This document discusses using outcome measurements and value-based pricing to reform healthcare payment. It proposes measuring outcomes on a 0-100 scale across categories like cure, substantial clinical benefit, minimal clinically important difference, and failure. Value is defined as outcomes per cost. Prices would be set proportionally to outcomes achieved, guaranteeing value for substantial clinical benefit outcomes. The goal is to maximize value for patients by incentivizing best outcomes and eliminating unnecessary treatment through an outcomes-based payment system.

1. Outcome Measurement for
Value-Based Pricing and
Healthcare Payment Reform
James B. Macon, M.D.
Future NeuroSpine, Inc.
Wellesley, Massachusetts
USA
Copyright 2010, 2018, 2019, 2020 James B. Macon, M.D.

2. Why measure outcomes?
• To optimize benefit for patients
• To select the most effective treatments
• To eliminate ineffective treatments
• To optimize calculated value for patients
• To justify medical treatment prices
• To adjust prices to guarantee a target value
• To solve the big healthcare problem:
“Big Prices for Little or No Benefit”

3. Value Definition
Value for patients =
Health Outcomes per
Cost Expended
Porter, M.E. “A Strategy for Health Care
Reform – Toward a Value-Based System”
NEJM 361: 109-112, 2009

4. Successful Outcomes
Provider Payments
Value =

5. What motivates providers now?
• Optimizing patient outcomes by results
• Optimizing practice income by volume
What does not motivate providers?
• Optimizing value for patients (not quantified)
• Reducing cost of treatments (fixed by payers)
How can providers be motivated?
INCENTIVES !!

6. Value-based HC Reform vs
Outcome Incentives
1. Lack of physician engagement
2. Absence of positive incentives
3. Inadequate negative incentives
4. Physicians create care standards
5. Physician decisions control value

8. Outcome Categories
 Cure: 100 % recovery to baseline
(complete recovery without recurrence for one year)
 SCB: >75% recovery to baseline
(substantial clinical benefit) = TARGET OUTCOME
 Benefit: 61-75% recovery to baseline
 MCID: 51-60% recovery to baseline
(minimal clinically important difference)
 Failure: < 51% recovery to baseline
(no clinically significant improvement compared to placebo)

9. Outcome Measurement
Patient-Reported Outcomes (0-100 % recovery to baseline)
Doctor-Reported Outcomes (0-100% recovery to baseline)
1. Primary Symptoms or Pain due to the treated pathology
2. Health quality adjusted life year (QALY) related to pathology
3. Functional Loss and Disability due to the pathology treated
4. Average two of above for PRO
1. Physical function recovery directly due to treatment
2. Pathology correction by treatment confirmed by imaging
3. Improvement confirmed by laboratory markers
4. Average two of above for DRO
Average PRO and DRO for Outcome

10. Outcome Calculation

11. Outcome Formula
 O is the calculated outcome (0-100)
 O = (A1 - A0 )/A2 - A1 ) x 100
Value Formula
 VALUE = (O)(S)(X)(Y)(Z)/C
 VALUE as calculated for treatment (0-1000)

12. Outcome Tiers
 Tier I : primary outcome (pain, quality of life,
 (A) disability status, function, imaging, lab)
 Tier II : complications (death, infection, bleed,
 (Y) organ damage, medical, delayed recovery)
 Tier III : recurrences ( re-operations, incomplete
(Z) resection, delayed adverse events- scar)
Convert all outcomes to % recovery to baseline

13. Refund Payment
Unnecessary (X) = 0% recovery
as a result of the treatment
no payment for recovery inspite of the treatment
(Treatment inappropriate per SOC guidelines)

15. Value Sheet Variables
 A0 is the baseline state prior to pathology
 A1 is the pathological condition pre-treatment
 A2 is the pathological condition post-treatment
 O1 is calculated outcome for treatment (0-100)
 S1 is 1 if outcome success and 0 if failure
 P1 is the payer fee schedule price
 C1 is the total provider payment (min. $100)
 X1 is treatment necessity 1 (or 0 unnecessary)
 Y1 is 1 for each complication (0 for none)
 Z1 is 1 for each recurrence (0 for none)

17. Successful Outcome
Target Value
Unsuccessful Outcome
Target Value
Fee Schedule Prices paid for Guaranteed Substantial
Clinical Benefit (SCB) are Adjusted Based on Outcome
Measurements to Insure the Desired Target Rx Value
Price =
$0 =

18. Outcome Measurements and Value-
Based Healthcare Payment Reform
• Payment for cure or 100% recovery
• Payment for better outcomes – SCB
• Payment for minimal benefit – MCID

19. SCB

20. CURE

21. MCID

22. FAILURE

23. Value-Based Pricing
Stakeholder Benefits
 Patients: optimize outcomes/minimize premiums/
guaranteed SCB value of treatments
 Providers: increase payments for cures and SCB,
reduce failures and eliminate unnecessary treatment
 Payers: eliminate payments for unnecessary
treatments/minimize payment for MCID or failures

24. Outcome Measurements and Value-
Based Healthcare Payment Reform
• Payment Proportional to Outcome
• Guaranteed SCB Target Value
• Maximize Payment for Cures
• Incentivize Best Outcomes
• Discourage Worse Outcomes
• Minimize Payment for Failures
• Eliminate Unnecessary Treatment

25. Value-Based Pricing Conclusions
 Goal of healthcare = maximize value for patients
 Value of substantial clinical benefit is guaranteed
 Value is calculated from outcome measurements
 Price per quarter set by outcomes for one year
 Eliminate ineffective or unsuccessful procedures
 Incentives are designed to optimize value
 Physicians will be motivated by incentives
 Overall cost of care will be reduced by incentives
 Patients benefit from lower premiums/deductibles