President of Clinical Informatics at Clinical Architecture. This is blog post addresses the topic of value in healthcare.

It is well known that the United States is at the top of the leaderboard in rankings of health expenditures as a percentage of GDP. Although not new, discussions about value in healthcare have gained a lot of momentum in recent years, perhaps reaching a feverish pitch when the Centers for Medicare and Medicaid Services (CMS) announced specific goals to shift reimbursement from fee-for-service (FFS) to value-based payment models and when congress passed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

What does this mean? A good place to start would be to define what “value” means in a healthcare context. While there may be variations in definitions and opinion across payers, providers, and patients, perhaps the most commonly accepted general definition was proposed by Michael Porter when he stated that “value is defined as the patient health outcomes achieved per dollar spent.” By this definition of value, simply doing more does not necessarily translate into value. Rather, one must perform not too much or too little in the provision of healthcare services—providers must deliver the right amount of the right interventions that are cost-effective in order to maximize value. Since our healthcare delivery system has been traditionally based on FFS models the incentivize a higher volume of care, there is much work to be done to transition our nation’s focus onto value of care.

As with any form of complex system change, it can be helpful to measure progress toward our goals. The Health Care Payment Learning and Action Network (LAN) is a collaborative network of public and private stakeholders who are tasked with accelerating the adoption of value-based payment. The goal of the LAN is to align private payers and CMS in moving payment from traditional FFS methods to FFS-linked to quality and alternative payment models (APMs). One of the first work products from the LAN was the APM Framework which built upon a seminal article and supplement by CMS.

Value in Healthcare

Source: LAN Alternative Payment Model Framework and Progress Tracking Work Group. Alternative Payment Model Framework White Paper. January 12, 2016

In the APM Framework, Category 1 is plain FFS without any link to quality or value and has more or less been the historical norm since the enactment of Medicare and Medicaid in 1965 and since the advent of healthcare as an industry for that matter. Payment innovation programs in the public sector largely stem from efforts through the Center for Medicare and Medicaid Innovation (CMMI or “CMS Innovation Center”) which develops and tests payment and service delivery models across categories 2 through 4, so most of my writings will focus on those programs, with recognition that private insurers have analogous programs.

Category 2 represents FFS with a link to quality and value. Examples include mandatory pay-for-performance programs such as Hospital Value-Based Purchasing (HVBP)Hospital Readmissions Reduction Program (HRRP), and Hospital-Acquired Condition Reduction Program (HACRP) in which a “small” proportion (usually up to approximately 3% which can still add up to millions of dollars depending on the size of the hospital) of payments are dependent on quality, safety, and efficiency metrics.

Category 3 programs up the ante by linking payments to the management of subpopulations or episodes of care. That being said, they are still based on a FFS architecture. Examples include accountable care organization (ACO) programs like Medicare Shared Savings Program (MSSP)Bundled Payments for Care ImprovementComprehensive Care for Joint Replacement, and many others including numerous private health plans. Some proponents make the case that bundled payments represent the most promising path forward to moving our nation to value-based care.

Category 4 payment models such as the Pioneer ACO Model (in years 3-5) and Maryland All-Payer Model are perhaps the most challenging to implement because payments are linked to the number of beneficiaries rather than service volume, so they are a complete departure from FFS. Providers are given capitated per-person payments over a certain period of time, and they must manage expenditures while furnishing all necessary health care services for their defined populations. Providers profit if they keep their populations healthy and spend less than the capitated payments they receive, but they can lose money if they are unable to deliver effective and efficient care. Some proponents assert that population-based payments are the best approach to aligning provider financial incentives in moving our nation to value-based care.

In the APM Framework, categories 3 and 4 are considered APMs due to the risk-bearing nature of those payment programs that drive providers to significantly change the way they practice. Namely, those programs require providers to share health information and coordinate care across providers and venues because they are accountable for both the quality and cost of care. In any case, definition of the APM framework laid the foundation for setting some important goals. In January 2015, CMS defined the following goals in relation to transitioning to value-based care:

Value in Healthcare

Source: Nguyen V. CMMI. Payment Primer. LAN Summit, October 26, 2015.

In plain English, CMS aimed to move 85% of its payments to programs in category 2 or higher by the end of 2016 and 90% by the end of 2018. Perhaps more significantly, it had aimed to push 30% of its payments to programs in category 3 or higher (ie, APMs) by the end of 2016 and 50% by the end of 2018. As a frame of reference, its starting point for APMs was 0% in 2011, so this is quite a significant change in the way that CMS is incentivizing reimbursements, and private payers are making similar transitions.

