Total Value Management: The Evolution of Value Analysis and how health systems mature from event-based decisions to a value-focused culture of collaboration
Abstract
The modern American health system is an extremely complex environment characterized by a state of constant flux. Driven by both healthcare reform and technological innovation, financial pressures are changing the way care is delivered. As a result, health systems are realizing that to have a reasonable discussion about value, they must evolve operational processes.
The stakes couldn’t be higher: those who succeed will demonstrate a commitment to measuring and improving upon patient outcomes, while those who fail will negatively impact their organization’s strategic, financial, and clinical objectives. As important as any other function within the health system, the measurement of value plays a large role in whether a hospital will adapt. That adaptation will depend upon an ability to evaluate and improve upon the maturity and integration of value-adjacent decision-making processes.
Key to that improvement is a recognition that focusing on financial impact alone does not equate to value. Value in the context of healthcare must necessarily be defined as any initiative that positively impacts the “quadruple aim” of lowering costs and improving quality of care (value), while simultaneously improving the satisfaction and well-being of both patients and clinicians (experience). That goal can be accomplished only by incorporating clinical evidence into a forward-looking program that also measures longterm outcomes. And for process improvement efforts to take root, they must be implemented by a new kind of leader, one who views value through a more holistic lens than has historically been the norm.
Total Value Management A Definition
Traditionally, value has been defined and determined within disparate silos, whether supply chain, pharmacy, therapeutics, or clinical consensus groups. But if health systems are to address the total cost and outcome of care, these efforts should converge. This convergence allows sourcing to elevate itself from mere event to the cultural foundation upon which rigorous, unbiased, and evidence-based decision-making occurs. Driven by a spirit of collaboration, this comprehensive process enables improvements in the metric that matters most: the value of care for patients and their communities
The Value Management Maturity Curve
Health systems typically operate at one of five stages of maturity along a well-defined curve, from Demand-Driven to Population Management. And while there have been many versions of what has historically been termed a Value Analysis Maturity curve, in the new world of Value Management, historical definitions require updating.
Level 1: DEMAND-DRIVEN FOCUS
The demand-driven stage is reactive to the push and pull of a fee-for-service care delivery model. It evolved from the days when health systems were largely free to determine both the technologies they used to deliver care and the prices they charged patients for that care.
PEOPLE:
• No team structures
• 1-2 people, purchasing/supply chain drive decisions
• Demand-driven
• Leadership-minimal direction, no direct support
PROCESS:
• No formal value analysis process
• No formal team structures
• Demand-driven item acquisition
EVIDENCE:
• None, other than potential vendor/supplier
TECHNOLOGY:
• No formal toolset; +/- spreadsheets, email
• Written, informal requests
• No screening questions or due diligence
In a hospital operating at the demand-driven stage, value analysis would consist of a handful of staff handling hundreds of product requests per year, with zero agency to guide or control decision making. Little or no product comparison would occur; if and when it did, little or no action would be taken. In this scenario, it wouldn’t be unusual for a hospital to be sourcing spine products, for example, from 40 or 50 suppliers, each device acquired at a different price and providing different outcomes. A demand-driven approach results in unsustainable overhead and wide clinical variation over time. Interestingly enough, that variability is a direct result of appeasement, rather than a serious attempt to provide evidence-based data to physician stakeholders. It’s clear that the demand-driven model isn’t a model at all, and if a health system is to succeed in a value-based reimbursement environment, it’s not sustainable.
Level 2: NEW PRODUCT APPROVAL, COST FOCUS
This stage is characterized by a focus on basic standardization around commodities, with cost and volume as the primary decision making factors. A hospital operating at the price-optimization stage understands it has a problem, so a value analysis team or professional will exist. But processes will be immature, and their sole mandate will be to negotiate better pricing. To achieve that goal, decisions will first focus on volume.
PEOPLE:
• Leadership directs goal of cost savings; no interaction or attendance in supply chain activities or meetings
• No direct reporting to Leadership
• Value analysis committee(s) may be in place; if so, will be generalists, focused on price lowering and new product approval
• Purchasing owns decision-making; dotted line to supply chain
• Group purchasing organization (GPO) most likely in multisite, but no aggregation of value analysis outcomes or activities
• Infrequent training
PROCESS:
• Begins with new product review or contract change
• Cost reduction drives process, varies by department
• Savings reported to leadership if calculated
• No formal process
• No charters or policy
• Value analysis may make recommendation but no vote
EVIDENCE:
• Infrequent use of data; rarely critically appraised clinical evidence
• Source usually vendor/supplier, Google searches, librarian
• Financial and utilization data from GPO; historic spend
TECHNOLOGY:
• Minimal use of IT platform, if available
• Manual reporting on costs, spreadsheets
• Inconsistent archiving; varied storage methodology (paper/electronic) In a hospital operating under a price-optimization mode
In a hospital operating under a price-optimization model, purchasing might have set a fixed price for a knee implant procedure and will source devices based upon those terms. Suppliers will initially agree, but several months later will likely introduce some minor change to the technology—a ceramic surface, for example, or some new percentage of titanium— triggering opt-out mechanisms in the cap pricing agreement and effectively skirting any price constraints. Although seeming counterintuitive, a price-optimization approach gives rise to essentially the same result as a demand-driven one, in that overhead continues to be unsustainable and outcomes remain highly variable. The reason is that decision-making processes have yet to address the root cause of the problem. As a result, hospitals in price-optimization mode waste a significant amount of time and effort accomplishing very little and must evolve to the next stage quite quickly.
