Pricing #3: Quality, Outcomes, and Data Sharing

As mentioned in a previous post, the payment a provider receives for an episode of care results from the combination of several factors including the contracted price, the risk adjustment methodology, and any quality incentives.  Once a payer has established a framework for pricing a bundled payment, settled on a risk adjustment methodology, and negotiated the contracted price with a provider, the next step is to consider the role of quality in the provider’s reimbursement.  This post focuses on payment adjustments based on quality and outcomes and on the importance of sharing data with providers to help them succeed in a bundled payment contract.

By incorporating risk and quality adjustment, bundle pricing becomes more dynamic and responsive to each patient’s risk profile and experience and to each provider’s quality of care. As with risk factors, identifying the quality measures to use in each bundle should be part of negotiation with a provider. This can be a great opportunity to gain provider buy-in and facilitate collaboration.

Building off the knee replacement example introduced in a previous post, payers and providers may use a risk adjustment approach that assigns a patient to a risk tier based on different factors. Risk tiers may narrow provider payment to a range, rather than to a specific payment amount. Then, quality and outcomes measurements may be used to settle on an exact budget for that patient. In the below example, the provider receives the standard rate for a low risk patient for whom no quality measures are reported. However, for a patient in the medium risk tier, the provider engages in quality reporting and receives  an additional $1,000 over the base payment for that risk tier.

For example, a payer may identify 10 relevant quality measures for a particular episode of care and ask the provider to select 4. It’s important to keep this process simple. Ideally, a provider could select measures they are already required to report for other quality programs, such as Medicare’s Comprehensive Care for Joint Replacement model, Bundled Payments for Care Improvement initiative, or the Physician Quality Reporting System (which will roll into the Merit-based Incentive Payment System). If a provider already participates in quality reporting through a registry, then it makes sense to include patient-reported outcomes measures in the bundle program, as they are already reporting these measures to the registry.  

Payers and providers should also consider the use of process and outcomes related quality measures. A process quality measure identifies whether a step in a particular process occurred. Usually, these steps are associated, positively or negatively, with a particular patient outcome. In the case of a knee replacement, a process measure might be the use of prophylactic antibiotics to reduce the risk of surgical-site infections. Process measures usually have a yes or no indication—the provider either completed that step in the process or they did not. An outcomes quality measure for the same knee replacement might be range of motion improvement. In this example, the provider would assess a patient’s range of motion before surgery and then at specific time intervals after the surgery. Both types of measures are important in gaining an understanding of a provider’s care quality, although a provider typically has greater control over process measures. Outcomes measures are sometimes dependent upon patient compliance with provider instructions, such as for physical therapy post-surgery, which can be more difficult to manage.   

Other outcomes related quality measures payers and providers might consider incorporating are readmission and complication rates. When considering these measures, payers would calculate historical bundled data outputs to set the baseline rates; the payer and provider would then work together to determine the appropriate reduction percentages. This is where it is important for payers to share claim level detail with their provider partners.  The provider can perform their own internal analysis on historical data provided by the payer to determine why the readmission or complication occurred, if it could have been prevented, and what action the provider might take to prevent similar readmissions or complications in the future.

Because the selection of quality measures is part of the bundle negotiation process, different providers may select different quality measures. This is fine, at least for initial bundled payment contracts, especially if it helps a payer bring more providers into the bundled payment program. Over time, and depending upon how much leverage each party has in the negotiation, a payer may consider standardizing the quality measures associated with a particular bundle.

Once specific quality measures are selected, payers and providers face at least two important choices for incorporating quality into the pricing strategy: whether to pay for reporting or for performance, and whether to withhold payment subject to quality or provide a bonus.

Pay-for-Reporting vs. Pay-for-Performance
Some payers may start incorporating quality simply by providing payment incentives to providers who report quality measures, regardless of their performance. This is a good way to introduce providers to quality measurement within a bundled payment program; it  also signals the payer’s intent to tie a portion of payments to outcomes in the future. If the payer wishes to tie payment to performance in the future, it can use the data gathered during the reporting-only period to show providers how they would have fared under pay-for-performance in the past and project future impact on payments.

A pay-for-performance quality program ties a portion of provider compensation to performance on a predetermined set of quality measures. Providers must both report quality and meet an established performance level in order to receive quality-adjusted payment. Payers and providers comfortable with quality measure reporting, or those who have data that clearly indicates how a quality program will impact provider payments, might be ready to move into a pay-for-performance quality program.

Payment Withholding vs. Payment Bonus
Payers and providers must also determine the structure and timing of quality incentive payments. This is really a matter of preference and another negotiation point between payers and providers. Some bundled payment programs withhold a portion of the contracted price subject to either provider quality reporting or performance. In this way, the provider’s full contracted payment is not available to them until they meet quality reporting or performance requirements. Quality payments may also be delivered as a bonus payment, above the contracted price, upon conclusion of the episode.

However payers choose to incorporate quality and outcomes measurement in their bundled payment program, data sharing is critical to gaining provider trust and participation and to giving providers every opportunity to succeed in a new payment environment.  Providers must have the tools to understand the complete picture of each patient for whom they are responsible. This is only possible by sharing claim level detail with providers so that they can modify their behavior and increase efficiency.

It is absolutely critical that providers understand what happens to their patients after they leave their care. Providers typically know where they discharge patients to after a procedure or hospitalization, but most do not know if the patient actually follows discharge instructions. Similarly, episode initiating providers rarely know if, for example, their patients go to an urgent care center for pain relief, complete their prescribed physical therapy, or select a physical therapy provider different from the one the EIP recommended.

By sharing claim level detail, providers and practices can also see how care managers or care coordinators might help them improve their clinical and financial performance.

Practices that are succeeding with bundles have a team that regularly reaches out to patients to determine how they’re doing, where they’re going for care, and where they are on the care pathway.


Adjusting payments based on quality and giving providers insight into claim level detail are tools payers can use to gain provider partners in their bundled payment program and ensure those partners are successful. Payers can build upon successful bundled payment programs in a multitude of ways, such as by developing reference pricing and utilizing value-based benefit design. Stay tuned for a future post describing these possibilities.



ELAINE DANIELS
Director of Network Strategy
Aver, Inc


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