VBC Introduction – Commonly Used Terms
by Dr. Jon Hart
If you’re new to Value-based Healthcare, first of all, Wake Up! Where have you been? Just kidding. Even though I’d like to think that the concepts and practice of value-based care (VBC) are well-known to all and practiced diligently by most – VBC as a mode of operation in healthcare delivery that improves outcomes, improves patient and physician experience, improves revenue for physicians, and decreases overall cost of medical care – the realist in me recognizes that’s definitely not the case.
I hear daily of organizations and practices just starting to investigate and learn about VBC. When considering adding VBC to your practice, possibly to remove or limit your involvement in Fee-for-Service (FFS) practice, you will be inundated with new terms and acronyms. There are many resources out there to define all the unique verbiage in the lexicon of VBC, but I’d like to put forth another set of definitions in more practical terms and applications to aid in understanding (with some editorial comments scattered about).
My list is not exhaustive (though you may be exhausted when you finish reading it!) and is based both on industry standards and my experience in the field. I’ll proceed in reverse alphabetical order.
Volume – churn and burn style of medicine; driver of fee-for-service medicine. Volume-based care is simply how many of something you do multiplied by the price you get for doing that thing.
Value – In the context of value-based care (VBC), value is defined by an equation where quality is divided by cost and that quotient is either added to or multiplied by experience, depending on one’s point of view of experience’s role in value creation. Value in VBC can also be used to express the intrinsic worth of the components of healthcare delivery – patients, physicians, providers, and staff. Some sub-definitions:
Quality – access, prevention, outcomes, best practices
Cost – price, affordability, opportunity cost
Experience – are the lives of the component parts enhanced and connected as individuals, or are they degraded and disjointed as commodities?
Shared Savings – There’s a certain bucket of money that all payers (insurers, Medicare, employers, etc.) set aside to pay for medical expenses of their members on an annual basis. If the cost of that care comes in below the budgeted, bucketed amount, savings have been generated. In certain VBC contracting scenarios, this savings can be shared with physicians, practices, or organizations if quality has been upheld. This is an incentive to put in the work of decreasing the overall medical expense of that population while maintaining quality care and optimized health. Ranges of shared savings opportunities are typically from 25% to 100% of the savings going to the practice or organization. Sometimes this shared savings is tied to an expense risk corridor (see Risk below).
RVU – Relative Value Units (invented by a Harvard economics professor and embraced by the AMA and CMS) are an objective way to identify the cost components linked to procedures done by physicians and providers. Their primary use has been determining the price to pay for a medical service rendered, but they are also used as a productivity measure for physicians and providers. This term is more about worth and dollar amounts than actual value or its creation in the VBC sense.
Risk – The term “risk” will get used in at least three different contexts, outside of typical medical risk in clinical practice.
a. Risk adjustment – Medicare and other payers adjust their premiums and expected expenses based upon the burden of illness documented in the population they’re covering. The higher the burden of illness (the “sicker” the patient) the higher the expected spend for their care. This is based on Hierarchical Condition Codes (HCCs) that are created and captured when a patient’s illnesses and conditions are documented in the medical and claims records. Accuracy and completeness of burden of illness documentation is essential in calculating a populations’ expected cost of care for the next year. For Medicare, this determines what CMS is either going to budget for medical expenses or pay to a Medicare Advantage plan in monthly premium. This becomes an important revenue driver in VBC contracts with shared savings or expense risk (see Shared Savings and Expense Risk, below). That monthly premium or estimate of spend is the Benchmark (see below) that a practice or organization will have as a goal in shared saving or an expense risk contract.
