The Building Blocks of Value-Based Care: Applying Porter’s Key Framework for Health Insurance Plans

Summary

1. Quality Outcomes

• What Matters: PROMs (e.g., pain relief, function improvement) reflect what patients care about.
• Challenge: PROMs are underused due to logistical and financial barriers.

Solutions for Health Plans:

• Use “sticks” like CMS’s mandate for PROM collection in joint replacement.
• Offer “carrots” like reduced prior authorizations, enhanced reimbursements, or bundled payments to incentivize PROM use.

2. Patient Experience

• Validated tools like CAHPS, HCAHPS, and Net Promoter Score (NPS) measure patient satisfaction and communication effectiveness.
• Poor experience increases malpractice risk, making this data critical.

Solutions for Health Plans:

• Collect satisfaction data at logical intervals (e.g., post-surgery).
• Attribute scores to specialists, not just plans, for actionable insights.

Solutions for Health Plans:

• Identify the episodes that matter for high-priority clinical conditions.
• Define those episodes with respect to length, start/end point, surgical vs. non-surgical, and identifiers (ICD or CPT on claims).

Introduction

We all talk about prioritizing value-based health care and often reference Professor Michael Porter’s value equation¹ (value = outcomes/cost) as a guiding force. In fact, there are entire divisions of health plans and healthcare organizations that are dedicated to optimizing value-based care (VBC) yet don’t measure the key inputs of the value equation. This is especially true when considering specialty care providers that are responsible for large expenditures of health care dollars.²

So, how can VBC be optimized if it is not measured in the first place? As management guru Peter Drucker noted (albeit not in this wording), “If you can’t measure it, you can’t improve it.”³ In this article, we will dissect the value equation into its key numerator and denominator components. We will then provide guidance for health plans on how to measure each component.

If your health plan does not measure each of the three components of the value equation and use those measurements into decision-making analysis and key priorities, your plan cannot optimize VBC delivery.

Dissecting the “Value Equation” – the WHAT (to Measure)

Let’s take a closer look at the value equation (depicted below⁴) and identify its key components:

Quality

Quality refers to outcomes that matter to the patient (or member). The key phrase in this definition is “that matter to the patient”. When someone is considering undergoing total knee replacement for his/her advanced arthritis, the outcomes that matter include pain improvement, functional recovery, and ability to return to everyday activities. Outcomes that are important, but don’t matter, include surgical site infection, hospital re-admission, deep venous thrombosis, and so forth.

The problem is that the outcomes that don’t matter happen to be the ones that we all focus on when considering quality. Why? Because these “administrative” outcomes are easy to measure. There are discrete codes that get captured in the electronic medical record (EMR) that reflect these outcomes. But they are useless in understanding true quality of an intervention.

Let’s take two individuals – Paul and Bob – who had knee replacement surgery due to underlying severe knee arthritis. Paul had an excellent functional outcome as well as full resolution of his pre-operative pain. He is back spending time with his family and friends and extremely happy he underwent the surgery. On the other hand, Bob continued to have knee pain and dysfunction and regretted having the surgery in the first place.

Who had the higher quality outcome? Clearly, Paul did. But based on administrative data, they appeared to both have the same result.

What are quality outcomes that matter to the patient?

Simply put, the best outcomes to measure for quality are patient reported outcome measures (PROMs). These are quality measures that quantitatively report health domains from the perception of the patient (common domains include function, pain, mental health). These tools are validated and can be easily compared within the same patient (i.e., before and after surgery) or across populations. They can even be risk-stratified to give an even more accurate representation of health.

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If these tools are so great, why don’t health plans measure them? The key issue is that these clinical outcomes should be measured by providers (especially specialists). However, there is little to no incentive for providers to measure these outcomes. Because they are subjectively reported, they must be administered to patients at various points of their health care journey (at presentation, prior to surgery, soon after surgery, and well after surgery). Therefore, they are extremely challenging – from a logistic, technology, and financial perspective - to measure in high fidelity across populations.

If PROMs are not measured, then they cannot be “ingested” by health plans for VBC initiatives and/or assessments. Even if they are collected, they may not be in a format that can be integrated into the data infrastructure of the plan. That leaves the onus of measurement on the plan itself.