Level 3: COST, STANDARDIZAATION FOCUS
At this stage, technological standardization begins, but it is limited to a small number of similar products. The process is moving gradually from chaos to a more transactional approach, the primary goal of which is waste reduction. Typically, health systems operating in product-and-process mode involve stakeholders recruited from different departments in a more collaborative decisionmaking effort. This would include service line clinicians who are more empowered to help value analysis committees consolidate physician preference items.
PEOPLE:
• Executive meeting attendance, executive buy-in
• Data gathered from all sites, regardless of geography, strive for system-wide participation, focus on system standardization
• Value analysis dotted line to purchasing
• Training encouraged, may/may not be provided
PROCESS:
• Formal team structure and department
• Charters in existence
• Committees formed by service line or specialty area
• Process not standardized across system
• Formal process, but may lack finesse of high functioning group (decision-making and voting consistency)
• Reporting and analytics should focus on standardization and savings from other cost-reduction efforts • New technology assessments
• Capital assessments using value methodology
EVIDENCE:
• Primarily from vendor or supplier
• May seek clinical evidence but not robust enough to conduct clinical equivalency
• Utilize financial and utilization data to optimize price, begin thoughts of standardization
• Physician preference items (PPI) may continue
TECHNOLOGY:
• Exploration of structured workflow tools
• Possible integration
• Some automation of process, may or may not be able to conduct virtual meetings
In this stage, value analysis might engage nursing to evaluate central line products. Such incremental inclusion helps clinicians engage with the process and allay departmental fears about risk. Committee members might host or attend a product fair, request third-party research reports, and begin to investigate the impact of a planned purchase on overall quality of care and patient outcomes. Because stakeholders are communicating more frequently, this stage is also characterized by an increase in tension.
While there is a defined process for making decisions, there are still few parameters around the type of information that can be introduced into that process. Physicians and value analysis professionals might be performing Google searches, for example, to find a few peer-reviewed articles intended to advance a departmental point of view.
The result is a less-than-complete body of evidence, to say the least—one that can result in unforeseen consequences that might affect large portions of patient care. During this stage, the need for a solution to operationalize and standardize the process becomes clear.
Unfortunately, many hospitals that achieve stage 3 often regress to stage 2. In order to avoid this fate, it’s important for health systems to implement process management technologies and protocols that enforce and maintain defined protocols. And if they are to evolve to the next stage, health systems must recruit physicians to lead the charge toward a more evidence-driven value management framework.
Level 4: STANDARDIZATION, DECREASE WASTE/VARIANCE; IMPROVED OUTCOMES; ACUTE CARE FOCUS
Health systems operating in this high-performance mode have structured, collaborative, evidence-driven value analysis processes in place. Whenever possible, they develop guidance documents and automated frameworks that help provide structure around which circumstances, indications, and patient populations a particular medical technology or procedure will be used. And the primary metric is no longer cost (though that remains an important factor) but improvements in patient care. By aligning their vision with clinical service lines, value analysis teams help deliver the measurable improvements in outcome that achieve this goal.
PEOPLE:
• Executive participation in value analysis process, strong representation and liaison
• Formal value analysis committee structure and charters, aligned with culture and goals
• Explicit understanding of roles, responsibilities
• Specialty subject matter experts engaged
• Clinical integration and collaboration, multidisciplinary committees, dedicated value analysis team and positions; physician champions
• Value analysis team has authority, responsibility, accountability
• Multisite corporate team structure
• Training encouraged and expected
• Cost accounting evolves, gains significance
PROCESS:
• Focus is acute care
• Decision-making goals, criteria, methods, results documented and archived; multiple initiatives beyond product; decision-makers identified
• Formal process, driven by policy
• Standardized across teams, across system
• Clinical equivalencies highly utilized in standardization and variance initiatives; forum for new technology assessment, safe start methodology; process replicated for capital, processes, initiatives
• Results of value analysis decision tracked, reported on a scheduled basis on agreed-upon metrics, focused on variance, decreasing waste, and improving outcomes and value
• Episodes of care defined to accommodate shared risk models
EVIDENCE:
• All decisions are evidence-based, utilizing critically appraised, peer-reviewed, non-biased evidence
• Financial and utilization data is accessible, accurate, applicable, actionable
• Clinical equivalencies and methods are deployed with minimal effort
• Process of connecting supply costs to cost of care definition and with outcomes begins, potential use of registries
• Electronic medical records (EMR), Medicaid Management Information System (MMIS), evidence-based guidelines (EBG), clinical decision support (CDS), outcomes, appropriate use criteria (AUC)
TECHNOLOGY:
• Process is consistent, predictable, automated, standardized; archived electronically
• Integration with financial/utilization, clinical evidence
• Virtual capability, varied utilization
• Analytics/software support advanced cost calculation, deriving value
In this highly quality-driven scenario, value analysis will seek to understand a whole host of issues before adopting a new device or technology. Committee members would first investigate whether equivalent items offered different outcomes, and if so, how government and commercial insurers view medical necessity for each. If a treatment is experimental or investigational, how do insurers support, coordinate, and reimburse for it? Do they deny coverage and reimbursement? To answer these questions, stakeholders will turn to unbiased, evidence-based research. Should the health system include the procedure or device as part of a bundled payment model? Though potentially riskier, the financial upside could also be more profitable. Or should it instead perform an internal study, putting internal research oversight mechanisms in place to track and analyze patient response?