Surprisingly, CMS announced in March 2016 that it had achieved its 2016 goals approximately 11 months ahead of schedule. It went on to explain that with many new enrollees to Medicare ACO programs, “an estimated 30 percent of Medicare payments are tied to alternative payment models as of January 2016.” Let’s be clear on what this means. The percentages are in reference to payer reimbursement models which is only a starting point. This has numerous implications for what must happen downstream on the provider side.

Providers must adapt to evolving payment models by changing the way they work. They must rely on new technologies and solutions to share data and communicate with other providers to reduce duplication of services. All this must be achieved using health information technology that is evolving with rapidly changing legislative and regulatory requirements. And to further complicate matters, the “shift” to value-based care that we often speak of may be more accurately characterized as a “slow drift” in the sense that providers do not enter APMs and reinvent their practices overnight. Instead, providers must operate in a gray area for some period of time during which they may have payment arrangements spread across 2 or more of the 4 categories in the APM Framework. During this time, there will be variations of mixed incentives to deliver volume-based and value-based care. Providers may have one foot in a FFS model and another foot in an APM. It’s like playing Twister but with financial penalties for falling down.

Therefore, it may come as no surprise that despite progress with APMs on the payer side, we’ve seen providers hit some speed bumps along the way. For example, the Pioneer ACO program was perhaps the most high-profile CMS ACO program at the time, with participants largely viewed as healthcare leaders in terms of organizational readiness for payment innovation and delivery system reform. However, after a whiz-bang launch in 2012 with 32 ACO participants, the program saw attrition (with many participants moving to other models such as MSSP), the Pioneer ACO program concluded at the end of 2016 with only 8 ACOs. It’s clear that transitioning to APMs are not just a walk in the park.

Even taking “smaller” steps into category 2 payment models can be challenging. Results from the 3 mandatory pay for performance programs mentioned earlier (HVBP, HRRP, and HACRP) reveal that many hospitals are unable to escape penalties, and if you’re a data geek like me, you can download FY 2017 raw performance data for HVBP and HRRP as well as HACRP.

In summary, with the rising cost of healthcare, there is an urgent need to focus our incentives and efforts on value, but there is no single proven method that will help our nation achieve our goals at scale. However, we can innovate, learn, and adjust our approaches along the way. As a guiding light, I believe that the Triple Aim of better care, healthier populations, and smarter spending that was proposed in an article by Berwick et al nearly a decade ago still apply today. The authors propose 3 indicators of progress:

  • Hospitals are trying to be emptier, not fuller
  • Supply-driven dynamics of care are replaced by engaged patients pulling resources instead
  • Patients feel that the system is mindful of their needs for health even if they forget

Where are you along the path to value-based care, and what other progress indicators do you feel are important to you or your organization?

Linking Reimbursement to Quality and Value

In the beginning of this post, I provided an overview of payment models that vary in their incentivization of volume-based and value-based care. In this discussion, I would like to focus on some specific category 2 payment models. According to the Alternative Payment Model Framework, category 2 payment models utilize traditional fee for service payments which are subsequently adjusted based on adherence to performance metrics related to quality or value.

Among many other things, the Patient Protection and Affordable Care Act of 2010 (ACA) gave birth to three mandatory pay-for-performance programs in category 2: Hospital Value-Based Purchasing (HVBP)Hospital Readmissions Reduction Program (HRRP), and Hospital-Acquired Condition Reduction Program (HACRP). Other legislative actions have spawned programs that have also garnered a lot of attention, namely Meaningful Use and the Merit-based Incentive Payment System—let’s take a closer look at these two programs.

Meaningful Use

Meaningful Use (MU) is officially known as the Electronic Health Records (EHR) Incentive Programs which is administered by the Centers for Medicare & Medicaid Services (CMS). It is accompanied by the Health IT Certification Program (formerly “EHR Certification Program” when it was narrower in scope) which is administered by the Office of the National Coordinator for Health Information Technology. Meaningful Use and the Health IT Certification Program originated from the American Recovery and Reinvestment Act of 2009 (ARRA) whose Health Information Technology for Economic and Clinical Health Act (HITECH; ARRA Division B, Title IV) provisions established an incentive payment system for eligible professionals (EPs) and eligible hospitals (EHs) to implement and meaningfully use EHRs and other health IT systems. MU is a category 2 payment model because central to the meaningful use of certified health IT is the adherence to electronic clinical quality measures. Failure to satisfy MU requirements results in the assessment of penalties. Hence, the linking of payments to quality.