Important (and irritating) point: All conditions that add to a patient’s burden of illness must be documented in the EHR and on a claim (recaptured) to count for that year. The system works as if that patient who had Diabetes with Complications in 2022 is suddenly cured and no longer diabetic in 2023, at least until a substantiated claim is submitted.
b. Risk stratification – Identifying individual risks in your population and layering patients into prioritization levels based on those risks, especially risks or conditions that can be influenced positively through action. Part of managing medical expense is finding patients at risk for decompensation from their chronic conditions (often termed Rising Risk) and intervening in their healthcare journeys in a meaningful way to prevent those exacerbations and decompensations. Optimizing health and well-being while decreasing the incidence of disease exacerbation keeps people out of the hospital, keeps them happier at home, and lowers medical expenses. Appropriate risk stratification leads you to the patients where you can have the most impact.
c. Expense risk – In more mature VBC contracting, a practice or organization may choose to go “at risk” for part or all of the medical expense or premium dollars budgeted for the care of their patient population. In this scenario the organization shares the risk of medical expenses versus premium dollars with the payer (commercial, Medicaid, or Medicare). It can be limited to a certain percent of gain or loss via a risk corridor – eg., 5% upside risk and 5% downside risk, tied to the benchmark (see Benchmark, below), paid to or paid by the practice based on cost results. Increasingly more common, though, is tying risk to the actual medical expense in a percent, up to 100%.
d. BONUS Term – Payvider. A practice or organization that provides healthcare services, but also functions as an insurance plan, either through a formal, legal entity (their own insurance plan) or through an expense risk contract where they assume most of the medical expense risk.
Population Health – Improvement vs Management. Both are done through data collection and assessment. Effective management also requires relationship with individuals.
Population Health Improvement: Discerning the medical (including mental health), social, and environmental risks of a population to address their root causes through policy and legislative changes. Example – a population suffers from a higher-than-average insecurity of stable housing leading to higher medical expenses from exposure, infection, and chronic disease decompensation. Legislators and policymakers create opportunities to alleviate the problem through finance law, zoning regulations, and legislated assistance.
Population Health Management: changing the health and well-being of a population one individual at a time. First, know the predominant risks a population is facing and build processes and programs to address those risks. Then, assess the needs of the individual and build an individual plan of care to address that person’s specific and unique needs.
PMPM, PMPY – Per Member Per Month and Per Member Per Year. The number of your patients in a particular payment model for a specific timeframe. This is usually used in the context of a payer’s premium, the benchmark (see below), or as a unit of medical cost reporting. Example, medical expenses for a population of members averaged $1,000 per member per month – pmpm – or $12,000 per member per year – pmpy. In some cases, it can be synonymous with capitation, a familiar insurance word. It can also be used in early stage VBC contracting to describe a bonus paid for certain activities or cost and use metrics (see below) are achieved. Example, a $4 pmpm bonus paid to a practice if their patients utilize the Emergency Department at lower than an expected frequency – ED/K (see Cost and Use, below). If they meet that metric, they receive a bonus of $4 for every patient (member) they have enrolled in that plan per calendar month.
P4P, P4Q – Pay for Performance and Pay for Quality. These usually refer to activity-based bonuses included in a payer contract. Performance could mean how well a practice does against a projection of medical expense (see MLR below) or compared to a goal for a utilization measure like admissions (IP/K, below in Cost and Use). Pay for Quality usually refers to meeting HEDIS Quality measure goals as set forth by the payer (see HEDIS, below). These contractual incentives are steppingstones on the journey to full-risk VBC.
MLR – Medical Loss Ratio. Also termed Medical Expense Ratio. This is the percent of insurance premium dollars spent on medical care. If you start with $100 of premium, spend $15 in administration of the plan and $85 for medical expense (the MLR), there is no money left over in the end. The goal of shared savings and expense risk contracts is to lower the medical expense, creating savings that can either be shared or completely owned by the practice. Ideally, we’d see a decrease in administrative expense, too, but payers have not focused as much on that, yet.
MA plans – Medicare Advantage plans. As alternatives to traditional Medicare, these plans are operated by private or commercial payers or provider organizations (less common) and generally do not charge their members a premium for coverage. The premium money comes from CMS, with these plans considered as Part C Medicare. These plans tend to offer services and benefits not usually covered by traditional Medicare, like fitness programs, over-the-counter pharmacy products, dental coverage, etc. The members are bound to a network of physicians and may have copays for services. Most plans include pharmacy benefits (Medicare Part D) as well.
