Performance Measurement

This is the tenth article in the Medical Management "Signature Series" by Managed Care Resources, Inc. -- articles on topics in managed care written by experts in the field. The author of this article is Roberta L. Carefoote.

Proving effectiveness and your worth to others is never easy. In managed care, it is even more complicated, as health care outcomes are impacted by numerous variables. Yet, employers, consumers and government alike hold managed care organizations (MCOs) accountable for their services. They want performance measures that speak reliably to factors of importance to them, and they are particularly interested in measures or indicators that allow them to compare one MCO with another.

Much of the effort in performance measurement has been heavily influenced by requirements set forth by regulatory and accrediting bodies. Because of the cost and time involved in developing and using sound performance measures, very few individual organizations have tackled this initiative on their own. Most MCOs adopt performance measures developed by other organizations - measures that have withstood the test of time.

This article broadly addresses the issue of performance measurement in managed care. It provides an overview on the value and use of performance measures and highlights the critical attributes and future needs of successful measures. It also identifies leading organizations in the field of performance measurement and provides more detail about one set of performance measures extensively used in managed care -- the Health Employer and Information Data Set (HEDIS)1. This article is intended to serve as a basis for learning more about the industry's current status in this field, and should serve to supplement additional reading on the subject.


Defined as measuring functional effectiveness, performance measures in quality and utilization serve many purposes. While one measure can have multiple applications, it is usually designed with a single goal in mind. Here are some of the many uses of performance measures in managed care:

  • Track performance over time. Standardized measures enable an MCO to determine its current position at any point in time and to repeat the measure in the future to determine if any changes have occurred. Take immunization rates as an example: The MCO might employ this performance measure and then track it over time to determine if its interventions are effective.

  • Provide information for external sources. Spending a lot of work on collecting quality and utilization data is useful because it serves to prove effectiveness to individuals or groups outside the MCO. A critical accountability activity lies in providing information that shows how the MCO has achieved its objectives or promises. Take the issue of "value" as an example: An MCO might employ a specific measure such as the medical cost ratio to market its product to employers and then use this specific measure to prove its value to the purchaser.

  • Identify areas for improvement. Results emanating from data collection on standard performance measures enable the MCO to appropriately target its improvement efforts. Without such information, the MCO is left to subjectively determine what areas or services require improvement. For example, if a particular mammography rate is less than desirable, the MCO can plan interventions targeted at improving the rate.

  • Facilitate comparison across health plans. Activities undertaken by NCQA in its HEDIS efforts are devoted to allowing comparisons across health plans. By using standardized performance measures, consumers and purchasers can make informed decisions regarding health plan selection. These standard measures also make it easier for the MCO to compare itself to others and to market its services and products accordingly.

  • Determine priorities for health initiatives. When a number of performance measures are employed, the MCO can - based on the data - target its resources into areas where activities can make a difference. The absence of relevant performance measures promotes the use of a "hit or miss" approach in allocating valuable dollars. Using key performance measures enables the MCO to make sound resource and program/product decisions based on objective data.

Critical Attributes

Regardless of the measures employed, there are a few attributes all successful measures have in common1.

  • First, they must be scientifically sound - they should measure what they are intended to measure and should be able to do so consistently over time.

  • Second, a good performance measure should be useful - it should facilitate operational and clinical decision making and enable the MCO to effectively allocate scarce dollars.

  • Third, performance measures should be administratively feasible. Data collection and management costs should be offset by the value of the information obtained.

While seemingly simple, it is not easy to find performance measures in health care that will meet all three of these critical attributes. It can be extremely costly and time-consuming to develop measures that fit all these criteria. That is why many MCOs rely on larger organizations to develop performance measures, and then adopt those measure proven successful by the organization. MCOs have elected to partner with these organizations in their development efforts, assuming the roles of "tester", and "consultant" rather than "initiator".

Industry Leaders

When it comes to performance measurement in the managed care area, there are several organizations that come to mind as leaders in this field.

  • The Foundation for Accountability (FACCT). FACCT2 is a not-for-profit organization dedicated to helping Americans make better health care decisions. To this end, FACCT has developed consumer-focused quality measures and supports efforts to gather and provide quality information to the public. FACCT has developed quality measures that focus on specific conditions like diabetes or asthma, life stages like pediatrics or the end of life, and population groups with a specific health status or set of health risk behaviors. To date, FACCT has developed measures for adult asthma, breast cancer, diabetes, major depressive disorder, health status of people over and under 65, health risks, and consumer satisfaction. In addition to developing scientifically sound measures, FACCT helps organizations gather data using their measurement sets.

  • The Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The JCAHO3 reports itself to be the nation's predominant standards-setting and accrediting body in health care. In 1989, JCAHO started to accredit managed care organizations. These accredited organizations were then folded into the Ambulatory Care Accreditation Program in 1990. In 1995, JCAHO released the last of its Accreditation manuals based on performance-focused standards. In terms of performance measurement, The Joint Commission launched ORYX - The Next Evolution in Accreditation in 1997 4 to integrate the use of outcomes and other performance measures into the accreditation process. While not yet fully operational in the managed care area, ORYX intends to have accredited organizations select one or more performance measurement systems that have been accepted by the Board of Commissioners as having met the specified requirements. Each accredited managed care network will be expected to use at least 10 performance measures drawn from one or more of five consensus-based sets of measures including those developed by the NCQA, FACCT, JCAHO, University of Wisconsin and University of Colorado. It is clear that if one expects to be accredited by the JCAHO, it must be measuring its performance using measures that have undergone considerable scrutiny.