MU has been implemented in 3 stages, each with increasingly challenging requirements and goals. Stage 1 goals are to capture and report data after EHR implementation, stage 2 introduces requirements for advanced clinical processes, and stage 3 focuses on improving outcomes. A basic overview of requirements is presented here:

Value in Healthcare

Source: Office of the National Coordinator for Health Information Technology. How to Attain Meaningful Use. Last accessed: May 3, 2017.

At the time of this writing, most EPs and EHs/CAHs are likely to be attesting to stage 2 criteria, with some early adopters planning to attest to stage 3. Starting 2018, stage 3 will become mandatory for all providers. The specific requirements of each stage can be found on the Electronic Health Records (EHR) Incentive Programs web site.

CMS has shared compelling data that MU has increased adoption of EHRs and health IT systems for office-based physicians and acute care hospitals. However, success with adoption has been accompanied by challenges during implementation. Many physicians and hospitals feel that the long lists of prescriptive measures have forced them to “check checkboxes” rather than spend time on quality improvement and care coordination activities that could enable them to optimize outcomes outside of regulatory requirements. Many EHR/health IT vendors feel that certification criteria are mandated on timelines that are too short for complex development cycles and that the journey to compliance leaves insufficient room for product innovation.

As a result, many individuals and industry groups have advocated change. Some changes have been incremental and include items such as modifications to reporting periods as well as the addition, modification, or removal of certain requirements. Staunch opponents have called for more drastic change such as the termination of MU altogether, and some of these individuals actually got what they asked for, and then some. How so?

At the 2016 J.P. Morgan Annual Health Care Conference, Andy Slavitt (then CMS Acting Administrator) said, “Now that we effectively have technology into virtually every place care is provided, we are now in the process of ending Meaningful Use and moving to a new regime culminating with the MACRA implementation. The Meaningful Use program as it has existed, will now be effectively over and replaced with something better.”

Was this the death knell of MU? Did this really mean that the era of MU had ended? Not quite, at least not yet. To clarify, MU is actually comprised of 4 related programs, each with varying eligibility criteria, measures, incentive payment amounts, and other program requirements:

  • Medicare EP
  • Medicare EH
  • Medicaid EP
  • Medicaid EH

Only the Medicare EP program has been folded into the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) legislation, while providers in the other 3 programs carry on with MU as usual—that is, until something else comes along. So at least for now, MU is very much alive for Medicaid and for Medicare EH/CAH participants. Medicare EPs, on the other hand, are paying close attention to MACRA.

Merit-based Incentive Payment System

MACRA is a complex piece of legislation, of which I will summarize two key aspects. First, it repeals the Sustainable Growth Rate (SGR) formula that was created by enactment of the Balanced Budget Act of 1997. The SGR formula determined how physicians were paid for services rendered to Medicare beneficiaries, and while its intent was to curb spending growth, it became so unpopular that its implementation was temporarily delayed through congressional lawmaking (a.k.a. “SGR patch” or “doc fix”) a whopping 17 times between 2003 and 2014. A historical review of the SGR formula and its repeal is provided in this Health Affairs Blog.

Second, in place of the SGR formula, MACRA introduces the Quality Payment Program (QPP). Andy Slavitt was alluding to this program as the replacement for MU in the quote above. The QPP consists of two tracks: the Merit-based Incentive Payment System (MIPS) track and the Advanced Alternative Payment Models (APMs) track. The Advanced APMs are category 3 payment models which I will address in my next blog, and in this post I will focus on MIPS.

Value in Healthcare

Source: Centers for Medicare & Medicaid Services. What’s the Merit-based Incentive Payment System (MIPS)? URL: Last accessed: May 3, 2017.

Clinicians will “default” to the MIPS track unless they are enrolled in an advanced APM, and based on current APM participation, CMS anticipates that MIPS will apply to most clinicians. MIPS is a 2-sided program, meaning that Medicare Part B payments may be adjusted upward or downward depending on one’s composite performance score (CPS) that is based on the following categories:

Here’s more information about these 4 categories (details are subject to change):

  • The Quality category replaces the Physician Quality Reporting System, and clinicians will be able to choose 6 measures from a list of 271 measures (which will be updated annually by November 1) that best reflect their practice. In the 2017 performance period, this will account for 60% of the CPS.
  • The Advancing Care Information category replaces MU (for Medicare EPs only, as stated above). Measures of interoperability and information exchange are derived from MU and simplified. There are 2 reporting options to choose from, based on one’s EHR edition. In the 2017 performance period, this will account for 25% of the CPS.
  • The Improvement Activities category consists of 92 clinical practice improvement activities, of which 4 must be chosen for most participants (groups with fewer than 15 participants and providers in rural or health professional shortage areas need only select 2 activities), and this category account for 15% of the CPS in the 2017 performance period.
  • The Cost category replaces the Physician Value-Based Modifier program and is a measure of resource use. There is no reporting process, as CMS calculates this score based on claims. This will not be factored into the CPS calculation for the 2017 performance period (which is considered a transitional year) but is planned to be introduced and gradually increased in subsequent years.


