The Need for New Cost Measures in Pediatric Value-Based Payment

Cost measures play a vital role alongside quality measures in shaping the incentives within an APM. Cost-of-care measures capture the total spending on health care services for a specific duration of time, population, or care setting. APMs use cost measures to ensure that the total amount paid out is not more than what would otherwise be spent absent the APM. For example, the total cost of care (TCOC) captures the total spending for a patient population over a certain duration (typically ≤1 year) relative to a benchmark of expected costs. TCOC is used in APMs to calculate the amount that was saved, which is paid out as shared savings. Other cost measures used today are variations on TCOC or are focused on specific conditions (eg, heart failure) or specific sites of care (eg, hospitals).

Interventions that promote healthy development in childhood can produce cost savings but not necessarily in ways that today’s cost measures best capture. Savings in child health are, often, realized over more than a single year and across sectors and include whole families.³  Cost measures will need to better reflect these unique opportunities in child health to maximize value and move away from restrictive cost-of-care measures toward cost-of-health measures.

More comprehensive cost-of-health measures could finance child health interventions that are typically unsustainable in TCOC payment models and, instead, rely on grant funding. For example, although Healthy Steps for Young Children or Triple P Positive Parenting Program support children’s mental health and healthy development, these programs often produce insufficient annual child health care savings to offset their costs as measured by today’s TCOC measures. However, by implementing new cost measures capturing time horizon, cross-sector, and whole-family value, APMs could finance and sustain these and other childhood interventions that offer substantial impacts on well-being and costs over the life course. Opportunities for new cost measure are explored below and in Fig 1.

Intervening in childhood can save costs related to behavioral health, injuries and maltreatment, and physical health conditions but may take a number of years to realize health care savings. Net present value is a common concept in business used to account for both current and future value. Applied to health, a net present value of care measure could include the actual savings as well as the predicted future savings over a specified future set of years on the basis of intermediate health outcomes achieved.⁴ 

For example, as communities implement initiatives like InCK, they will begin to collect novel well-being outcomes, such as improvements in kindergarten readiness and school connectedness at the age of 14. Communities could measure the impact of child health interventions on these shorter-term outcomes and savings over the next 2, 3, or 5 years, which could then inform a new net present value of care measure. Initially, the cost measure will be a rough prediction of future savings. If sites use relatively conservative estimates initially or payers are committed enough to child health to accept a slight loss, the cost-measure accuracy can be iteratively improved over time. Using a measure of net present value of care to determine shared savings in an APM could serve as the basis for a community’s long-term reinvestment strategy to sustainably finance the enhanced child health interventions on the basis of the longer-term benefits.

A key challenge to a longer time horizon cost measurement is churn, in which members switch between health insurance plans or lose coverage completely, limiting a health insurer’s opportunities for long-term savings. Multipayer alignment around common terms for net present value of care would mitigate churn between plans through average reciprocity.

Many of the largest savings from children’s healthy development accrue to non–health care sectors, such as reduced need for special education or fewer children entering the child welfare system.⁵  As more communities pursue more integrated collective impact approaches to child health, such as InCK or other evolving models, child-serving systems will work together to improve coordination of care, share data across systems, and align cost and quality outcomes between sectors. For example, health care and child welfare stakeholders may target a measure of reduced out-of-home placements and associated cost savings. Communities can use these collaborative opportunities to establish cost benchmarks across health care and other sectors, such as child welfare, in preparation for a braided APM contract. Such braided APM contracts between health care payers and other state and local agencies would allow savings to be shared by multiple sectors and, potentially, finance more comprehensive behavioral health interventions that prevent child welfare involvement.

Some savings from childhood intervention may also accrue across the family unit because parents and other caregivers experience less stress, more support, and better health. Multigeneration focused initiatives, including InCK, are often focused on linking data to better risk stratify children and coordinate care for the family unit. These data linkages also create opportunities to set cost benchmarks for whole families, enabling APMs that can share savings and sustain new models of care with more comprehensive family-focused delivery approaches that would otherwise be hard to finance under standard fee-for-service payments.

Although we outline 3 cost-of-health value opportunities that we propose as the next areas to explore as new cost measures are developed, improved child health offers other positive externalities beyond these areas. Examples include improved caregiver labor productivity in the short-term and even greater longer-term returns, as children grow into healthier and more socioeconomically stable adults. These other sources of value also deserve further exploration in future stages of APM development for children.

New cost measures will need to capture when and where childhood interventions produce health value: over longer time horizons, across sectors, and among families. Public and private investments in cost-measure development will be necessary to fully specify and validate measures, to mirror what the Pediatric Quality Measures Program has achieved for child-focused quality measures.^6,7  Policy reforms and technical guidance on contracting will also be needed to better align incentives across payers and sectors and overcome any statutory barriers to sharing savings in these new ways. Payment reform is underway, and new cost-of-health measures are urgently needed for APMs to drive investments in children’s healthy development and fully realize the best well-being outcomes for children and families.

APM

alternative payment model

InCK

Integrated Care for Kids

TCOC

total cost of care