How should value-based payment programs reconcile after COVID-19?

September 30th, 2020 / By Shannon Garrison

Value-based payment (VBP) contracts have been taking hold across the spectrum of payers. Unfortunately, COVID-19 will make it difficult for VBP contracts to be settled. At some interval (usually yearly), a payer and provider will need to see if quality targets or savings were met.

A major element of VBP contracts is risk-adjustment. The contracting provider, an accountable care organization (ACO) or large provider group, can then have an attributed group of members. The risk-adjustment is used to set budget and outcome measure targets for the provider using several years of data. The pandemic means these targets could be nullified for the first half of the year, as there will be otherwise healthy members with large dollar spend. Admissions are expensive, and those into the ICU even more so. Therefore, a target based on risk-adjustment will have to be viewed for the effects of unexpected services to see if the risk is reflective of the use.

Conversely, some members are not getting treatment they would have sought outside a pandemic. Many with chronic illnesses are avoiding facilities for their own safety. Others have had elective procedures cancelled or delayed. If they did not contract COVID-19 they may have been much less expensive to care for than their given target. This means that budgets based on historic risk-adjustments may be off for the beginning of 2020. They may also be off for the second half of 2020. All the chronic care and preventive visits that were avoided could be a ticking time bomb for members. The result could be very expensive inpatient and ED visits at the end of the year that may have been prevented with earlier intervention.

Beyond this year’s cost of care, 2021 will be different from 2020 and different from a normal year still. There is evidence of long-term issues in those recovering from COVID-19. Perhaps they will need to be risk-adjusted in a system that considers COVID-19 positive results or admissions driven by COVID-19 as a chronic illness. Targets for next year and going forward will need to be set on a basis that removes this year as an anomaly.

Quality performance is an important component of VBP as well. The quality performance creates an all or nothing barrier to financial payments or places a provider into a corridor of attainable shared savings. The Healthcare Effectiveness Data and Information Set (HEDIS) measures are an example of a method to measure health care quality.

HEDIS measures are industry accepted process measures of preventive care, as well as outcome measures such as emergency department (ED) visits and admissions. HEDIS process measure volume will likely be at a much lower rate than any targets assigned. While vaccinations and well child visits requiring vaccinations have been generally maintained, other preventive treatments were postponed and cancelled, such as colonoscopies and mammograms.

Outcome measures are more of a mixed result that remains to be seen. While ED visits and admissions for COVID-19 are clearly increased, others are staying away from the hospital setting and either waiting out smaller issues or seeking telemedicine. On top of that, there was no COVID-19 diagnosis code available until April. This means that there is no easy way to cull through admissions and ED visits. Outcome quality measures will need to be reviewed when claims are in and final performance is available.

Quality and total cost of care both need to be considered when reconciling expected with actual outcomes. Because providers have been closed during the pandemic and are struggling financially, I believe payers should lean toward the provider getting payment whenever possible. Perhaps quality requirements should be waved, calculating them only for care management purposes.

Total cost of care is a bit trickier. While creating new budgets with COVID-19 data incorporated may seem like the most equitable approach, this may not be necessary and might unfairly benefit providers with more COVID-19 members who did not manage their population well. It may be more straightforward to remove any members that had COVID-19 related services in their entirety from the budget. Their claims will have been paid, but they will not be eligible for the shared savings pool.

Once those members are removed, budget targets can be re-calculated without them in the base year. Removing them from the performance year also allows a comparison to be made and total cost of care differences to be calculated. Next-year targets might need to leave these members out as well. The data is not complete yet, but when it is, these options should be examined and every effort made to help providers.

Shannon Garrison, MBA, is a consulting manager with 3M Health Information Systems.


How to improve health outcomes while reducing unnecessary, inappropriate and wasteful care.