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What is the “Value” in Value-Based Care?

In the ever-evolving landscape of healthcare, the terms “value-based reimbursement” and “value-based care” (VBC) have become buzzwords that signify a shift in how we approach and pay for healthcare services. But where does the “value” truly come from, and how do we quantify it? Is it a matter of objective measurement or subjective assessment?

The “value” in value-based care holds a dual meaning. First, there is value derived from reducing the total cost of care. This reduction is a result of aligned financial incentives between payers and providers and the ensuing care management. Reducing healthcare utilization across the board is not always feasible so the emphasis is on reducing the total cost of care, not any individual subset of care. Utilization management is akin to playing a game of whac-a-mole where reducing utilization in one area may cause it to spike in another, but redirecting services to appropriate and cheaper sites can make a large impact on overall healthcare costs. Second, and equally important, VBC aims to reward healthcare providers based on health outcomes rather than the quantity of services they render. This aspect of value centers on achieving better health outcomes through aligned incentives. Physicians are encouraged to prioritize the well-being of their patients, leading to improved overall health.

Quantifying Value from Lower Healthcare Costs

Actuaries use a variety of methods to evaluate changes in healthcare costs. In value-based reimbursement, careful consideration must be given to whether lower costs are the result of care management improvements or random fluctuation. At the most basic level, an actuarial cost model involves breaking down healthcare spending into its core components, examining utilization rates, unit costs, and per-member-per-month costs. By comparing these metrics across various categories such as facility type, physician specialty, procedure, or diagnosis code, inefficiencies in healthcare delivery become apparent. A gap analysis can be performed against established benchmarks to pave the way for specific actions with known return on investment (ROI).

Below are some common methods and considerations actuaries use when assessing healthcare costs:

  1. Claims Data Analysis:
    • Analyzing historical claims data helps identify trends and patterns in healthcare utilization, costs, and outcomes. Actuaries use statistical tools to assess how various factors impact healthcare expenses, such as age, gender, diagnosis, treatment modalities, and more.
  2. Risk Adjustment:
    • Risk adjustment models account for variations in the health status of different populations. These models help standardize and compare healthcare costs across groups by adjusting for the health risks of insured individuals.
  3. Utilization Patterns:
    • As mentioned previously, it is important to understand how shifts in care delivery, such as changes in the use of preventive care, primary care, or site of care impact overall costs.
  4. Trend Analysis:
    • Actuaries track cost trends in healthcare and split them up into various components (unit costs, severity, mix, etc.). This helps identify whether a care management initiative has helped “bend” the cost curve while encountering secular trend headwinds.
  5. Policy and Regulatory Analysis:
    • Healthcare policies and regulations may influence costs and must be considered in any before and after analysis.
  6. Benefit Design:
    • Plan design and cost-sharing differences can incentivize or deter certain behaviors by members. For example, a large copayment or coinsurance for emergency room visits can encourage urgent care utilization when appropriate and lower overall costs.

In capitation arrangements and similar models, there is a risk that providers may attempt to lower their costs by minimizing the number of services performed.

Quantifying Value from Improved Health Outcomes

Quantifying improved health outcomes is a more complex task, but it’s not insurmountable. In capitation arrangements and similar models, there is a risk that providers may attempt to lower their costs by minimizing the number of services performed. To address this concern, VBC contracts often include quality benchmarks, typically based on Healthcare Effectiveness Data and Information Set (HEDIS) quality measures from the National Committee for Quality Assurance (NCQA). These quality benchmarks serve to incentivize and ensure that healthcare providers are delivering adequate screenings, preventive measures, and other essential services. In most VBC arrangements, reimbursement is tied to meeting these quality standards. This approach not only ensures that cost-cutting is not detrimental to patient care but also promotes a holistic approach to healthcare that values both cost-efficiency and patient well-being.

Healthcare providers can take various steps to improve their HEDIS measures. Below are some activities and strategies providers can implement to achieve better HEDIS scores and therefore provide higher-quality care:

  1. Data Collection and Performance Measurement:
    • Ensure accurate and comprehensive data collection and documentation of patient information, including diagnosis codes, procedures, and medications.
    • Regularly update and validate patient records to reflect their current health status and needs.
    • Regularly track and report HEDIS measures to identify areas that need improvement.
    • Establish a systematic process for measuring performance against HEDIS benchmarks.
    • Ensure compliance with HEDIS reporting requirements and coding standards.
    • Review and validate the accuracy of clinical documentation.
  2. Care Management:
    • Promote preventive care by encouraging patients to receive recommended vaccinations, screenings, and immunizations.
    • Identify and reach out to patients who are due for preventive care services.
    • Develop care plans and protocols for managing chronic diseases, such as diabetes, hypertension, and asthma.
    • Implement strategies to improve patient adherence to treatment plans and medications.
    • Ensure proper medication management, including medication reconciliation, adherence, and monitoring for potential drug interactions.
    • Educate patients on the importance of taking their prescribed medications as directed.
    • Ensure that healthcare staff are well-trained and informed about the latest clinical guidelines and best practices.
    • Support ongoing education and training for healthcare professionals.
  3. Population Health Management:
    • Identify and stratify patients based on their health risks and needs, allowing for more targeted interventions.
    • Focus resources and interventions on high-risk patients.
    • Implement population health management programs to address the specific needs of different patient populations.
    • Customize interventions for groups with specific health risks or conditions.
    • Continuously monitor and evaluate the effectiveness of quality improvement initiatives.
    • Use evidence-based practices to guide quality improvement efforts.
  4. Patient Experience:
    • Engage and educate patients about their health conditions and the importance of regular check-ups.
    • Encourage patients to actively participate in managing their health and adhere to treatment plans.
    • Ensure patients have timely access to care and appointments, especially for urgent and preventive services.
    • Reduce wait times and improve appointment scheduling processes.
    • Develop outreach programs to reach patients who are not engaged in healthcare services.
    • Use telehealth and other communication methods to connect with patients.


The “value” in value-based care is multifaceted. It encompasses the dual goals of achieving better health outcomes and reducing the total cost of care. While the quantification of cost efficiency is relatively straightforward, measuring improved health outcomes is more nuanced. Actuaries play a pivotal role in this process, using actuarial cost models to identify areas for improvement and ensuring that quality benchmarks are met to maintain a balance between cost-effectiveness and patient-centric care. Ultimately, value-based care is an attempt to shift towards a more comprehensive and patient-focused healthcare system, where value is defined by both the health of the individual and the efficiency of the system as a whole.

About the Author

Ryan BiltonConsulting Actuary
Ryan Bilton, FSA, CERA, MAAA is a Consulting Actuary with Axene Health Partners, LLC.

Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of the company. AHP accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided unless that information is subsequently confirmed in writing.


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