    Worthy of note is a key publication produced by the JCAHO entitled The National Library of Healthcare Indicators (NLHI): Health Plan and Network Edition, which was first released in 19955. The NLHI contains individual profiles for 225 performance measures that can be used to assess the performance of health plans, integrated delivery networks, provider-sponsored organizations, and other emerging delivery system forms. The performance measures were selected through an expert-based face validity screening process, and contain measures from AHCPR, JCAHO, and NCQA, as well as other sources.

  • U.S. Quality Algorithms (USQA). USQA, the performance measurement subsidiary of U.S. Healthcare, has developed a Medicare Quality Report Card that focuses on the unique needs of the Medicare population6. Based on the HEDIS model, the Medicare Quality Report Card has several sections, including quality of care measures, access and satisfaction measures, and enrollment and utilization statistics. The quality of care measures focus on preventive services, acute and chronic diseases, and mental health. The first report card was generated in 1994.

  • The Agency for Health Care Policy and Research (AHCPR). AHCPR, an agency housed within the U.S. Public Health Service, is the lead agency supplying research results designed to improve the quality of health care, reduce its cost and enhance access to essential services. In November of 1996, AHCPR announced a significant project to develop a Quality Measurement Network known as QMNet7. QMNet is intended to build on a prototype computer tool designed to make it easier for health plans, providers, and purchases to identify, choose and use clinical performance measures. When complete, QMNet will be a database of performance measures that will serve as a national resource.

    AHCPR is also working on a project known as the Consumer Assessment of Health Plans (CAHPS)8. The goals of CAHPS are to

    1. develop and test questionnaires that assess health plans and services;
    2. produce easily understandable reports for communicating survey information, and
    3. evaluate the usefulness of these reports for consumers in selecting health care plans and services. While still in development, it is expected that CAHPS will likely drive the development of new performance measures for MCOs.

  • NCQA and HEDIS. The National Committee for Quality Assurance initiated and continues to sponsor, support and maintain a set of performance measures known as the Health Plan Data and Employer Set (HEDIS). HEDIS is quickly emerging as the "gold" standard by which health plans are measured9. According to NCQA literature, HEDIS provides a set of standardized performance measures designed to ensure that purchasers and consumers have the information they need to reliably compare the performance of managed health care plans. Put simply, HEDIS is a report card for managed care health plans. Given the attention that HEDIS has received and the number of MCOs that employ these measures, it will be described in more detail below.


HEDIS has undergone considerable change since the early nineties when it was first released. The latest version, known as HEDIS 3.0, is different from its predecessors in four ways.

  • First, the performance measures are more outcome or "results" oriented, forcing health plans to measure the impact of interventions on an individual's daily life.

  • Second, the performance measures are more broadly focused, enabling a health plan to report on the full spectrum of health care issues, from prevention to acute and chronic care, as well as access to care, satisfaction, and cost of care.

  • Third, the performance standards are being used to address the commercial as well as the Medicare and Medicaid populations allowing purchasers and consumers to examine care across populations as well as across plans.

  • Finally, HEDIS 3.0 encompasses "testing" standards intended to notify health plans about standards likely to surface in the immediate future. Testing standards encourage users to participate in the research of new standards and to take part ownership for their development.

HEDIS Differences

NCQA speaks to the difference between HEDIS and other performance measurement efforts. A key difference lies in the track record of HEDIS versus those of other tools. HEDIS measures have been in existence for a number of years and have been validated and used by more than 300 organizations. The other significant difference lies in the primary objective of the performance measure. Some measures are intended to track internal performance over time or to support internal improvement efforts, and were not intended for use as a comparison vehicle. HEDIS, however, was specifically designed to allow comparisons of multiple health plans. These two differences have served to make HEDIS the single largest performance measurement tool in managed care.

HEDIS Performance Measures

In keeping with its objective to look at the full spectrum of issues for purchasers and consumers, HEDIS has eight dimensions of performance measures:

  • Effectiveness of care. These measures focus on the clinical care provided and the results achieved. Examples of measures include eye examinations for people with diabetes, breast cancer screening, follow-up after hospitalization for mental illness, and treating children's ear infections. Medical management departments in MCOs often use these measures as a way of assessing and proving their effectiveness.

  • Access & availability of care. These measures focus on assessing the availability and accessibility of care for health plan members. Examples include children's access to primary care providers, annual dental visits, and the availability of language interpretation services.

  • Satisfaction with the experience of care. These measures focus on how the health plan meets the diverse needs of its populations. A standard member satisfaction survey with multiple questions and measures is employed.