How health plans can practically collect PROM data

For health plan leaders reading this article, the first thing that comes to mind will be “How can we collect PROMs when it should be a provider initiative?” To answer that question, plans must consider adopting either a “stick” or “carrot” approach.

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How are you motivating providers to collect PROMs? Hint: either approach is fine, but most don’t do either...

As health plans watch the CMS PROM collection initiative play out, they will no doubt begin to plan how they can similarly collect PROMs. As opposed to a “stick” approach, there are many “carrot” approaches that could be considered.

1. Minimize utilization management burden in exchange for PROM collection – waive prior authorization requirements for specialist providers that routinely collect, and report, pre- and post-operative PROMs. Because the plan will receive this data, it will easily be able to measure appropriateness of care in participating providers (by observing meaningful improvements in post-surgical PROMs). This will obviate the need to “police” the provider group through high-friction utilization management efforts. The decreased administrative burden will make it easier for the group to justify investments in PROM collection (especially technology and collection-related costs)
2. Improve reimbursement – offer enhanced fee schedules to groups that collect and report PROM data for high-cost surgical procedures, such as those related to major joint replacement and spine. These fee premiums will help support PROM collection efforts
3. Facilitate value-based payment programs – increase opportunities for bundled payment programs, for both surgical and non-surgical care, for provider groups that are committed to collecting and reporting PROMs. As with the other two “carrot” examples, these bundled programs can help deliver higher revenue to groups which can be used for PROM implementation and collection investments.

PROM collection example via “stick” approach: CMS

As it turns out, the country’s largest payor – Centers for Medicare and Medicaid Services (CMS) – recognizes the importance of PROMs because it recently started requiring PROM collection for hospitals performing hip and knee replacement.⁵ As part of this initiative, CMS has begun requiring hospitals performing inpatient Medicare hip and knee replacements to submit pre-operative and one-year post-operative PROMs. Not only will collection rates be assessed, but so will percentage of patients achieving clinically meaningful improvement on those PROMs, with deficiencies directly impacting quality ratings (and therefore, reimbursement).

The CMS mandate, even though confined to a small subset of surgical patients, is a watershed moment in VBC for the following reasons:

• the first time providers/hospitals are required to submit pre- and post-operative PROMs to a payor
• commercial payors often follow CMS and may likely follow its lead for PROM collection
• inpatient hip and knee replacement is only the beginning, as outpatient surgery, as well as additional procedures (i.e., spine), are expected to follow

Because CMS is not rewarding PROM collection – but instead penalizing the absence of collection – this is a good example of a payor using a “stick” to incentivize PROM collection

What to Look out For in Part 2: Measuring Experience Outcomes

Next week’s article will introduce the concept of Patient Reported Experience Measures (PREMs) as one of the different options in measuring member/patient experience. The article will not only outline different available tools for health plans but also dive into the “how” to measure. ***SPOILER ALERT*** Health plans have some additional options for measurement when compared to PROMs due to not requiring a pre-intervention measurement.

Looking for Ways to Improve Value-Based Specialty Care Delivery?

If you are looking for some cutting-edge options for cost reduction and outcome improvement, there are three ways that we can help (for free!)...

1. Assessment of current offerings: what are you doing today to drive value in this important area of expenditure?
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All you have to do is schedule an appointment using this link.

About Protera Health

Protera Health is a virtual, multidisciplinary clinic that improves health outcomes and lowers cost of care for musculoskeletal conditions. Protera partners with health plans and systems in delivering an in-network solution with tremendous ROI and no need for administrative budgeting. Learn more at www.proterahealth.com.

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References

1. https://www.nejm.org/doi/full/10.1056/NEJMp1011024
2. https://www.proterahealth.com/full-articles/what-is-value-based-specialty-care-and-why-should-health-plans-employers-and-health-systems-care
3. https://ceocoachinginternational.com/define-measure-manage/
4. https://uofuhealth.utah.edu/value/value-equation
5. https://www.aahks.org/wp-content/uploads/2024/08/AAHKS-2025-IPPS-TEAM-Final-Rule-Summary.pdf