Value-based payment agreements are becoming more popular and widespread. According to a 2022  report, 60% of healthcare payments were tied to value and quality in 2021.  

However, the impact of a value-based payment agreement is dependent on which metrics are used to measure performance. As the saying goes, you can’t manage what you don’t measure. Choosing which metrics to measure in value-based payment programs is the critical first step toward success. Health plans and providers that select and agree to the right metrics for their value-based payment agreements can then manage to those metrics through shared data and incentives.

Evolution of quality metrics in healthcare

Just as healthcare treatments have evolved over time, so has how we measure and report on the quality of care provided.

For instance, when the government first publicly reported hospital-specific mortality data in the late 1980s, it spurred efforts to improve quality measurement because the data was not case-mix adjusted. The effort to standardize measures and improve quality has continued ever since. Technological advancements now also allow stakeholders to track and report metrics more comprehensively, which has allowed value-based payment agreements to flourish.

Quality metrics and the rise of value-based payments

In a traditional fee-for-service model, healthcare providers are paid based on the number of patients they see or the services they provide. The incentive drives a focus on volume, not value.

In a value-based payment agreement, on the other hand, providers are incentivized to focus on and improve care quality and cost.

Determining if these agreements are actually successful at improving care quality, lowering cost, and improving population health requires choosing metrics to measure and track. There are hundreds of possible metrics to choose from, so selecting the right number and type is essential.

Tracking clinical outcomes, such as readmission rates, vaccination rates, management of chronic conditions, and preventive care metrics, like cancer screening rates and wellness visits, gives a good view of whether care quality is improving.

Tracking cost metrics, like total cost of care, cost per capita, and money saved by lowering avoidable emergency room visits and hospitalizations, ensures efforts are actually moving the needle. For agreements that also focus on improving patient experience, participants can choose to track timely access to care and care coordination effectiveness.

Provider engagement metrics, such as provider participation and satisfaction, are other key metrics to measure — because value-based payment agreements won’t work without their participation. 

The interplay between metrics and physician rewards

Choosing which metrics are measured in a value-based agreement will impact physician behavior, compensation, and reputation, so it’s important to get it right. 

In a pay-for-performance agreement, health plans and providers must agree on a set of metrics and set improvement goals for those metrics. Providers receive bonuses or incentives for hitting their metric goals, increasing their overall income. The goal is for patients to stay healthier over time as care quality improves and health plans end up spending less money.

The metrics by which providers are measured can also impact their professional reputation. Many metrics are publicly available to help healthcare consumers choose the right provider. For example, patient experience scores are public. Organizations like The Leapfrog Group assign safety grades to hospitals and surgery centers. That’s why it’s imperative for health plans to work closely with their provider partners to choose metrics and goals that are mutually beneficial for all parties involved. 

The danger of vanity metrics and the importance of meaningful indicators

There is a wealth of data available and thousands of metrics that could be included in value-based payment contracts. Choosing the right quality metrics will not only determine how providers are paid and perceived but also how successful the value-based payment arrangement will be. 

It may be tempting to select metrics that make the health plan and provider look good but don’t move the needle for patient outcomes or cost of care. So-called vanity metrics can mislead healthcare decision-makers and distract from progress toward high-value care.

Instead, health plans need to focus on actionable metrics. Data analytics are an invaluable tool to choose the metrics that will drive better patient and cost-effective outcomes.

“The program needs to target a tangible behavior that the physician believes they can control,” said Jayson Harpster, director of product at Clarify Health.

Continuous refinement of metrics for better healthcare

After the fallout from releasing hospital mortality data in the late 1980s, it became clear the industry needed to refine metrics so as to not unfairly penalize providers or confuse the public. Public agencies, private nonprofits, and others are continually working to do so.

The Center for Medicare and Medicaid Services is part of the government’s efforts to refine quality metrics over time. Its focus is to reduce the number of quality measures in Medicare programs and shape all quality measures that drive value-based care. The initiative has already reduced the number of Medicare quality measures by 18%.

Experts have also concluded that metrics may need to differ based on the population of patients served by the health plan establishing the value-based payment model. “Medicaid, Medicare, and commercial insurance markets serve different populations, which may require different spending priorities and quality metrics,” one report states.

The metrics we use to measure the quality and cost of care will continue to evolve, driven by technological advancements. It’s now possible to personalize quality metrics down to the individual provider and to share clinical and cost information with them in real-time. 

Health plans can also provide frequent micro-incentives to physicians who engage in activities that reduce medical spend and enhance clinical effectiveness. This frequent feedback loop — as opposed to giving providers delayed annual incentives — encourages a continued march toward providing high-value care.

Don’t be afraid to work with providers to continually improve what you measure — so everyone can better manage it.