  • Cost of care. These measures focus on the value of the services provided by the health plan. Information is gathered on high-occurrence and high-cost DRGs, as well as on rate trends. Medical management activities are often directed toward managing the costs of health interventions, and for this reason the medical manager is particularly interested in how his plan's costs compare with others'.

  • Stability of the health plan. These measures focus on the likelihood of the plan to experience stability issues. Measures include disenrollment figures and provider turnover, as well as information on years in business and total membership.

  • Informed health care choices. These measures focus on the effectiveness of the health plan in helping members become active partners in health care decisions. There are currently two methods for measuring informed health care choices, one addressing language translation services, and the other addressing new member orientation and education.

  • Use of services. These measures focus on how the health plan uses its resources to determine if the needed services are being delivered. Measures include inpatient and outpatient drug, chemical dependency, and mental health utilization, as well as the frequency of prenatal care, and cesarean section and vaginal birth after cesarean rates, to name but a few.

  • Health plan descriptive information. These measures are not really measures as such, but information that consistently interests purchasers and consumers. Information includes provider compensation, board certification, case management, and risk management, as well as enrollment by payer. These are but a few of the elements solicited in this area that enable the reader to have more knowledge about the health plan in general.

It is clear that to-date, HEDIS 3.0 has the most comprehensive single set of performance measures for managed care. While there are definite improvement opportunities, HEDIS 3.0 manages to satisfy most purchasers' and consumers' current need for information.

Future Needs

Performance measurement in managed health care is relatively new, but it has come a long way in providing information wanted by Americans. However, performance measures have much to be desired if they are to completely satisfy the purchaser and consumer. Everyone is looking to the industry leaders to correct the inadequacies in today's performance measures. Specifically, the General Accounting Office (GAO) under Senator Ted Kennedy's direction, found that Americans definitely want report cards10. But, consumers and purchasers alike want measures that are more outcome than process oriented. They want greater assurance regarding the objectivity with which data is collected and reported. They also want data that takes into account critical differences in patient status. And, they want more help in understanding the subjective factors that lead to decisions regarding provider selection. Another area in need of improvement is that of early detection of quality and utilization issues. Individuals are looking for measures that can help identify potential quality issues before a serious quality problem occurs. This challenge for improvement goes out to all those involved in developing and implementing managed care performance measures.


Performance measurement in managed care is a large, complex, costly and time consuming activity that can significantly impact an MCO's ability to secure contracts, focus on priorities, and expand its membership. When an MCO measures and reports its performance, it can more objectively allocate resources, target needed health services, identify improvement opportunities, and provide valuable information to purchasers and consumers. Without performance measurement, an MCO is likely to find itself losing business to those MCOs who do measure and report on their performance. The future challenge is to employ those measures that more accurately focus on outcomes and to constantly improve performance. Working with the industry leaders will help to ensure that MCOs, consumers and purchasers alike achieve mutually desirable performance measurement goals.

For more information on Managed Care and Quality Management please contact us at (630) 325-6543 or by email at .

We hope that you will join us as we explore all of the elements of medical management in the coming months. In addition, we are offering a "Signature Series" on "Managed Care Contracting". We hope that the two series combined will lessen the mystery of managed care and help level the playing field between providers and payers.

Ira H. Rosenberg

Ira H. Rosenberg

President, Managed Care Resources, Inc.


1. _________, HEDIS Report Cards Executive Summary, NCQA HEDIS Page, 1996.

2. _________, "FACCT - Helping Americans Make Better Health Care Decisions", The Foundation for Accountability,, 1997

3. _________, JCAHO Facts About the Joint Commission on Accreditation of Healthcare Organizations. 1997.

4. _________, JCHAO, Performance Measurement, 1997,

5. _________, JCAHO, Introduction to National Library of Healthcare Indicators, 1997.

6. Nicholas A. Hanchak, Sandra R. Harmon-Weiss, Patricia D. McDermott, Alex Hirsch, and Neil Schlackman, Medicare Managed Care and the Need for Quality Measurement, Managed Care Quarterly, 1996 4 (1): pp. 1-12.

7. _________, AHCPR Announces New Quality Measurement Network, Press Release, November 29, 1996,

8. _________, AHCPR Overview of Consumer Assessment of Health Plans (CAHPS), September, 1996.

9. Chuck Appleby, "HEDIS: Managed Care's Emerging Gold Standard", Managed Care, February, 1995, pp. 19-24.

10. _________, Americans Using Report Cards, Want More, Quality Management Update, Volume 5 #21, 1/11/95, page 5.

Related World Wide Web Sites:

A. National Committee for Quality Assurance (NCQA)

B. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO)

C. The Foundation for Accountability (FACCT)

D. The Agency for Health Care Policy and Research (AHCPR)

The Managed Care Resources, Inc. team has over 150 years of combined experience in the development and implementation of managed care services. Please visit our home page to learn more about how we can assist you with your managed care needs. We also invite you to contact us with questions or comments.

MCR Home -- Services -- Consulting Team -- Project Highlights

Signature Series -- MCR Newsletter -- Managed Care Links
Site Map -- Contact Information __ email:

© 1998 Managed Care Resources, Inc. All Rights Reserved.