By Nathan W. Tierney, Director, Value Management, U.S. Department of Veterans Affairs

The global healthcare landscape is radically changing and experiencing a notable increase in the demand of healthcare services from in-country providers. Health experts attribute the increase to:

• An aging population
• Growing affluence
• A surge in treatment of chronic illnesses
• More knowledgeable patient population

National governments and healthcare providers have struggled to respond to this dynamic landscape, causing the quality of care administered by healthcare networks to plummet, costs to rise, and patients to become increasingly unsatisfied with their healthcare options. Leading the change to resolve the systemic issues plaguing the patient population are countries from the developing world, who are attempting to understand and tackle their respective challenges head-on.

Health expenditures are significant and keep growing in the industrialized world without a clear correlation between levels of healthcare expenditures and quality/outcomes. By completing a comprehensive evaluation of their respective healthcare environment, countries are identifying the leading causes fueling the misalignment between healthcare supply and demand.

“…the Organization for Economic Co-operation and Development (OECD) still predicts that public spending on health in its member states will raise from an average of 6% of GDP across its member states in 2006-10 to around 9.5% of GDP in 2060. With no cost containment, that proportion would reach 14%.”

Healthcare organizations struggle with what to measure

Healthcare Delivery Organizations have wrestled with balancing quality, service, and cost for years. The importance and urgency around measuring and communicating real metrics has grown in the last decade. However, even today, most hospital leaders cannot articulate or demonstrate the “value” they provide to patients and payers. Instead of developing a strategic direction based around a core value proposition, they focus their strategic efforts on tactical decisions, such as, physician recruitment, facility expansion, and physician alignment. In the healthcare paradigm of the next decade, alignment of various tactical initiatives will require a more coherent understanding of the hospital’s core value positioning. For most hospitals, quality (i.e., clinical outcomes and patient safety) will become the most visible indicator of value. The introduction of a Value Realization Framework will help healthcare providers increase their value positioning based on the quality they provide.

Embracing the Value Realization Framework is the way forward to be successful
Healthcare organizations are examining innovative ways to deliver improved patient outcomes at a lower cost. This approach has involved traditional process improvement methodologies, effectively reducing traditional defects and increasing efficiency. However, these efforts have not evolved to use new technologies, analytics, and value frameworks to provide both horizontal and vertical alignment. Additionally, the lack of standards-based Value Management methodology and Value Realization Framework impacts healthcare organizations processing new bundled payments, directly links the value of financial and patient outcomes.

Value Management is the discipline of continuously measuring and analyzing the value delivered by an organization, and then adapting activities to maintain and increase that value. For instance, in the context of healthcare it emphasizes maximizing value by achieving the best health outcomes at the lowest cost based on a patient’s condition. This approach was defined by several industries SMEs and is supported by leading organizations around the world. Value Management revolves around a Value Equation. Deriving value for patients depends on generating the best outcomes at the lowest costs. Better outcomes at equal or lower costs leads to higher value.

Value Management leverages Lean tools, methodologies, and business analytics to identify and monitor Critical Success Factors (CSFs), Key Result Indicators (KRIs), and Key Performance Measure (KPIs). Value Management then combines Outcomes (KRIs), Program Operations (KPIs), and Technical metrics into one view called the Common Operating Picture (COP) that enables improved decision and continuous improvement.

The Value Realization Framework (VRF) is the core of Value Management and leverages concepts from the Balanced Scorecard to “translate and organization’s mission and strategy into a comprehensive set of performance measures” and contextualizes these measures for healthcare delivery. Key Components of the Value Realization Framework:

(1) Critical Success Factors (CSFs); “The key areas where an organization must perform well on a consistent basis to achieve its mission”.
(2) Key Results Indicators (KRIs); A “measure of the results from your business actions which are critical in tracking progress and defining success”.
(3) Key Performance Indicators (KPIs); “A “measure of the actions and events that lead to a result and are considered to be critical to the success of your business as their data is crucial in creating strategies and aligning goals.”
(4) Performance Indicators (PIs); “A “particular characteristic or dimension used to measure intended changes defined by an organizational unit’s results framework.”

A focus on value is the fix to a broken system
Our current healthcare system is broken. The Organization for Economic Co-Operation and Development (OECD) predicts health care costs will exponentially rise unless something is done. Rationing of healthcare services, focusing solely on cost containment, or wishing away the problems is not an option. Instead, we must embrace a value-based solution that maximizes outcomes for patients, while simultaneously, reducing costs. As Porter and Teisberg state, “Value for patients should be the overarching principle for our broken system.”

A value-based approach toward improving outcomes replaces an old mindset that simple process improvement changes or staff/service cutbacks will somehow deliver value. Using the Value Realization Framework for total organizational alignment with a focus on patient conditions brings accurate cost and value measurement into healthcare delivery.

Nathan leads both VistA Evolution Value Management and the Office of Information and Technology’s Performance Architecture Program (PAP); both programs’ scope and deliverables strategically impact a wide range of agency activities, and have substantial legislative and national level implications. Previous to this, Nathan was Chief Operating Officer, Clutch Analytics, where he led a high performance and elite Team of software engineers to create a competitive advantage by developing new technology interfaces to increase value and sales opportunities.

Nathan is also the author of a new book, Value Management in Healthcare – How to Establish a Value Management Office to Support Value-based Outcomes in Healthcare, a ‘how-to’ guide intended for healthcare delivery organizations in need of learning the specifics of achieving the implementation of value-based healthcare. To read an excerpt, please click here