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IMPORTANCE The Merit-based Incentive Payment System (MIPS), established as part of the Quality Payment Program, is a Medicare value-based payment program that evaluates clinicians' performance across 4 categories: quality, cost, promoting interoperability, and improvement activities. The cost category includes novel episode-based measures designed for targeted evaluation of the resource use of specific conditions. This report describes the development of episode-based cost measures and their role in the shift from volume-based to value-based purchasing. OBJECTIVES Episode-based cost measures focus on resource use related to the treatment of a specific condition or procedure. The measures exclude health care costs unrelated to the condition or procedure of focus. The episode-based cost measures provide a nuanced examination of resource use that can be used alongside quality metrics to identify opportunities to improve the value by capturing costs that are clinically related to the care being delivered within a given patient-clinician relationship of care delivered to patients. These measures were developed with the input of clinical committees composed of over 320 clinicians from 127 specialty societies and stakeholder organizations. The MIPS program currently evaluates clinician cost category performance based on 2 population-based cost measures (Medicare spending per beneficiary and total per capita costs) in addition to 18 episode-based cost measures. Additional episode-based cost measures are currently under development. CONCLUSIONS AND RELEVANCE The transition to value-based payment requires an accurate assessment of clinician effect on health care quality and cost. The use of episode-based cost measures to assess clinician influence on health care costs for high-priority conditions and procedures is an important step. The Centers for Medicare & Medicaid Services is introducing MIPS Value Pathways that will align episode-based cost measures with related quality measures to further incentivize the transition from fee-for-service to value-based care.

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Background: Under the Merit-based Incentive Payment System (MIPS), the U.S. Centers for Medicare and Medicaid Services (CMS) evaluate clinicians who manage Medicare patients on the basis of cost and quality outcomes. CMS contractor Acumen, LLC, convened an expert panel to develop a knee arthroplasty episode-based cost measure (EBCM) for use in the MIPS.Methods: A Clinical Subcommittee of 28 clinician experts affiliated with 27 specialty societies provided guidance in developing the knee arthroplasty EBCM. The Clinical Subcommittee specified all aspects of the EBCM including triggering of the episode, services within the episode, risk adjustment, subgrouping, and exclusions. Services were counted only if the Clinical Subcommittee deemed them under the influence of the clinician assigned to the EBCM (selective service assignment; SSA). We assessed the reliability of the EBCM and compared it with an alternative population-based cost measure constructed without SSA.