Moving from Volume to Value: How Do We Get There?

volume to valueListen to any healthcare pundit or industry observer longer than their opening paragraph and you’ll hear them use the current buzz phrase: Healthcare needs to move from volume to value.  See, there it is already.

We pretty much know where the volume comes from.  If a buyer, any buyer, agrees to pay an acceptable fee for each unit of a needed service, the service provider will soon recognize that the delivery of more units of those services to satisfied buyers yields more payments.  Simple enough, and healthcare service providers have responded as one would expect in this environment.  The fees paid for each unit of service motivate the healthcare provider to maximize throughput – to the limits of their capacity to deliver a satisfactory service – and this leads to an increased volume.  Yes, there’s also quality and necessity and regulation, but right now we’re talking about volume.

So, what about the value part?  What is going to drive value?  And value to whom?  And who is going to measure the value?  And decide how much to pay for it?  Unfortunately, several tenets of basic economics that ordinarily drive value (and operate in virtually every other transactional setting) are disrupted in the healthcare marketplace as payers and providers of every shape and size, employer- and other group-inspired benefit plans, preferred provider and referral networks, watchdog quality and safety groups – as well as the inherent complexity of the subject matter – all serve to distance the patient from a free and informed buying decision.

By the time the ultimate treatment decision is made, it has been framed and prodded by so many ancillary parties that the patient, sitting alone with the provider, can almost feel the other observers in the room; those who will decide after the fact, or who have decided well before the fact, whether this decision is appropriate and how each party in the transaction will be compensated, billed, measured, rewarded or penalized according to a growing litany of performance measures.  If the patient doesn’t feel all of this, the provider often does.

The complexity and confusion arise in part because each of the above fundamental elements has been intermediated – to one degree or another.  The patient – the ultimate target of the treatment – is not the only buyer.  Buying decisions affecting this single transaction were defined, negotiated and contracted months or years in advance, and are being monitored against a wide range of both clinical and financial measures before, during and after the single transaction between a given patient and a given provider.  The terms of these agreements can and do influence the chain of decisions that culminate in the choice of treatment and in the cascade of financial events that will promptly follow.  No wonder it’s confusing.

So then, how does value get defined?  Several common themes emerge as both payer and provider organizations strive to identify the appropriate fundamentals, define a useful and informative notion of value, and introduce that notion of value into the decision processes they share with their patients.

The common elements that lead to a determination of value seem to go something like this:

  • Who are my patients?  A fundamental question, but not always trivial to answer accurately or in a useful way that enables and extends visibility over a population.  Providers need to be able to identify each patient that is legitimately under their care and they must have access to a complete record of the care these patients have received as a baseline for measuring future performance.  Once this record is assembled the pattern of problems, interventions and care relationships can be discerned and used to both characterize and engage each patient.

Providers need to identify the core characteristics of their panel of patients so they can both tailor individual treatments and evaluate patient experiences and outcomes comparatively against similar patients they are treating or that are being treated by other providers.

In an accountable care world, if providers are assigned responsibility for patients retrospectively using a plurality of care or other statistical model, it doesn’t mean they have control over the care those patients are receiving. They can hardly be measured fairly on the outcomes those patients have experienced. They need to know the specific treatments these patients have received, their level of compliance, and what other providers they have seen, at what locations, and with what frequency. This increased understanding of their basic patient panel will begin to reveal the true nature of the relationships they (or others) have with these patients and will often constitute the first wave of relevant analytics into the value being delivered.

  • What outcomes are we targeting for these patients?  What are the care plans that will get them there?  How long have these targets and plans been in place, for which patients, and what results are we seeing?The segmentation analytics that was started with the patient panel can now be extended, as specific performance targets are defined for individual patients and the projection of these targets is aggregated into clinically coherent segments, yielding outcomes and results that perhaps for the first time give visibility and insight into how well the relevant population is being managed.

Care teams and practice management can now monitor the clinical, operational and financial performance measures of the segments that drive significant costs and consume substantial resources, enabling the exploration of new deployment models.

  • What is our baseline? For the patients’ and other payers’ expenditures for our services and for the actual costs we incur to deliver those services?  Virtually all risk-based contracts establish a baseline of expenditures using some form of statistical measure (e.g., weighted average) over a defined historical time frame.  Projecting the dynamics of patient mix, service mix, fee structures and delivery resources over the anticipated life of the contract provides a segment-able baseline for measuring and tracking contract performance and assessing value. From this foundation, organizations can apply complementary analytics so that under-performing practice areas or population segments can be localized and improvement programs can be appropriately focused and funded.  Over-performing segments can be examined and highlighted as potential sources of best practices targeted for broader dissemination.
  • Who is accountable, and for what?  As the payment structure for many conditions moves to more of an episode-based model, the deployment and coordination of care delivery resources takes on added significance.  Roles and responsibilities must be defined for the delivery of episode-focused clinical services across the network of care settings. Proactive coordination of transitions in care and the associated communications, hand-offs and follow-ups must be defined and written into performance contracts along with explicit adherence measures.

These metrics will begin to form the basis for concrete and measureable accountability models and will likely be a consideration when shared gains and losses are assessed retrospectively.  Evolution toward more proactive accountability models is likely to follow.

Accountability models based on the actual outcomes realized, as distinct from adherence to best practices, can be differentiated through analytics, enabling some flexibility for care redesign (potentially including patient choice) or other measured innovations undertaken by providers.

  • Are we correctly and accurately reconciling the various activities, billed services, payments, resource alignment and costs with our agreed-upon models for accountability?  This is non-trivial even within a single enterprise.  And now we have various ACO or ACA models where new participants are collaborating at levels they have never attempted before, and entering into risk agreements based on shared performance metrics.  Some organizations are experimenting with formal value stream maps where benefits and costs are explicitly modeled.  Others are punting any envisioned gains (or losses) to an aggregate ‘shared benefit’ to be ‘addressed later.’One key consideration is implementing at least some accounting (defining and tracking) of the revenues and the actual costs associated with care delivery to specific segments with different characteristics (e.g., populations, locations, groups, payers, service partners or venues).  These costs must not be (but often are) confused with the amounts the provider would like to charge; or the allowed amounts the payer will agree to; or the actual payment amounts received from all parties; or even the various provisional ratios used to approximate the real costs.  Accountability models will need to evolve much further if they are to offer any real operational decision-making value.

No one disputes that the changes underway in healthcare have the potential to be transformational, to varying degrees.  The complexity and diversity of the responses that will be required by various organizations is still taking shape and there are many variables that will determine the success that any given enterprise will achieve.

The core principles outlined here are being adopted and applied in diverse healthcare organizations to answer a few fundamental questions about the value they offer that, ironically, have been posed and answered for all time in other industries and economic settings.  Who is our customer?  What do they need or want?  Why are we the best organization to meet their needs?  How can we communicate the benefits and costs to all the parties who are involved in the decision to buy?  Can we deliver?  How can we measure these factors both as a baseline and on an ongoing basis so we can provide convincing evidence that we offer the best proposition of value to all concerned?  Healthcare organizations that can answer these questions and address the numerous issues that arise in their pursuit will have a leg up on everyone else and will both deliver the best value and enjoy the greatest success.

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