Key Parameters for Evaluating a Value-Based Care Program

Health systems and providers have participated in alternative payment models ranging from pay for performance to full risk across all payer classes. Not surprisingly, many participants have exited these models as the industry experiments while navigating the transition to value. Too many organizations have drawn conclusions about the efficacy of value-based care (VBC) based on incomplete information. While some level of participation churn is to be expected, there are underlying flaws in many of these assessments that lead to premature decisions.

Looking beyond the specifics of any given VBC program or contract, organizations that seek to evaluate their prospects for success in value-based care require three essential components for an honest appraisal: (1) appropriate time horizons, (2) sufficient data gathering and (3) a level of commensurate investment. If one or more of these factors is absent, the results are unreliable at best and misleading at worst.

  1. VBC performance, especially in total cost-of-care (e.g., accountable care organization [ACO]) arrangements, requires three to five years to assess performance. Meaningful investments in patient health, especially chronic disease management, often take multiple years to prove out. Examining the case of complex patients, their costs may even increase in aggregate in the early years as they engage with a higher-touch care team that works to stabilize their health. In other words, success and failure in these models could look very similar in the early years of an assessment. As the following examples highlight, the return on investment (ROI) for population health often does not show up for three to five years.
    Also noteworthy is that the success stories show an ROI that continues to grow in the out-years. Additionally, these examples highlight organizations that focus on generating margin through value-based care work, so it is reasonable to infer that health systems that still balance fee-for-service margins should calibrate accordingly.
  2. Having a meaningful sample size is the second essential measurement factor. VBC arrangements expand accountability to episodes and total cost of care for patients. Variability is inherent in projecting and measuring the costs in any population, as any health plan actuary would confirm. This is where health systems can benefit from viewing measurement through the health plan lens, which has an institutional level of understanding of this reality. The following data bring this to light, as the graph that follows plots Medicare Shared Saving Program (MSSP) results relative to benchmark target (y-axis) by number of attributed lives (x-axis).
    This visual shows how much variation is inherent to smaller populations, especially those with under 20,000 lives in any given year. Too small of a sample can makes differentiating signal from noise difficult and even more important that health systems draw insights from an adequate sample size, reinforcing the importance of a multiyear view as well.
  3. Testing the organization’s ability to succeed in VBC with accuracy requires resource investment and focus. Yet, most organizations continue to incentivize and invest in traditional (i.e., fee-for-service) opportunities while entering into these models. Most organizations do make some VBC-motivated investments, but given other priorities, these do not get the focus and attention needed for a meaningful assessment. Not surprisingly, maintaining behaviors—often at odds with VBC—from the current paradigm limit the results.

Most of us know of at least one case whereby an organization entered a VBC arrangement only to exit within the next 12 to 24 months based on unfavorable results. With the above framing, perhaps some of the conclusions drawn could be reexamined. It should be noted that the horizon, sample size and investment needs vary by VBC opportunity type; more narrow models (e.g., bundles) do not require the same analytical scope as the total-cost-of-care models focused on above.

Certainly, the opportunity cost (e.g., time, resources, transformation) in testing for an uncertain outcome can be daunting. The level of commitment may vary among the organization’s leaders, and they may be tempted to withdraw investments and refocus on the core business. This framework, consisting of a multiyear commitment, an adequate population size to evaluate and meaningful resource backing, requires mettle from the outset.

In other words, organizations that want to meaningfully evaluate opportunities in VBC benefit from a level of conviction before (further) embarking on the path. To test your degree of conviction, thoroughly analyze the opportunity up front (or as soon as possible if the organization is already on the journey). At its most basic level, this analysis involves sizing the financial margin opportunity, estimating costs in VBC infrastructure and care redesign, and analyzing the impact alongside changes to the legacy business model. Bringing advanced rigor and insight to the process helps provide clear direction for organizations, especially when entering this uncertain territory filled with new information and data points. Additionally, it may ultimately enable providers target their approach more directly by payer class, disease type, care redesign efforts and so forth. With additional clarity and conviction, organizations can more steadfastly explore new opportunities for creating and capturing value.

Key takeaways if your organization is evaluating how to proceed with VBC opportunities:

  • Establish the appropriate framework for assessing VBC investments and opportunities to avoid reaching incomplete or inaccurate conclusions
  • Bring a multiyear lens to the opportunities, as that view allows the organization to drive transformation, collect more data points and accurately evaluate the trend
  • Conduct a thorough VBC opportunity assessment to help determine opportunity size, investment needs and impact on the existing business from the outset
  • Leverage the framework and opportunity assessment to guide the organization’s VBC journey, especially as alternative payment models provide new margin opportunities


As your organization evaluates VBC opportunities at stages from strategy & selection through evaluation, reach out to our Value-Based Care Strategy Consulting experts for help with your initiatives and goals.

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