The streamlining of PQRS, VM, and MU (Medicare EP only) components under a single MIPS program is intended to ease clinician burden, and these legacy quality reporting programs will be sunsetted. As you can see, even though the MU program for Medicare EPs is officially ending, many of its components live on through the MIPS Advancing Care Information category. More details about the MIPS scoring methodology are provided by CMS.

Like many other value-based programs, MIPS has 2 important sets of dates to remember: performance period dates (as mentioned in the descriptions of the 4 CPS categories above) and payment adjustment dates. The first performance period begins as early as January 1, 2017 and as late as October 2, 2017 to allow data collection for a consecutive period of at least 90 days. The first payment adjustments begin January 1, 2019 and are based on the 2017 performance period.

ARRA HITECH, ACA, and MACRA are probably the 3 most influential pieces of healthcare legislation to come out of congress in the last decade. They symbolize a torrid pace of change in how we intend to pay for healthcare services and how we derive value from our care interventions and our technology systems that support them.

It is clear that for the next several years, category 2 payment models will permeate healthcare laws and regulations as well as our day-to-day conversations among payers, providers, and hopefully an increasing number of empowered patients who engage in the active management of their own health and healthcare. There will be additional challenges and lessons learned as we continue to move away from straight fee for service with no link to quality or value (category 1 payment models) and continue to link reimbursement to quality and value (category 2). It will not be easy, and the plot will thicken when we explore alternative payment models (categories 3 and 4) in the next post.

Alternative Payment Models and Enabling Technologies

I want to focus on alternative payment models (APMs)—an umbrella term for programs that fall into either category 3 or 4 of the APM Framework—and how certain technologies may support APM program goals.

Examples of category 3 APMs include accountable care organization (ACO) programs such as the Medicare Shared Savings Program (MSSP)Pioneer ACO Model, and Next Generation ACO Model. These are contractual agreements between payers and groups of healthcare providers who share responsibility and accountability for high quality care while judiciously managing costs for a pre-defined patient population. ACOs are typically formed by integrated delivery systems, multispecialty physician practices, physician-hospital organizations, independent practice associations, and virtual physician organizations.

There are also category 3 APMs that focus on transformation of primary care such as Comprehensive Primary Care Plus and the Independence at Home Demonstration as well as episode-based payment initiatives such as the Bundled Payments for Care Improvement InitiativeComprehensive Care for Joint Replacement Model, and the Oncology Care Model. Given that there is no single path to value-based care, different kinds of APMs are being tested in different care settings across the nation, and subsequent payment innovation models will be designed based on our observations of what worked well (and not so well). A list of current and past payment innovation programs from the Centers for Medicare & Medicaid Services (CMS) is available at the CMS Innovation Center.

There are a limited number of category 4 APMs such as the Pioneer ACO Model (in years 3-5) and Maryland All-Payer Model. Unlike category 3 APMs which are still based on a fee-for-service (FFS) foundation with subsets of patients or venues of care tied to value-based payment, category 4 APMs link payments to the total cost of care in all venues for beneficiaries that are attributed to providers. Hence, providers must use scarce resources wisely while managing acute care, preventive care, and the overall health and wellness of their populations.

Clearly not all APMs are alike. In fact, the distinction between APMs has become evident when considering requirements under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) legislation in which its Quality Payment Program (QPP) features an Advanced APM track as previously discussed. As the name implies, not all APMs qualify for participation in the Advanced APM track. For example, MSSP has 3 tracks, where track 1 is one-sided with only upside shared savings potential (but no risk for losses), while tracks 2 and 3 are two-sided, meaning that there is the potential for both shared savings and losses. Under MACRA, only tracks 2 and 3 are considered Advanced APMs. The QPP website provides a short list of Advanced APMs as well as a document that describes eligibility criteria and rationale for inclusion or exclusion of a more comprehensive list of APMs. The following Venn diagram illustrates the relationship between different categories of APMs.

Value in Healthcare

Source: Centers for Medicare & Medicaid Services. Alternative Payment Model Design Toolkit. Last accessed: May 17, 2017.

