As an illustration of factors involved in setting targets for value-based payment (VBP) arrangements, consider the experience of two actual provider groups in a major metropolitan area, each serving a similar geography: a hospital primary care physician group and a community independent practice association (IPA). A comparison of each group’s performance with the same financial target in a VPB arrangement on a per-member-per-month (PMPM) basis discloses that the hospital group’s spending exceeds the target by about $26. In this example, the financial target was derived from the network average.
Target Setting: Same Financial Target
It’s important to note, however, that the hospital group cares for a population that is 35 percent sicker than the community IPA’s population. When that risk is taken into account in setting financial targets, it turns out that the hospital group has a favorable financial performance.
Target Setting: Risk-Adjusted Target
In this scenario, neither group is ill-suited for VBP. All primary care physician groups should require risk adjustment in VBP arrangements because it is the only way to truly measure cost and utilization performance. The hospital group in this example has a sicker population, which should be accounted for when measuring its performance. Meanwhile, although the community IPA looks less favorable in a risk-adjusted measurement, the measurement is a true reflection of its performance, and it can use that knowledge to set up a VBP contract in which the payer and the IPA can best succeed. As an example, the community physicians may opt for a VBP arrangement that rewards improvement over their previous year’s performance.
See related article: Lessons Learned from New York State’s Transition to Value