Becoming a data-driven healthcare organization is critical to lowering costs and enhancing quality of care. We’ll show you how one key metric, Total Cost of Care, directly supports both goals.
You’ve heard this before: “We need to leverage data for better decision making. Our strategic decisions need to be based on data analysis and interpretation.”
Healthcare organizations identified becoming a data-driven organization as a goal years ago, and it is still the current mantra and underlying foundation of most business strategies. Yet organizations continue to struggle to become data driven. A 2022 survey of US Fortune 1000 business and technology C-executives shows only 26.5 percent report have achieved that goal, and only 19.3 percent report having established a data culture.
For healthcare organizations, the stakes are higher. As healthcare providers continue to prioritize lowering costs while improving quality of care as their primary strategic goals, becoming truly data driven is critical to supporting these goals. Assuming the underlying data is already available to the healthcare organization, the complexity of successfully leveraging analytics requires effective collaboration between business and technical groups.
In this blog, we will look at an example of how a single metric known as total cost of care (TCOC) can provide insight into the performance of a healthcare organization and serve as an input into decisions that will have implications for a wide set of business use cases. This blog is part of a series in which we’ll explore the concept of use-case-driven solutions and then provide a comprehensive framework for developing and implementing a use case for TCOC. As we’ll discover, a systematic approach to use case definition and planning is instrumental in ensuring a successful investment for all stakeholders.
Lowering Costs Is a Priority
Fee-for-service payment reimbursement models emphasize and thrive on the volume of services that providers perform. However, this quantity-over-quality approach frequently comes at the cost of both patient and provider. As an alternative, value-based payment models incentivize providers to shift the focus to lowering costs while providing the highest quality of care.
To move the needle on lowering costs, organizations must first capture and understand all variables contributing to the total cost of care and monitor it overtime. Payors or other organizations that monitor TCOC get insights into various segments of their member or patient population that help them structure managed care programs and initiatives, as well as understand provider performance and optimize provider contracts and incentives.
TCOC also has a direct correlation to providers’ performance on specific Centers for Medicare and Medicaid Services (CMS) quality measures and can help providers focus on improving clinical outcomes and patient experience while reducing cost-per-episode of care.
Measuring Total Cost of Care
Total Cost of Care may be measured differently based on who it applies to. Payors refer to their plan subscribers as “members,” while providers refer to the same people as “patients.” TCOC is a metric that attempts to look at what it costs an entity to care for its customers. In other words, it is the cost associated with a population and its specific conditions.
- Providers may calculate TCOC for the patient population with a specific condition or for everyone seen within the practice. They can use it as one of the indicators when evaluating practice performance efficiency and price competitiveness when compared to peers.
- For payors, TCOC typically means aggregating all the costs associated with claims coverage of their subscribed members, adjusted for risk and expressed as a per-member-per-month (PMPM) dollar amount. When measured for a cohort of members with a specific diagnosis, they can correlate it to the performance of care management programs for a disease or chronic condition.
For payors or Accountable Care Organizations (ACOs) that have value-based contracts with providers, TCOC can help develop or adjust payment and shared saving strategies, which may include incentives for keeping TCOC within a certain range or lowering it.
CMS launched value-based programs (VBP) around 2012 – VBP is an umbrella term for a variety of initiatives that reward providers with incentive payments for the quality of care they deliver to patients covered by Medicare. Through VBP, CMS pursues a triple aim of improving care for individuals, improving the health of populations and lowering overall costs of care.
Under the original Medicare Shared Savings Program (MSSP), not only did new alternative payment models emerge but so did a new patient-centered network that shares financial and medical responsibilities with the goal of improving patient care while limiting unnecessary spending. The payment structures for programs like this incentivized physicians to work together to improve the care of patients and initially focused on Medicare beneficiaries seen by providers participating in such programs.
VBP programs have expanded beyond being CMS-sponsored into commercial insurance as well, with mixed results but with a clear trend of positive outcomes for quality improvements.
The goal of VBP programs is to create provider accountability around the cost and quality of care that is within the provider’s control to coordinate and deliver. Key to the success of a VBP arrangement is defining the payment in a way that includes services that are appropriate to the population or treatment and within the reasonable control of the contracted provider.
In a typical VBP arrangement, the contract would specify details around covered services, how the provider should conduct patient attribution, performance and quality measures and benchmarks and other risk and payment terms. Understanding and tracking TCOC within an arrangement like this becomes a required input into monitoring the cost and financial responsibilities of involved entities.
Ultimately, monitoring TCOC is key to both enhancing patient care and lowering provider costs over time. VBP arrangements may incentivize providers for tracking TCOC as an important measure of quality rather than quantity of care being provided. However, in order to effectively capture and monitor this metric, defining a use case is key to ensuring alignment between IT, business users, and the overarching strategic goals of a healthcare organization. It is this sense of alignment and collaboration that helps signify a truly data-driven culture.
In the next part of this series, we’ll introduce the concept of use-case-driven solutions and break down the framework and scenarios for use-case development and implementation.