The Most Elusive Concept in Healthcare: Value

“Value” is the most important concept in healthcare today. But it’s problematic.

Futurists say our system is transitioning from volume to value. Device and drug manufacturers tout the value of their products. It even found its way into Wednesday night’s Presidential debate when frontrunner Hillary Clinton answered Chris Wallace’s query Medicare’s long-term viability with the following reply: “We've got to get costs down, increase value, emphasize wellness. I have a plan for doing that.”

Value is defined as “a fair exchange in return for a thing” ( Per Webster’s, it is a “fair return in goods, services, or money for something exchanged; worth in money; usefulness, or importance in comparison with something else.”  In essence, it is the relationship between what something costs and the benefits that accrue to its purchaser. Transactions between buyers and sellers based on the purchaser’s deduction of what something costs and the benefits derived are the basis for value-based economics. They’re aided by rating services like Consumer Reports that provide useful methods for making selections: the current issue covers SUVs, coffee makers, nut butters and gas/electric ranges.  Very straightforward. Side by side.

But in healthcare, value-based purchasing is elusive. Academics like Harvard’s Michael Porter called for value-based healthcare to replace the current economy of healthcare that’s based on fee for service incentives and utilization alone. Similarly, other developed systems of the world, including the United Kingdom, Germany, Scotland and others, have launched initiatives to inject value-based methodologies into their purchasing. Their efforts to date have resulted in impressive methodologies for comparing drugs but not much more. Per a 2015 report by The Economist’ Business Intelligence Unit, their efforts have been marginally successful but remain incomplete. Why? Because determining costs in healthcare—a test, admission, procedure, visit—in the context of unique patient signs, symptoms, risk factors and co-morbidities requires enormous computing power and tera-bytes of clinical, financial and operational data. And defining “quality” in terms of widely accepted valid and reliable measures is a battle royale as each organization in healthcare believes it alone enjoys insight about true quality (and rarely do these domains of self-interest agree).

Value-based healthcare, like quality of care, seems simple enough on the surface but gets more complicated when efforts to implement it are attempted. In the Affordable Care Act, the U.S. Department of Health and Human Services is tasked with developing an annual National Quality Strategy that addresses three aims: better health, better care, and lower costs. These constitute the ingredients of its value equation. And its Star Rating Programs for Hospitals and Medicare Advantage Plans recent illustrations of its attempt to relate cost and quality. 

But the underlying math in these is far from perfect. The Hospital 5 Star ratings, as it turns out, fail to account for differences in the severity of patient populations penalizing teaching hospitals as a result. The Star Ratings for Medicare Advantage plans place more weight on process measures-what’s done by the plan—rather than measures of improvement in the Medicare enrollee’s health (an outcome). And so on.

Our system is evolving clumsily toward value-based healthcare. It’s understandable. There’s no central bureau to which consumers can go to know what drugs work best or which physicians get the best outcomes and what these costs in multiple markets and channels. Proprietary technology assessment programs and coverage and denial deliberations by payers are not widely accessible publicly. The costs in our hospitals and clinics bear no resemblance to their prices due to the variation in third party reimbursement, group-purchasing agreements that limit access to cost information and wildly variable differences in bad debt due to payer-mix distinctions. As a result, we are more value conscious about over-the counter remedies and our visits and scripts than the big-ticket items that run $100,000 or more. That explains why there are 844 “top 100” hospitals, star ratings for hospitals and plans are challengeable and quality of care is thought to have more to do with affability and service than diagnostic accuracy and optimal outcomes. 

The reference to value in Secretary Clinton’s reply was telling: that value-based healthcare is in her conceptual framework about healthcare’s future is significant. The challenge will be defining it, and hardwiring it into the policies and politics of the system we have.

Maybe in the first 100 days of the new administration, a Blue-Ribbon Task Force on Value-based Healthcare should be convened. Just a thought.

P.S. In hospitals and health systems, leadership development and succession planning is an increasingly important task. I recently had the opportunity to participate in one program, the Ascension Leadership Academy, that impressed me more than any I’ve seen. It’s scope, content and most important, it’s centrality to how the system’s leaders behave, are exemplary. The unprecedented challenges of the new normal place a premium on leadership. Getting that right is in all probability the most critical factor to the organization’s sustainability.