Part 2: PI Metric- Savings PMPM
It is an exciting time in the payment integrity (PI) industry. We are at an inflection point, with a real opportunity to add clarity and value through collaboration and partnership. Supported by Kisaco Research, an independent research firm, I am co-facilitating an industry-wide workgroup that proposes the adoption of standard metric definitions and calculations.
Today, we lack a PI Industry standard for definitions and calculations. Health plans and vendor partners rely on KPIs to measure internal performance against goals; however, without consistent references, there is an inability to fully understand program performance and identify areas of opportunity.
The development of standards isn’t simple or fast. It will be a journey that requires industry collaboration and a neutral third party to address confidentiality concerns. This blog series will share insights from several PI subject matter experts on the topics of programs, metrics, and reporting; we’ll also share proposal details and report on the workgroup's progress towards our goals.
In this blog, we’ll explore why we chose Savings Per Member Per Month (PMPM) as our first goal and describe the activity of the workgroup. Payment Integrity involves many actions and activities, and we know we don’t use the same language to name or describe each. So let's begin with what we mean by Savings PMPM.
PI Savings are a sum of dollars that represents the difference in payment directly resulting from PI activity. Often referred to as the difference between what we “would have paid” and what “we did pay,” there are three types of PI savings:
- Prevention: Savings occur before the claim is received
- Avoidance: Savings occur after claim receipt, but before claim payment
- Recovery: Savings occur after the claim has been paid
PMPM is a metric used to calculate the average cost, or in our case, savings per member monthly. Essentially, it's the total savings (prevention + avoidance + recovery) divided by the number of members in the plan, all within a specific period (usually a month).
Our initial goal is to produce a directionally accurate range for Savings PMPM by line of business for each payment integrity program. The Industry Benchmarking workgroup chose PI Savings PMPM as our first KPI because the comparison to membership normalizes the data. With two simple segmentations–by line of business and by payment integrity program–it will be possible to compare larger plans with smaller plans, and regional plans with national plans.
While PMPM metrics are most commonly used by finance and actuarial functions within a health plan, creating an industry benchmark Savings PMPM will enable health plans and vendor partners to more accurately measure program performance and identify areas of opportunity. The necessary components for this KPI include developing a standard reference for programs and standard references and calculations for savings.
It will take a great deal of work to arrive at a consensus, and even more to reposition and use standard references and calculations, but we feel confident that the industry needs this change and is ready for the challenge.