MA plans are judged in a Star rating system from CMS (see CMS Star Rating, below). Their Star rating can have a huge financial impact, so they are very diligent and creative in finding ways to improve and maintain Stars. This often leads to VBC contracting.
Patients can have both an MA plan and be on a state Medicaid plan. These patients are termed Dual-eligible. This cohort tends to have a higher incidence of chronic conditions, social risks, and health equity issues than other populations in Medicare. Because of these increased risks, dual-eligible members tend to have a higher benchmark (see below), making them the focus of many VBC organizations.
HEDIS “Quality”- Healthcare Effectiveness Data and Information Set (HEDIS) is a list of over 90 measures designed help assess quality in the delivery of healthcare services. These were originally created in the 1990’s as measures of quality for HMOs (Health Maintenance Organizations). They now sit under the control of the National Committee for Quality Assurance (NCQA). Check out all the measures at https://www.ncqa.org/hedis/measures/.
Some of the more common measures monitored by payers are outcomes based (control of diabetes, control of hypertension), and activity or process based (influenza vaccine administration, retinal exams in diabetes, followup visits after hospitalizations). Besides vaccine administration, which is complete intervention on its own, many of these activity measures only assess if a test or visit was done, not if it was appropriately followed up (breast cancer screening, colorectal cancer screening, retinal exams in diabetes, Care for Older Adults, etc). Others are based on documentation of appropriate medication usage in certain conditions like diabetes, COPD, High Cholesterol, and more.
There is debate about whether these measures truly assess quality or not. There is no debate, though, that Medicare Advantage Plans and Medicaid Managed Care Plans put a lot of stock in meeting these measures. The reason Medicare Advantage payers track these is that HEDIS measures play a significant role in the Star ratings CMS applies to health plans (see CMS Stars, below).
FFS – Fee-for-Service. This is the conventional way healthcare services have been delivered in the US. It is volume based (see Volume, above) and driven by billable encounters. Outcomes and experience have only a limited role in FFS medicine. The priority is billable volume. This model works best in the case of acute, uncomplicated illness in otherwise healthy people.
Cost and Use metrics– ED/K, IP/K, ReAd Rate, PCP visits/K, Specialist visits/K. Cost and Use metrics are components of the Total Cost of Medical Care, and they represent events or outcomes that are associated with improved or worse medical expense.
ED/K – Emergency visits per 1,000 members
IP/K – Inpatient stays per 1,000 members
ReAd Rate – Readmission Rate. Represents the percent of patients discharged from the hospital who end up back in the hospital before 7, 30, or 90 days have passed.
PCP visits/K – Primary Care Provider visits per 1,000 members
Specialist visits/K – Specialist visits per 1,000 members
CMS Star Ratings – CMS devised the Star rating system to allow Medicare beneficiaries to compare performance among several different Medicare Advantage (MA) plans. (They do the same for hospitals, home health agencies, skilled nursing facilities, and others, but we will focus on MA plans.) The ratings are based on 38 quality measures in these major categories: screenings, tests and vaccines, chronic conditions, member experience, member complaints and customer service. Member experience is playing a larger part now than it used to, but HEDIS measures (see above) tied to prevention, screening, and immunization still play a significant role.
Good Star ratings (4 to 5) add revenue to the MA plans through quality bonus payments and afford those plans the opportunity to enroll members all year, rather than just in the Open Enrollment Period late in the year. Conversely, a Medicare beneficiary can switch from a plan with less than 3 Stars to a higher Star plan at any time of the year. The quality bonuses and enhanced enrollment coax MA plans to sign contracts with practices and organizations with incentives aligned around maintaining high Star ratings.
