Maximize Value Through Process Transformation
2. Are You Leaving Healthcare Value on the Table?
To know whether, and how much, value you’re leaving on the table, you have to know what leaving no money on the table looks like. What is the value of healthcare? Are you getting the full value you’re paying for?
Series 
2
Episode 
2
Published on
January 11, 2019
“Price is what you pay. Value is what you get.” — Warren Buffet (1)

“How can I know whether a new statin is a better value for the money than the statins already on the market?”

“Are we exerting too much effort (and paying too much) to accrue patients for our clinical trials?”

“Our lab could be more valuable to the community if we could add more services to more patients without adding to our cost. Can we do that?"

Welcome back to TeloChain’s Real-World Healthcare Insights! This is the second episode in a series on how secure technology-enabled process transformation and strategy redesign can help you harvest the full value of healthcare services.


Cut to the punchline: Maximizing the value (outcomes per dollar) of healthcare depends on how well (appropriately, accurately, and efficiently) it is delivered—i.e. on operations. Knowing how to maximize value for a process, service or product depends on clearly understanding its value proposition, story and metrics, and most efficiently getting the desired results.


Mind the gap!

In our first episode, we said that any healthcare ‘intervention’ (such as ordering a test, prescribing a medication or running a clinical trial) has an intended (potential) value, but harvesting that value depends on the set of factors required to actually deliver the care.

In the real world, there’s usually a gap between the potential and actual value. Now we take a closer look at value in healthcare, and in Episodes 3, 4 and 5 we’ll illustrate three big reasons for the gap: inefficient process design, insufficiently robust strategy, and failures of security.


How does healthcare produce value, and how is that value measured?

Think of the gap between potential and actual value as leaving money on the table. To know whether, and how much, value you’re leaving on the table, you have to know what leaving no money on the table looks like.

Understanding the full value of a healthcare service helps us discover the essential role of operations in how well that intended value is delivered in the real world (that is, how large is the gap). Operations as a category encompasses all that must work together smoothly and efficiently to deliver care: the people, roles, data, tasks, documents, handoffs, workflows, metrics, and reporting. An operations platform is the technology, processes, and set of rules that support operations.

Value = outcomes (or results), divided by the cost of producing those outcomes. (2) So, the better the operations platform enables the actual provision of healthcare, the more potential value can be realized.


A healthcare value example: improving glycemic (blood sugar) control in type 2 diabetes, as measured by HbA1C:

  • Value proposition (what): “Taking oral hypoglycemic meds lowers risk for heart attacks, stroke, and heart failure (clinical events).”  
  • Value story (how): “By various mechanisms (depending on the drug), these drugs reduce blood sugar, which, over a period of years, improve glucose metabolism and insulin resistance... lowering the risk of clinical events.”
  • Value calculation (how much): (Absolute (3) reduction in rate of clinical events in patients who are at least 80% adherent to drug) divided by (cost to achieve the outcome) (4)

For example, suppose the weighted-average one-year cost of a clinical event that can be potentially prevented by adherence to oral hypoglycemic medication is $20,000 (5). If good adherence to the drug prevents one such event per 100 people over one year, then (in this simplified example) one year of good adherence saves $20,000 for the group of 100. If the cost of a year of drug at 80% adherence is $400 ($40,000 for the group), then the cost to prevent 1 event for one year = $20,000. (6)

Is this a good value for the money? Is it worth paying $20,000 for a year to prevent one heart attack, stroke or heart failure  in a high risk group of 100 diabetics? This is hard to answer in healthcare because of the many factors that must be taken into account—far beyond our scope. But remember the value ($20,000 per prevented heart attack per year per 100 similar patients) can only be achieved if each of those 100 people is at least 80% adherent, which is difficult outside the walled garden of a clinical trial. So if we decide to go for the value, let’s also make sure we set ourselves up to harvest as much of it as possible—a problem that can be addressed operationally.

Here, we are specifying operations as the content, management, and monitoring of tasks (the actions of people and machines) and processes (task handoffs and workflows governed by a set of rules) designed to achieve specified objectives.

So we have the potential value of healthcare, which is variably realized through operations. In the example, the potential value is $20,000 per prevented clinical event in 100 patients who are at least 80% adherent. If they’re less adherent, it will cost more than $20,000 to prevent one event. Suppose what actually happens after one year is that because of poor drug adherence, it costs $40,000 to prevent one event--a $20,000 value gap. That’s $20,000 of potential value left on the table. (8) (9)

Here are some examples of healthcare-related objectives, associated healthcare tasks (at a very high level), and supporting operations. Each of the high-level operations categories include numerous roles, tasks, documents, and workflows. Without operations, healthcare would be indeed hobbled.