It sounds futuristic, but all of these things are possible in a highly mature hospitalbased-care environment. That’s because a distinguishing feature of this stage is a rigorous approach to measuring the impact of major decisions and reconciling anticipated results—whether financial, clinical, or process related—with observed ones. Health systems that achieve stage 4 know what they want to be when they grow up. They have moved beyond opinion to seek reputable, informed analysis of the entire body of evidence at every turn. Measurement, improvement, and repetition have become a cumulative, self-reinforcing aspect of the culture.
Level 5: TOTAL VALUE MANAGEMENT; VALUE DRIVEN, CARE CONTINUM FOCUS
The truth is that even mature facilities operating in stage 4 will still exhibit instances of less-effective departmental decisionmaking here and there. People are people, and without institutional leadership involvement, many revert to the path of least resistance. But it doesn’t take much for these pockets to spread.
Even in organizations at stage 4, healthcare executives aren’t always sure how active a role clinicians should take in these discussions. Those physicians who do want to participate often won’t know how to engage. To avoid that fate, highly evolved facilities recruit leadership to promote the success of their mature, clinically collaborative process. They instill a Socratic culture that relies upon unbiased, scored, and comprehensive evidence to inform every important decision. This stage is characterized by a movement toward Total Value Management across the healthcare continuum.
For it to succeed, the mission must be made explicit, and every staff member must actively collaborate in a culture that promotes constant communication, self-analysis, and improvement.
PEOPLE:
• Executive buy-in; multi-level, active participation, including acute and post-acute providers
• Formal, clinically-led teams; potential for Chief Value Officer
• Culture of improvement, value acquisition
• System and population health focus, usually organized by service line.
• Shared vision and goals with Quality, Rev Cycle
• Training expected, certification encouraged
• Best practice persists; national leaders in value acquisition
PROCESS:
• Formal, standardized, transparent
• Weighted decision matrix based upon clearly defined, unified, transparent goals
• Criteria based upon goals, mission, strategy of the organization
• Clearly defined and agreed-upon metrics for post-decision reporting
• Reporting and analytics focused on value equation
• Greater assumption of risk by providers and suppliers
• Process, methodology replicated for decisions across all projects, initiatives, purchases
EVIDENCE:
• All decisions are evidence-based, integrated into process, protocols
• Peer-reviewed, critically appraised evidence
• Financial, utilization, operational data integrated into process
• Electronic medical records (EMR), Medicaid Management Information System (MMIS), patient-reported outcome (PRO), outcomes, appropriate use criteria (AUC), clinical decision support, evidence-based guidelines (EBG)
TECHNOLOGY:
• Supports Principal Medical Officer
• Integrated, automated
• Utilization of virtual meetings to speed value acquisition (shorten evaluation and decision, speed to implementation and savings)
• Supports weighted decision matrix, online voting and communication
• Electronic/cloud archiving of process, supporting evidence, decision process, and transition to implementation
• Accounting matures to time-based, activity-driven methods; cost definition becomes unified versus historic cost definition
• Outcomes and costs attributed by defined episodes with the appropriate unit of analysis
• Costs and outcomes aggregated by micro, macro, community, region
In stage 4, if a high-profile clinical leader departs the health system, the result can be catastrophic for that system’s culture. Departments and entire hospitals can find themselves reverting to old habits, and without compliance, much of the initial effort is rendered meaningless.
But in stage 5, the culture has become self-sustaining and not reliant upon who stays or who leaves. Evidencebased decision-making is now embedded into the standard of care. While it’s true that few health systems have achieved this stage, for those that have, value analysis has grown up. No longer an event, it is a part of a health system’s very DNA.
Total Value Management must become part of every organization’s DNA to thrive.