The Challenge of Measuring Healthcare Value

Last week the nation’s largest health insurers received a letter from the American Medical Association and 46 state medical societies that sharply criticized the accuracy and reliability of the cost-profiling mechanisms that many payers use to rate and tier physicians.

The physician groups called the profiling systems “Rube Goldbergesque,” evoking the complex, over-engineered machines that rely on chain reactions and intricate contraptions to accomplish what in the end is a simple task. Instead of simply pushing a button on toaster, a ball rolls down a ramp and hits a lever, which launches a spring, which hits a trigger, which releases a weight that falls and... pushes a button on a toaster.

For insurers, the simple task is to reward physicians for efficient and high-quality care. But the AMA and others not only think that the formulas for measuring efficiency are too complicated, they think the formulas don’t actually accomplish their goal very well--the bread isn’t getting toasted.

A series of studies from the RAND Corporation, for example, found that nearly one-quarter of physicians may be misclassified by a common cost-profiling system, and in some specialties the misclassification rate may be much higher.

Because insurers often encourage or incentivize patients to see high-tier physicians, the tiering system, if flawed, could have serious consequences, the AMA argues.

“Physicians’ reputations are being unfairly tarnished using unscientific methodologies and calculations,” the organization said in the letter. “Moreover, these inaccurate reports and erroneous physician assignments not only have the potential to harm patients and physicians, but they divert scarce resources from meaningful efforts to help physicians evaluate and address unwarranted variation in health care delivery.”

But Karen Ignagni, president of AHIP, poked holes in the RAND studies, pointing out that they looked only at cost, whereas health plans also factor quality into rankings. “Quality, which includes patient satisfaction, is the most important factor used to create value-based networks for patients. Unfortunately, this research didn’t take this into account,” she said.

It’s an important distinction, because the ultimate goal for both payers and physicians shouldn’t be just cheaper healthcare, but higher value care. Our problem isn’t just that we pay more for healthcare than other industrialized nations; it’s that the extra spending isn’t translating into better care, according many major measures.

At least half-a-dozen healthcare leaders in the last few years have given me this simple definition: Value=Quality/Cost. The AMA and other physicians were really only addressing one variable in the equation when they attacked physician ranking systems based on the recent research. But their point about the complexity and transparency of the systems is still worth hearing.

The tiering systems, pay-for-performance formulas, reimbursement codes, and other methods of rewarding quality become more Rube Goldbergesque all the time. Finding simple ways to improve the value of healthcare is a challenge shared by everyone in the industry, and payers can help by ensuring the methods they use to reward quality or efficiency are as transparent and straightforward as possible.

Reimbursement incentives can be effective if they are comprehensible, but they won’t likely have their intended effect if there are too many levers, buttons, triggers, and springs in the system.