Value from what perspective? Is that heavy musty box of photos more valuable to you than to your partner (who may be tired of moving it to another house...for the fourth time)? Patients, clinicians, clinic and hospital administrators, and payers may value the same healthcare service differently and that figures into how they make decisions among competing treatments or uses of resources. A recent University of Utah Health study illustrates the range of value assessments and rankings based on role, reminding us of the value of seeing the world from others’ perspective every once in awhile. (7)



Up next: Where are process vulnerabilities costing you healthcare value? A use case.


We invite your participation! Join the conversation below or contact us.

NOTES

  1. While many of the quotes attributed to Yogi Berra are valuable (if for no other reason than momentarily pausing time to allow contemplation), he’s not quoted for pithy sayings about value. Though he did say “A nickel ain’t worth a dime anymore.”
  2. Or “outcomes per dollar,” if you want to monetize outcomes. More broadly, it’s outcomes (results) gained given the resources consumed to produce them. In health economics, this approach is called a cost-benefit analysis. A somewhat similar concept is the cost-effectiveness analysis (CEA) which produces a cost per standardized outcome such as a year of life increased (usually adjusted for quality of life, hence a QALY--quality-adjusted life year). Another CEA standardized outcome could be a prevented clinical event, such as a heart attack (or, perhaps, a quality-of-life adjusted heart attack, since the treatment might impact the patient’s quality of life). Using a standardized value denominator facilitates comparing interventions or programs. For example, suppose we believe that a generic and brand version of a drug--costing $250/year and $1000/year respectively--were equally effective in reducing heart attacks (AMI) from 5 in 100 patients without treatment to 4 with, after one year of taking the drug. The cost per avoided AMI is four times greater with the branded drug. Of course there may be other reasons than cost to use the branded drug--and nearly all health economics examples are much more complex than this, for example comparing two or more different kinds of treatments.


  1. Absolute risk reduction is reported as number of events per 100 people; relative risk reduction is reported as (events/100 with the intervention - events/100 without the intervention), divided by events/100 without the intervention. ‘Intervention’ may be a treatment, product or service. Example: Over 10 years, 15 people per 100 have a heart attack without a treatment; 10 people per 100 do with a treatment. Absolute risk reduction = 5 per 100 people treated (1 event prevented per 20 people treated). Relative risk reduction = (15-10)/15 = 33%.
  2. Cost (the value equation denominator) usually includes direct costs, but may also include indirect costs; hard and soft costs; and opportunity costs. Direct costs include those paid by the stakeholder, e.g. a health plan or hospital. Indirect costs include those paid by others, e.g. patients’ travel for treatment, time away from work, etc. Other patient costs such as copays or deductibles are sometimes included in direct costs but should be reported as a separate item. Soft costs include those that can’t be directly monetized such as employee absenteeism or presenteeism, employee turnover--but that are still related to the level of provision of healthcare services. Opportunity costs involve lost (foregone) opportunity of doing something else with the money.
  3. Evidence for the types and absolute prevention rates of these clinical adverse events come from published studies, which generally show at least 80% adherence to treatment. Event costs are usually stated as ‘allowed’ costs--the sum of payments from all sources to healthcare providers, and include contractual costs to insurers and patients. Costs must be specified over a timeframe--for example, the one year cost of a heart attack includes healthcare services that would not have occurred had the heart attack been prevented.
  4. Costs such as physician visits, lab tests and treatment of complications of drug therapy are included in the “one-year” cost, and indirect costs such as time off work and personal expenses because of the illness are not included. One-year event costs are more challenging to estimate than the immediate cost of the event (hospitalization), but actuaries are used to making these calculations on an individual or population basis; and basic logic for making timeframe disease-based cost estimates is encoded in clinical episode groupers such as Optum’s Episode Treatment Groups (https://etg.optum.com/etg-links/episode-treatment-groups/), CMS’ Episode Grouper for Medicare (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/MACRA-MIPS-and-APMs/EGM-Design-Report.pdf), Truven’s Medical Episode Grouper (http://truvenhealth.com/portals/0/assets/HP_12980_0913_MEG_Apps_Methods.pdf), and Johns Hopkins ACG (https://www.hopkinsacg.org/), among others. The National Committee on Quality Assurance reviewed how episode groupers work and published a 2014 review at https://www.qualityforum.org/Publications/2014/09/Episode_Grouper_Final_Report.aspx.
  5. The state of value in US healthcare. University of Utah Health. https://uofuhealth.utah.edu/value/. Accessed October 2, 2018. The authors used a modified value formula, wherein value = (quality + service) / (cost).
  6. To be fair, there is a significant impact of social and environmental determinants of health as well as access to services, treatment selection and planning, and adherence.
  7. Healthcare today can sometimes feel like a Rube Goldberg contraption (https://www.rubegoldberg.com/new-to-rgmc/)--at times it’s amazing it works as well as it does, given its frequent multiplicity of manual steps, disparate tracking and documentation systems, and opportunities for data loss or misinterpretation, task duplication and just plain errors.
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