Is Value Based Healthcare a Zero-Sum Game?

For years we’ve been hearing about the shift from fee-for-service funding of healthcare to a value-based model. In this way we would focus on achieving goals for clinical outcomes and patient experience, instead of traditional approach were rewards are for delivering more of the increasingly expensive services.

Sounds very reasonable - and few leaders within industry disagree that this is the right direction to travel. Although we see some good examples it is still a tediously slow process with a less-than-certain future.

Why is it so hard?

In the triangle of patients, providers, and payors there are two main challenges in this transition:

• Measuring value – in theory this is ratio between outcomes achieved and cost, but often both outcomes and cost are surprisingly elusive, especially on the level of specific patient or service.
• A perception that value-based healthcare is a kind of zero-sum game, for someone to win someone must lose. E.g. if insurance pays less for surgeries due to better prevention, then insurance wins and hospitals have reduced income. This leads to fierce opposition and/or obstruction of initiatives in this direction.

These two issues are interdependent. The more we can understand the value, the better we can set our health systems in a way where everyone has rightful share of value created – patients, providers and payers. We can clearly have scenarios with winners and losers in the changed funding model, but can we organise healthcare in a way that everyone benefits? If we get it right the sum can and should be also above zero for all participants in the health ecosystem.

We need to remember key point here – value-based care is about using finite resources in a way which helps people to live longer and healthier lives. The answer to the original question, from patient perspective at least, is that sum is well above zero, and we must find way to make it work.

We know that a lot of things we do in healthcare don’t lead to better outcomes for patients, studies usually estimate 20-35% of spending is wasteful. Even when we have pretty good understanding that specific services offer low value or can be harmful (cardiac stress test before minor surgery, opioids for migraine etc.), they remain stubbornly present in many health systems. It is not difficult to measure that waste has little value. How do we do less of that and more of what gives patients longer and healthier lives?

Let’s take another service industry as an example – air travel. Travellers, airlines, and plane manufacturers all want to have more travel, better safety and efficiency. As incentives are relatively well aligned, manufacturers want to produce planes that will be as safe and efficient as possible as they will be more attractive to airlines and passengers. They may be tempted to cut corners sometimes, but market will punish it as we saw with Boeing and it’s 737MAX recently. Airlines also want safe and efficient way to fly and so do passengers of course. This led to huge gains both in cost and safety and now almost everyone can travel further and safer than an average king could just one century ago.

In this world there is no place for Concorde anymore. Despite being the fastest and the most attractive, it just doesn’t offer enough of value for passengers and airlines to keep flying – uses too much fuel, not enough capacity etc. ?

The challenge in healthcare is complexity, both in number of services available and understanding outcome and cost. We all know if we had good and safe flight and if price is reasonable. But how do we know if healthcare service is? Do we even need it? It seems in healthcare we are offering Concorde flight to everyone without really understanding if there is better way to get them to their destination. Sipping champagne in Concorde sounds great, but we know there is alternative which is cheaper and safer. This is what we choose most of the time when we understand the service offered.

Value in Healthcare is not about simple efficiency but achieving better results with the same resources. Doing things that matter more, doing right things at the right time. Key focus must be better outcomes and experience for patients and then understanding how we focus limited human and material resources to achieve that.

This transition also must be much more then selecting appropriate service for patient. We know that real shift in outcomes and cost happen when we can be proactive and preventative rather than dealing with the aftermath of developed disease. Reversing pre-diabetes, reducing obesity, smoking can provide huge health benefits at fraction of cost required to treat the aftermath. But our healthcare is built to fight fires not to prevent them. Perhaps we need more smoke alarms and not just bigger fire engines.

Of course, changes are happening, but in a tentative and incomplete way. We are trying to make a compromise with current system, by creating bundles of services, so providers are incentivised to get it right first time. DRG based payments have similar logic for decades. While these approaches are valuable, they clearly don’t go far enough to truly transform healthcare.

Measuring value in healthcare

This is something relatively easy to do when you look at the health system from 30.000 ft, to keep going with airlines analogy. E.g. comparing life expectancy and healthcare spending. But when you ask about specific service for individual patient, comparing different hospitals, doctors, departments, similar devices or medications we usually get stuck pretty quickly.

How do we reward value if we can’t measure it? For value we need to understand detailed clinical outcomes across all dimensions mentioned above and then compare it with detailed resources used (time, material, facilities etc.).

Many healthcare organisations underestimate the fundamental shift in the way we operate that this requires. Collecting, understanding and comparing this information requires very different way of thinking. E.g. airlines know how much fuel it takes per seat per mile per model of aircraft, the cost of people flying it, servicing it, depreciation, flights per day needed to be profitable, how to fly them most efficiently etc. In healthcare this is often considered bureaucratic, short-sighted, counting pennies etc. We want best for our patients, and more and more expensive should be better. But we know this is not the case, doing more when evidence suggest otherwise can be harmful and wasteful. If we waste limited resources on low value activities, by definition we are harming our patients and not just financially.

