Numerous pressures are converging on healthcare providers to create incentives to improve quality and reduce costs of care-that is, to enhance value. However, value is a challenging concept to define, measure, and achieve. Paul Keckley, PhD, executive director for the Washington, D.C.-based Deloitte Center for Health Solutions, the healthcare research arm of Deloitte LLP, recently offered hfm his views on how hospitals can overcome barriers to achieving value and succeeding in a reform environment.

Q:What are some of the barriers hospitals face when they try to improve the value (increase quality/reduce cost) of the care they provide?  

A: In most industries, the concept of value is associated with low cost and high quality. For hospitals, value is usually associated with the same two variables. High quality includes the hospital's scope of services, technologies, and facilities; the medical staff most closely aligned with these clinical services; and amenities that make the utilization experience (transaction) pleasant or, at a minimum, acceptable. Measures of these dimensions of hospital quality are readily available via a large and growing number of report cards by the government (Centers for Medicare & Medicaid Services Hospital Compare), professional organizations (Solucient, Leapfrog, National Committee for Quality Assurance), health insurance companies and proprietary scorecard purveyors (Health Grades, Subimo), and others. However, the "low-cost" attribute of value is more difficult for hospitals to define and demonstrate. Arguably, patient populations vary by prevalence and severity of diseases or conditions, so aggregated comparisons of fixed and direct costs between hospitals is challenging. The capture of total direct costs for individual patients is equally problematic: Unless signs, symptoms, risk factors, and comorbidities for a patient are known ahead of time, the goods and services required cannot be estimated. And because consumers typically have little understanding of chargemasters, their impressions of cost are often focused on out-of-pocket costs (copayments) instead of total costs for the encounter.

Consumers associate low cost for most purchases as a deliberate choice to pay less based on an understanding of choices and price transparency. Neither is operative when consumers consider a "low-cost" hospital. In fact, consumers associate bigger hospitals with superior technologies and a wider spectrum of clinical services, and assume costs are higher.

So the concept of value-based purchasing in the acute care sector is problematic, because consumers show marginal interest in costs and seem resigned to associate quality with surrogate measures of the use experience rather than outcomes and safety.

Q:How do you see the concept of value evolving over the next five or 10 years?  

A: In the next decade, the notion of hospital value will be based on evidence-based consensus measures for both dimensions-cost and quality. For quality, process and outcome measures by groups such as the Physician Quality Research Initiative and the National Quality Forum (NQF) will become readily accessible to and understood by consumers. Measures of efficiency will most likely be the surrogate metrics used to compare overall hospital costs along with bundled payment "guarantees" for high-volume services that lend themselves to comparisons, such as hip replacements, minor surgical cases, and diagnostic tests.

Three factors will be accelerating recognition of value as a key dimension differentiating hospitals in the next decade.

First, health insurance companies and employers will base contracting on hospital value. Second, individuals, especially those with high-deductible insurance coverage, will be sensitive to value differentiation. And third, many demonstration and pilot programs included in the Affordable Care Act-bundled payments, patient-centered medical homes, accountable care organizations, value-based purchasing, and comparative effectiveness-contribute to widespread recognition of value as a differentiator for ambulatory and acute services. Medicare, Medicaid, and the health-exchange-based insurance plans will lead integration of value in contracting strategies.

Q:If a hospital could take only one or two steps to improve value right now, what should they be?  

A: A hospital seeking value-based positioning would necessarily begin the journey by establishing baseline calculations for quality-cost positioning of core service lines, and then compare results with competing institutions. Process and outcome measures, direct costs, and overhead are the essentials. These facts will be the basis for comparison against other institutions, keeping in mind high-value performers will be paid bonuses based on penalties paid by poor performers.

The tendency will be to "cherry-pick" metrics. Instead, hospitals should use readily accepted metrics by third parties such NQF, the Institute for Healthcare Improvement, and others.

Lacking data, and a clear understanding of the road map to value, a hospital will rationalize its value gaps by concluding "our patients are sicker" or "our organization is different." Recognition of value as the key driver for hospital differentiation and commitment of resources to an ongoing effort to measure value objectively are hallmarks of leadership teams poised appropriately for the future.

Q:What are some of the unique collaborations you have seen that have helped providers improve value?  

A: Gainsharing programs between physicians and hospitals are effective. Improving medication adherence via use of e-prescribing produces strong improvements in medical management and cost reduction. And application of evidence-based practices to recommended treatments for patients reduces inappropriate variation and costs.

Gainsharing in reducing operating costs, reducing inappropriate overutilization, and rigorous management of post-acute care provide meaningful near-term savings to organizations.


Keckley_Paulabout Paul H. Keckley
Paul H. Keckley, PhD, is executive director for the Washington, D.C.-based Deloitte Center for Health Solutions, the healthcare research arm of Deloitte LLP. He is a health economist and policy expert, and a regular contributor to CNN and Fox News healthcare reform coverage. He has testified before Congress, and recently facilitated a series of meetings for the White House Office of Health Reform with the American Hospital Association, America's Health Insurance Plans, Pharmaceutical Research and Manufacturers of America, American Medical Association, and other trade organizations to identify mechanisms to reduce costs without compromising quality and access.

Before joining Deloitte, Keckley served in leadership roles at Vanderbilt Medical Center, including international joint ventures, the Vanderbilt Center for Integrative Health, the healthcare MBA program launch, and as executive director of the Vanderbilt Center for Evidence-Based Medicine. He has published several articles in peer-reviewed journals and continues to serve in the Vanderbilt University School of Medicine as a visiting professor and the Owen Graduate School of Business at Vanderbilt as an adjunct professor.

Before joining Vanderbilt, he served as chairman of the board of Interdent, a California dental practice management company; CEO of EBM Solutions, a joint venture created by Vanderbilt, Duke, Emory, and Washington University-St. Louis; CEO of Aveta (formerly the IPA Management subsidiary of PhyCor Inc.); and principal of The Keckley Group, a strategic planning consulting practice that served 1,200 U.S. provider organizations and health plans. 


Publication Date: Monday, January 03, 2011

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