David Gruber MD, Guest Contributor

Managing Director
Director of Research
Alvarez & Marsal Healthcare Industry Group, LLC

In March 2013, Time magazine published a special report entitled, “Bitter Pill: Why Medical Bills are Killing Us.” 1 A few months later, The New York Times highlighted the wide variation in hospital billing and identified a “lucrative new [out-of-network] business model for a bankrupt hospital.” 2, 3

The articles received substantial media coverage for exposing underlying inefficiencies in our healthcare delivery system. Other headlines have focused on the travails of the Patient Protection and Affordable Care Act (PPACA) and the cost of healthcare. They have all mostly neglected to draw attention to the fundamental importance of measuring value. 

Value is a function of quality and cost. Quality is based on both health outcomes and user experience, whereas cost reflects the efficiency of care delivery (or lack thereof). To date, few public agencies, advocacy groups, or private organizations have taken steps to link quality with cost, instead focusing on specific metrics within each category. The Centers for Medicare & Medicaid Services (CMS), however, has made a valiant attempt to align hospital and acquired conditions, re-admissions, and patient satisfaction with Medicare reimbursement (penalties) through its Value-based Purchasing (VBP) Program.

A focus on value will allow government, employers, and consumers to measure the relative worth of a service, as they do across all other economic sectors.  This will require data transparency, a significant barrier to change. When purchasing non-healthcare services, buyers almost innately perform their own value calculations, making choices based on the relationship between the quality of a product or service and its cost. In healthcare, at least for the moment, economic value need not apply.

A convergent and value-based solution exists for each stakeholder. The value proposition must be applied across the continuum of care, beyond single procedures or activities, with the goal of generating clinical and service excellence at a lower cost by eliminating the waste associated with inefficient and ineffective care delivery.  With no demonstrated relationship between the cost of care and the quality of outcomes, and well over $765 billion of waste in the healthcare system—or 31% of total spending—the opportunities for value creation are clearly evident. 4

[For more on this topic, please see Alvarez & Marsal’s recent report entitled, “Healthcare: Economic Value Need Not Apply (Yet).”]

 

Sources:

1. Time. Bitter Pill: Why Medical Bills are Killing Us. March 4, 2013

2. NY Times. Hospital Billing Varies Wildly, Government Data Shows. May 8, 2013

3. NY Times. A New Jersey Hospital is the Nation’s Costliest. May 18, 2013

4. The Healthcare Imperative: Lowering Costs and Improving Outcomes, 2010 Table S-1.  Adopted by National Academy of Sciences from IOM Workshop Summary.

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