CIN (plus IPA, IDN, and PHO) – Clinically Integrated Network. A group of healthcare providers that work together to deliver efficient and affordable coordinated care to patients, focusing on evidence-based care, improved quality, efficiency, and coordination of care to demonstrate value to the market. They are integrated in the care of the patients (clinically), financially, and technologically. They can be made up of a PHO, an IPA, or an IDN. Physician-Hospital Organizations (PHO) are joint ventures between hospitals/health systems and physician partners. Independent Physician (or Practice) Associations (IPA) are comprised solely of physicians and physician groups. Integrated Delivery Networks (IDN) are owned and operated as a health system subsidiary, basically a PHO comprised solely of the health system and its employed physicians.
Clinical integration requires the participating physicians to commit to developing and following rigorous quality standards, acquiring IT resources that allow advanced data sharing and analysis, and enforcing sanctions against physicians who are not meeting the network’s requirements. When these measures are met, a CIN is allowed to contract on a collective basis with payors under applicable antitrust laws. That’s reward for bringing innovative health care delivery to the market.
Benchmark – A dollar figure, based on risk adjustment coding and other CMS black box equations, designated as the expected cost of care for a patient or cohort of patients. This is the number you’re trying to get under for medical expenses to generate revenue from savings.
AWV – Annual Wellness Visit. This is a benefit of Medicare allowing a patient to see their physician or provider on a yearly basis to update their medical history, assess their overall health, ensure the medicine list is correct, and address any screenings or preventative measures they may need. This can be the Swiss Army Knife of VBC, because it give the opportunity to appropriately capture and recapture a person’s burden of illness for risk adjustment (see Risk, above), address open HEDIS measures for prevention and screening (see HEDIS ,above), perform a reconciliation of a patient’s medications to avoid confusion and possible adverse reactions, and assess any actionable needs a patient may have in the management of their chronic conditions. It can also serve as a driver of attribution (see below). So, it attends to both the revenue and medical expense drivers in VBC.
It is also an intersection point for FFS and VBC. The visit is generously paid and generates RVUs (see RVU above), increasing billed revenue and measures of production. It’s return on investment for VBC, though, is high throughout the spectrum of VBC contracting – from P4Q to full expense risk (see both above). For that reason, it’s a great place to start for a practice new to the VBC world, aiding in making the transition.
Attribution – How patients are assigned to a specific physician. Each payer has a different attribution formula, but the importance of this concept permeates VBC. Basically, attribution is determined by which physician is involved in the plurality of care – has had the most billed touches with a patient. (There is usually a weighting system where an AWV accounts for more than usual visits.) It is only when a patient (member) is attributed to a physician that the physician can get credit for the work done in HEDIS measures, cost and use metrics, and shared savings (or the penalty for work not done). For this reason, it’s good to have someone poring over the monthly attribution files sent by payers, so you can verify for which patients you, as the physician or practice, are accountable.
APM – Advanced Payment Model (also known as Alternative Payment Model or Advanced Alternative Payment Model). As Quality Payment Programs, APMs offer physicians incentives to provide high-quality, cost-effective care and move away from the fee-for-service (FFS) model. In these models, like ACOs (see ACO, below), practices must use quality measures comparable to MIPS (next paragraph), require participants to use certified electronic health record technology, and participants must bear more than nominal financial risk.
Many physicians not engaged in VBC participate in another Quality Payment Program called the Merit-based Incentive Payment System (MIPS).
ACSC – Ambulatory Care Sensitive Conditions, not to be confused with ASC, an Ambulatory Surgery Center. ACSCs include chronic and acute conditions that, when managed early and appropriately can be treated in the outpatient world without needing hospitalization. These conditions represent potentially avoidable admissions to the Emergency Department or hospital.
The list started a few years ago with 6 conditions: heart failure, diabetes, COPD, pneumonia, dehydration, and urinary tract infection. It has since grown to include several other conditions (different based on whose presenting them) but generally including the first 6 plus gastroenteritis, perforated appendix, Angina without need for a procedure, hypertension, Asthma, cellulitis, and lower leg amputation in patients with diabetes. In VBC, managing the care of these fragile chronic conditions and having adequate access to treat the acute conditions early saves money by keeping patients in better health and out of the hospital. In addition to the medical cost incentive, some VBC contracts will specifically incentivize the outpatient management of certain of these conditions.