In a way, detailed understanding of resources used is adding another dimension to evidence-based medicine. We cannot have value-based healthcare without detail understanding of outcomes achieved and resources used. Seems obvious, but I think it needs to be said. Often, we try to use surrogate measurements or averages, but the value lies in details and millions of marginal improvements.

Healthcare has been focused for a long time on obsessive collection of the clinical data, initially on paper and increasingly within dedicated software systems (EMR, EHR, EPR… depending on where you are). The challenge is that unlike in many other industries the tracking of resources used is not nearly as detailed or as connected to the actual services delivered. Again, we have very good overview, but what materials and resources have been used to deliver service to a patient, what time did our highly trained staff spent delivering it?

Just as for clinical real-world evidence we need dedicated systems to understand it at speed and scale, on the resource side we need integrated platforms to collect and analyse detailed data in real time. Of course, we cannot just switch this on and expect to find ourselves in this new world but it’s a journey of constant learning and adjusting in the way we work, making care safer, better and more sustainable.

We need to collect and analyse this data in a way which is automated and intuitive if we hope to achieve any kind of traction at speed.

Correlating resources used with the clinical outcomes across every possible dimension needs to be priority – this is where the hidden value or waste will be found.

Sharing value in healthcare

One must tread very carefully here. Whenever any shift in payment or delivery is mentioned most organisations tend to get suspicious and think what if I end up on the losing end. We come back to the perception of Zero-Sum game.

I think two things are important here:

• Clarity on how the additional value is achieved.
• How each participant will benefit from this value.

The best example I saw here is the Shared Value Model by Discovery Health. You have more likely heard of their Vitality Insurance model.

Innovations and creativity sometime do come from unexpected places. This leading South African Insurance company, with increasing global footprint has managed to achieve quietly something others have been trying for decades.

Here every participant in the ecosystem understands what the benefit of this model is. Of course, there are many local variations, but whether you are in public or privately funded environment key principals remain the same. What they achieved is aligning incentive for the whole ecosystem – if everybody is better off with increase in value and healthier patients things start moving that way. Just like safer and more efficient planes work for everyone in air travel.

Patients can have better health and at lower cost, societies can be more productive, and providers can earn more by being paid incentives for quality achieved. ?Talking about incentives, creativity and engagement go a long way. Heaving better health 20 years from now sounds like a great incentive to exercise more, but voucher for cinema next weekend or gym discount will often get better result. Vitality was one of the first to pioneer this kind of engagement, with great results.

I guess what you are thinking - if we spend less on health services how can providers earn more? It’s not necessarily about spending less but achieving more with finite resources. As value is jointly created across all participants in the care of a patient, from primary care to university hospitals, we need to structure our health systems to reflect that. There are number of examples with Integrated Care Systems, Accountable Care Organisations, HMOs etc, trying to achieve exactly that. If we simple keep providing services in isolation, obvious incentive is to do more of services at highest price.

As in the example above, we know that that prevention with modifying lifestyle risk factors will give better health and less cost in the long term. Let’s reward providers with higher margin for those services. Let’s reward providers with higher earnings when their patients have better outcomes, less hospital readmissions etc. There is plenty of evidence that better engagement post-surgery or during cancer treatment will lead to better outcomes. If we really understand value, we can pay premium when it’s achieved and disincentivize wasteful practices. Provider can then align their resources and services accordingly and be better off in the process.

The value we create must be shared between all participants in the ecosystem for this to truly work. If one side feels cheated just so the other can benefit, the transition will be painfully slow.

I guess you know where I stand on the Value Based Healthcare and Zero-Sum game by now. If we do it properly it can be net gain for everyone. If that’s not the case, it will simply not work at speed and scale we need.

In proper value-based environment, we don’t move money from one side to other but create new net gain which we share across system. Where do we extract this net value:

• By reducing wasteful spending and activities – 20-35% of all healthcare activities. Both providers and payers often have huge number of people and sophisticated system simply for better claim creation and processing. If we understand value and have patient centric setup this will be mostly unnecessary on both sides.
• Prevention and modifying risk factors for patients can have huge health benefits while creating health savings in the process. In patient centric system we can incentivize this.
• Some services are well documented as potentially harmful or with limited benefits, these can be disincentivized with related savings etc.
• Healthier population will obviously have economic benefits including sustainability of resources needed for healthcare systems.

The hardest part in this transition is understanding in detail the value of what we do in healthcare. It often feels we somehow try to skip this step, almost afraid of what we may find, but it is not optional if we want to succeed here.

All of this comes down to what Harvard Professor Christensen calls ‘Innovators Dilemma’. Changing business model in the worlds largest industry is no small task. Creating pressure with disruptive innovation is also not happening as fast, as the real competition is famously difficult to achieve in healthcare. Complexity and availability of healthcare services makes it far less straightforward then with airlines where we understand exactly how to compare choice between two or three flight options. At stake here is much more then government budgets or our bank balance. It is about health, having access to safe, effective and affordable healthcare is something we must find a way to make sustainable. Resources are obviously limited, and we need to make sure we use them in the way that improves health the most.

There is no switch to turn on value-based healthcare, it’s journey of constant learning and adjustment, and we need to pick up the pace with clear leadership and health systems built around the patient.