Ready or not, Value Based Purchasing is the new reality in healthcare. The shift from volume-based to value-based reimbursement is creating ripples that impact all aspects of healthcare delivery. Among the myriad of clinical, operational and financial processes that are currently undergoing intense scrutiny, perhaps the one area that will play the most important role in this transition is Value Analysis (VA). Value Analysis Committees have been in existence for decades. However, the next evolution of this committee will continue to be built on the realization that healthcare can no longer afford to blindly react to physician preference.
In most organizations, a Value Analysis Committee has been established to organize and oversee clinical cost-reduction initiatives. VA processes are designed to impact what product and services will be used to deliver clinical care and their financial impact. Depending on your organization, the Value Analysis Committee will accomplish these objectives by defining its role along a continuum beginning with “Rubber Stamping” clinical preference, to careful analysis of proposed alternatives, to proactively identifying and assessing how patient care is delivered today and will be delivered in the future. In a culture dominated by clinical preference, VA committees struggle to escape the pull of simply validating or invalidating clinical predispositions at the expense of establishing a proactive approach to the future. The new fiscal reality in healthcare demands a process that can superimpose the strategic goals of the organization as the key driver of the tactical application within a cost-reduction protocol.
With the pivot to rewarding value, as defined by the patient, instead of rewarding volume, a renewed focus on a patient-centric culture is upon us. A Value Analysis Committee may try to meet this new challenge in several ways such as updating volume-based VA processes, fortifying committee membership with additional clinical resources, expanding analysis to determine total cost, streamlining implementation, etc. These are all sound alternatives to maintaining the status quo but the real question is: What does value analysis in a patient-centric culture look like?
Value Analysis vs. Product Standardization
In the past the terms product standardization and value analysis were used interchangeably. Today product standardization is recognized as one of the components of value analysis.
Product standardization is the method used to leverage economies of scale by limiting the number of vendors used to acquire a product. The goal is to establish a symbiotic relationship with a vendor, or group of vendors, by creating an environment by which the vendor can lower the total cost of an item through the optimization of their manufacturing and sales processes. These savings are then passed on to the hospital.
Value analysis is an investigative or problem-solving approach used to determine opportunities to reduce costs, improve quality and patient satisfaction, and ensure that the total cost of a product or service is no greater than is necessary to carry out its functions well.
What is Value
- A fair return or equivalent in goods, services, or money for something exchanged
- The relative worth, utility, or importance of something
- The monetary worth of something
It is interesting to note that only the third component of value is objectively measurable, therefore quantifiable. The other two components are subjective in nature. This means that, for the most part, value “…is in the eye of the beholder.”
In a volume-based environment the clinical provider is recognized as the primary beholder. In a value-based environment, the primary beholder is the patient. Simply put, the patient determines what products and services add value to the patient experience.
Each patient will define value differently but there is a common thread that runs through all of them:
- Clinical 0utcomes: did I feel better?
- Cost transparency: what is this going to cost me?
- What goods and services are they willing to pay for?
- Customer service/satisfaction: is the staff friendly, available and demonstrates a caring and compassionate demeanor?
Value Analysis Process
Determine Preference vs. Acceptability
In today’s value-based reality, the first phase of the process is to determine the function and use of the proposed product or service under consideration. The most challenging aspect of this functional analysis is to separate two key drivers: Clinical Preference vs. Clinical Acceptability.
Clinical preference is the result of dynamic synthesis of training, technological innovation, user interface, aesthetics, quality salesmanship, etc. The degree to which preference influences the selection process may be impacted by the financial strength of the organization. Several years ago, I presented a program that would increase revenue across a wide range of supplies and pharmaceuticals to a group of executives from a major health system in the Midwest. I noted that implementing this solution would increase revenue for one item by $50,000. I still remember my shock when one of the executives commented that… “We don’t get too excited by $50,000.” Ah, those were the days.
Clinical acceptability is much harder to embrace. Today I am bombarded by the introduction of things I didn’t even know I needed. When I bought my first iPhone I was shocked to learn there were over 200,000 apps that could be downloaded on this strange new device in my hand. As of June 2016, there are over 2,000,000. I have downloaded the select group of applications that make controlling what I deem to be important aspects of my life easier, and because they are, for the most part free, their value is through the roof. That is until recently when hurricane Matthew erased the internet in my area and I was forced to go through the agony of turning the lights in my living room on and off manually. Oh, the horror….
Hence the conundrum of clinical acceptability: is an existing product or service that is performing reliably no longer acceptable simply because a newer, shinier, alternative with more bells and whistles is now available?
More importantly, how do we assess the value of replacing what’s working with something new? As I mentioned, turning on my lights by talking into a connected cylinder on my coffee table is very efficient and, at a negligible operational cost, in my opinion, this technology provides intrinsic value. Would the value component of this convenience be the same if it costs me $0.10 every time I used it; $0.25, $0.50, $1.00? At some point the true cost of the service this product offers would exceed the value it provides.
I believe the goal is not to chase emerging products and services for the sake of change, but for its impact on improving the overall quality, cost and customer satisfaction of the services provided. It is the intersection of these elements that will define the true value of proposed change and will ground the objective selection of items based on cost, defined risk and measurable patient outcomes.
VA processes have, and will continue to focus on the balance between cost and value. The difference is that in the past, value was defined by the clinician, today and into the future, value will be determined by the patient. In the past, these decisions were centered on: Can we afford it and will it save money? In today’s environment, these discussions now ask: Should we do it at all?
Keys to a Successful Value Analysis Program
C-Suite level support is instrumental in establishing a global view of the new fiscal reality; ensuring that VA initiatives are prioritized throughout the organization and compliance cascades through the various functions in the organization.
David Hunter, Vice President of Supply Chain Management for Providence Hospital, says that, “Building relationships to garner support, especially at the clinical or physician level, is key.” When the power to influence and/or mandate change is replaced by comprehensive objective analysis, ideas are exchanged on a common platform. The most effective way to understand the dynamics of clinical and financial interactions is to establish and improve upon a foundation of trust and mutual respect. It will be these relationships that facilitate the complex discussions to come.
When divergent groups meet with seemingly similar goals but with naturally opposing views (surgeons want their preferred products, supply chain managers want reduction in costs) the only means to enable effective interaction is through collaboration. The objective is to get everyone at the table, review the facts, objectively entertain alternatives and gain consensus.
As a best practice, successful supply chain representatives take the initiative to spend time with key VA stakeholders. This level of collaboration helps them become more familiar with the facts and rationale behind all aspects of the proposed solution in an attempt to consolidate and provide additional information that can augment financial analysis.
Stay tuned for part 2 of this topic where I will review how a value analysis decision becomes patient-centric as well as how it can save organizations money.