ACO – Accountable Care Organization. According to CMS, “Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high-quality care to the Medicare patients they serve. Coordinated care helps ensure that patients, especially the chronically ill, get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.” (https://www.cms.gov/priorities/innovation/innovation-models/aco)
A key point is that Medicare is not the only avenue through which you can be in an ACO. Medicaid and commercial plans have these formats in certain areas with some payers. The concept, though, is the same: a group of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high-quality care to the Medicare patients they serve.
RPM - Remote Patient Monitoring. Various methods of using technology to monitor patients with chronic conditions like diabetes, heart failure and COPD. Typically, biometrics like weight, blood pressure, Oxygen saturation, blood sugar, sleep apnea machines, and medication adherence are monitored either continuously or intermittently. These results are sent to a team that works with the doctor to assess any changes that might signal a need to reach out to the patient. Patients can also receive automated questions about symptoms with the answers going to the monitoring team. Very useful in identifying potential condition exacerbations before they get too far along, potentially avoiding ED visits and inpatient admissions.
HCC - Hierarchical Condition Category (HCC) risk scores are derived from claims and documentation. They are used by CMS and other payers to assess the burden of illness a patient carries. The assumption is that an average person of a particular age, gender, and geography would have a relative risk of 1.0. Diagnoses and conditions that increase one’s burden of illness beyond the average would add to that number – factors of risk. This risk is determined using categories of conditions, the HCC codes, which are fed from almost 10,000 different ICD codes. (Lots of good HCC mapping tables are available online through your favorite search engine.)
Activities-based payment - Another way of saying P4Q or P4P (above). These are opportunities to receive revenue in the form of bonuses for activities and outcomes that impact quality and medical expense, without actually taking risk or enjoying the opportunity of shared savings. They include financial incentives for completing AWVs, closing HEDIS measures, and meeting cost and use goals.
Site of Service - Where care gets delivered. The place care is rendered can greatly impact the cost of that care. Sites of service can be in-home, in a doctor’s office, in an Urgent Care Center, or in an Emergency Department - in ascending order based on cost. Procedures and diagnostic tests can be performed in an office, a free-standing diagnostic center, an ambulatory surgery center, or a hospital, again in ascending order of cost. VBC relies on a patient getting the right care at the right time in the right place at the right price. Site of service influences place and price.
Medication Reconciliation - One of the most basic, most under-used, most important tasks in modern healthcare (besides hand washing). Patients and physicians need to agree on all the medicines a person is taking, reconciling them with their conditions and with other medicines, looking for potential interactions. Frequent checking of the med list can avoid confusion, poor control of chronic conditions, and possible adverse reactions.
IDT - Interdisciplinary team Coordinated effort of multiple specialties, disciplines and focus areas to achieve the singular, patient-focused goal of optimization of a patient’s health and well-being. An IDT can and should include the following when appropriate: Physician/Provider, Nursing, Social Worker, PharmD, Behavioral Health, Palliative Care, PT/OT/ST, Home Health Team, Community Health Workers (CHW), SNF Team, Spiritual Services, Dietician, Patient Educator
PPN (High Value Network) - PPN stands for Preferred Provider Network. This is a list of specialists, sub-specialists, and medical service providers (Skilled Nursing, Therapy, Durable Medical Equipment, etc.) that meet certain requirements making them the providers of choice for their areas of expertise. With insurance networks, it’s usually based on who will agree to their rates.
For a PCP practice or organization engaged in VBC, a PPN can be an important driver of lower medical costs when the network physicians and providers are aligned with the concepts of VBC - high quality care (based on access and outcomes), appropriate cost (minimizing duplication of services and unnecessary tests/procedures), and experience (for the patient and the PCP’s team). This type of network is referred to as a high value network, since the network engages in the creation of value rather than just referral volume and FFS revenue.
As noted, this list is not all-inclusive of every term or acronym you might hear in VBC conversations. We’re inventing new ones every day! But this list should get you started. We’ll add to it as needed ….
