Why the Pursuit of Value in Health Care is Important – Especially for Innovators

By Amy Siegel, S2N Health

A change in the US leadership, especially one as significant as we will experience this month, naturally generates uncertainty about the future of health care policy and finance.  A few things are certain, though (and this is not fake news):

• The US devotes nearly 18% of its GDP to healthcare, spending >$9,000 per capita – more than any other country in the world
• US healthcare costs are expected to grow another 6.5% next year, far outpacing inflation, and these cost increases will hit providers, insurers, and consumers
• By pretty much any metric (except cancer survival), the US is the least healthy of the major developed countries, despite spending so much of our money on health care

This economic predicament has energized a drive toward value-based vs. volume-based payment for health care, led by the US government, which carries ~42% of US health care costs, mostly through Medicare. Other healthcare stakeholders such as commercial insurers, hospital systems, and patient advocacy groups also support value-based payment in the hopes of improving quality while containing costs.  Medical device companies have certainly gotten the value imperative memo from their health system customers, who are increasingly on the hook for delivering outcomes and at risk of losing revenue if they don’t. In medical technology purchase decisions, Value Analysis Committees have been gaining power over physician preferences for several years now, helped by the rapid growth of employed physician models.

It seems like simple logic to allocate more resources to services, products, and providers that deliver the most bang for the health care buck, right?  Unfortunately, value-based healthcare is not simple at all. There are three big, highly complex questions that must be answered to build a system that rewards outcomes vs. activities:

1. What does value mean?
2. How is value assessed?
3. Who determines value?

What Value Means

The business guru Michael Porter defines value in health care simply as “outcomes achieved per dollar spent.”  Outcomes can mean many different things, though.  Historically, the gold standard measurement of outcomes was survival – whether the patient lived or died, and how long they lived.  Even in the context of terminal illness, though, the definition of outcomes has expanded to include more consumer-oriented metrics such as quality of life and patient satisfaction, and to factor these metrics into CMS reimbursement calculations. We recently spoke with an administrator of a large academic health system who described the ideal measure of healthcare value as “Appropriateness*(Quality + Patient Experience)/Cost” to contextualize the cost-benefit equation for each patient’s situation. For example, the surgical approach to hip fracture might be different in a relatively younger, active patient vs. an older, more frail one if remaining life span, ability to rehab and functional goals are taken into account. For medical device innovators, the need to demonstrate not just performance but also value raises the bar overall, but the broader definition of value also presents opportunities to make a case beyond traditional clinical outcomes.

How Value is Assessed

In order to know which technologies and services deliver value, and how much value they deliver, there has to be a clear understanding of both the cost and benefits during some measurable period of time. Historically, purchasers and payers of innovative medical devices have relied on randomized, controlled trials and published studies for evidence of clinical and health economic impact, particularly when the new technology comes with a high price tag. With the definition of value expanding both in terms of metrics and timeframe, new approaches to assessing “real world” value are emerging. Electronic health records, combined with the integration of provider networks, are enabling more sophisticated and powered evaluation of clinical and economic benefits of health interventions in actual patients. The cleverer med tech innovators are taking advantage of these new data collection possibilities and are collaborating with health systems in novel risk-sharing arrangements to build evidence of a positive cost-benefit balance.

Who Determines Value

In the good old days of health care, the main arbiter of value for a health care product or service was the physician.  Patients listened, hospitals complied (and made money, too), and payers paid. When health care expenditures inevitably spiraled out of control, the value decision shifted to payers under the banner of managed care, assisted by gatekeeper primary care physicians who were supposed to control access to expensive specialists, advanced diagnostics, and procedures. Now hospitals and health systems are being drawn into the value determination as they take increasing financial risk for patients in and outside of the hospital, such as under CMS’s Comprehensive Joint Replacement bundled reimbursement model. Even though access to data for basing these decisions has improved, there are still huge gaps and silos, and few areas of consensus on what constitutes the best care. Hospitals are grappling with these decisions to stay solvent while balancing the competitive demands of the marketplace for patients and providers seeking all the latest and greatest technology.  Medical technology innovators are learning how to partner with health systems to create solutions that help hospitals manage their payment risks and keep their customers happy, too.

The message to our new US government leadership is this: We haven’t yet cracked the code on this value-based health care thing, but we are finally asking the right questions. As the biggest funder of health care, and therefore the keeper of the most comprehensive data set on health care spending and outcomes in the country, please continue to support data collection and access so we can advance our understanding of value and make informed choices as insurers, providers, and consumers (all of us taxpayers, too). And while I have your attention, some more funding for early stage medical technology innovation would be nice, too…

The opinions expressed in this blog post are the author’s only and do not necessarily reflect those of MassDevice.com or its employees.

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