July 6, 2022
© 2022 – Don Gerdts. All rights reserved.

The Healthcare Value Equation

To combat rising healthcare costs, the Institute for Health Improvement (IHI) introduced the concept of the Triple Aim, a framework that the Centers for Medicare and Medicaid Services (CMS) has taken on to help lower healthcare costs and improve health outcomes:

• Improve patient care.
• Reduce healthcare costs.
• Improve population health.

The framework I’ve established in this series to evaluate healthcare value is really a mathematical perspective of the Triple Aim, where:

Value = E[Q+S] / [∑(P*U)] or,

Value = Effectiveness [Quality + Satisfaction] / Total Cost

So, to accomplish the value-based care objective (i.e., increase healthcare value) requires a net increase in the difference between the numerator (Effectiveness of Care) and the denominator (Total Cost).

Comparison of Medicare Advantage to FFS Medicare

In the 2017 study titled Medicare Advantage and Fee‐for‐Service Performance on Clinical Quality and Patient Experience Measures: Comparisons from Three Large States¹, performance data for 16 clinical quality measures and 6 patient experience measures for 9.9 million beneficiaries living in California, New York, and Florida were compared between Medicare Advantage and fee-for-service (FFS) Medicare.

Medicare Advantage significantly outperformed FFS Medicare on each of the 16 clinical quality measures and four of the six patient experience measures. Now that total Medicare eligibility is approximately 60 million beneficiaries and enrollment in Medicare Advantage plans approaches 50% of all Medicare beneficiaries, these findings demonstrate the success of the Medicare Advantage increasing value-based care by increasing quality of the care delivered.

So, when returning to the healthcare value equation, Value = Effectiveness [Quality + Satisfaction] / Total Cost, significantly increasing quality (part of the numerator) without appreciably increasing total cost results in an increase in the resulting value when comparing MA to FFS Medicare.

Conclusion

In my opinion, active management of healthcare coupled with clearly stated policy regarding desired outcomes has resulted in the healthcare success story we call Medicare Advantage, or Medicare Parts C and D. When compared to the status quo of FFS Medicare, Medicare Advantage helps accomplish the value-based care goals of the Triple Aim.

Next Steps

We’d love to hear your thoughts on this topic!  Is Medicare Advantage the model for government-sponsored healthcare?

TripleAim Strategy Advisors can help stakeholders in the healthcare ecosystem as a consultant or advisor to provide insights and develop strategies to advance equitable, value-based care.

Contact us to discuss this important topic or see additional ways we can help!

Citations
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¹Timbie JW, Bogart A, Damberg CL, Elliott MN, Haas A, Gaillot SJ, Goldstein EH, Paddock SM. Medicare Advantage and Fee-for-Service Performance on Clinical Quality and Patient Experience Measures: Comparisons from Three Large States. Health Serv Res. 2017 Dec;52(6):2038-2060. doi: 10.1111/1475-6773.12787. PMID: 29130269; PMCID: PMC5682140.