The diagram also highlights a set of APMs in the Physician-Focused Payment Model (PFPM) bucket. In contradistinction to top-down initiatives that come out of the CMS Innovation Center, PFPMs take a bottom-up approach by empowering providers to design their own APMs and propose them to the Secretary of the Department of Health and Human Services via the Physician-Focused Payment Model Technical Advisory Committee (PTAC). PTAC was established by statute under MACRA, and its purpose is to broaden opportunities for clinicians to participate in advanced APMs. The PTAC website provides a cumulative list of proposals as well as submissions that are currently (or were recently) open for public comment.

Regardless of the category of APMs, participating provider groups share some common general needs that differ from FFS models. Examples include:

  • Provider accountability for both quality and cost of care
  • Competency to forecast budget based on resource needs of attributed patients
  • Ability to shift business practices from encounter-based health care to population health

Because these provider groups assume significantly more financial risk than in traditional volume-based reimbursement models, they must adapt to new ways of doing business. Namely, their ability to embrace certain enabling technologies is likely to facilitate their journeys to value-based care.

1) Data Management: Although the enactment of Meaningful Use legislation ushered in a wave of EHR adoption, it has become clear that this is not the finish line but rather the starting point for adding value to healthcare. While we are able to generate a large volume of data, usage of EHRs and other health IT systems come with data management challenges that are particularly important for APM participants to solve. For example:

  • Clinical documentation is often incomplete or inaccurate (such as undocumented diabetic patients who have abnormal glycemic markers or are being treated with antidiabetic medications)—how can documentation be improved to identify eligible patients for disease management or population health programs?
  • The number of local terminologies parallels the number of organizations who have implemented EHRs—how are these local terms aligned with terminology standards such as those proposed in the Interoperability Standards Advisory to facilitate interoperability?
  • While data is often structured and coded, it is estimated that a vast majority of clinical information resides in unstructured text—how can we unlock key information (such as a left ventricular ejection fraction) to facilitate analytics against a more complete clinical picture?

2) Data Insight: Assuming that organizations have implemented sound data governance practices to address the issues in item 1 above, a logical next step is to derive clinical awareness and insight from that data. Here are some examples of what can be done with health data to support APMs:

  • Risk stratification for identification of sicker, at-risk, and emerging-risk patients to complement population health initiatives (for example, patients with multiple COPD hospitalizations may benefit from disease management or pulmonary rehabilitation programs to reduce readmissions)
  • Real-time patient-specific clinical decision support to improve care quality (for example, eligible patients with systolic heart failure who are treated with aldosterone antagonists have lower rates of death and hospitalizations), to reduce unnecessary resource utilization, or to optimize compliance with electronic clinical quality measures prior to reporting
  • Research the correlation between clinical and financial outcomes (for example, the authors of this study found that there is greater variation in spending across physicians than across hospitals and that higher spending was not correlated with better outcomes)

3) Data Sharing: Much of the waste that occurs in healthcare today results from the inability to access existing patient health data. APM participants must minimize duplicate testing and make clinical information available to all care providers to improve the efficiency of care. Technology solutions can facilitate data sharing in a number of ways.

  • Most healthcare organizations either have multiple EHR systems or need to share data with other platforms (e.g., through a health information exchange)—how can data be normalized and/or de-duplicated to support such exchange?
  • As patients transition across venues (e.g., hospital to rehabilitation facility) and to different providers (e.g., hospitalist to primary care provider), summaries of care can be exchanged through a Continuity of Care Document (CCD) or other means. Existing CCD implementation guidance supports both human readability as well as optional structured data for machine computability—how can we leverage both use cases to maximize the value of our health information technology investments?
  • Patient engagement is an important success factor in APMs. Patients are generating their own health data through wearables, exchanging direct messages with their providers, and/or actively using patient portals to view, download, and transmit their health information. How can we leverage the momentum of their interest in their own health data and extend it to shared decision-making that drives their own health outcomes?

In summary, the path to value-based care can be characterized by a taxonomy of reimbursement models in which each model category is defined by criteria that may result in financial gain and/or loss. Multiple payment models are being tested across providers, specialties, and venues of care, and we will iterate on future payment models based on lessons learned. Delivery system reform is facilitated by the efficient use of data, particularly as we progress to APMs. We must not just be good stewards of our data, we must turn that data into information and knowledge for both providers and patients to get the most value from our efforts—that is, to achieve the best patient health outcomes achieved per dollar spent.

Stay Up to Date with the Latest News & Updates


Submit a Comment

Your email address will not be published. Required fields are marked *

Share This