Since fiscal responsibility and clinical acceptability appear to be two opposing forces, some have come to the conclusion that it isn’t possible to satisfy both the chief financial officer and the chief medical officer. Adding to provider challenges, there is uncertainty about how to best drive higher quality once performance incentives become a part of the government payer landscape. Questions such as: "Do we allow clinicians to drive higher quality with the hopes that revenues increase?" or "Do we drive costs down to avoid getting pinched or turned upside-down as revenues drop?" are rampant in the industry.

The good news is that you can effectively pursue both avenues of clinical acceptance and cost savings – or at least avoid sacrificing one in the pursuit of the other. Sound CVA techniques and good management skills can build the foundation upon which both clinical quality improvements and cost savings are possible. There are three keys to ensuring sound CVA techniques: Understanding the microeconomics principles behind sound clinical value analysis, taking care in how the CVA program is chartered and being clear about how "saving money" is defined.

Microeconomics is the study of how scarce resources are allocated in small entities such as families, groups or businesses. Many supply chain managers are used to seeing microeconomic graphs of supply and demand or may know that reorder quantity calculations represent a microeconomic formula, but few understand that CVA is built on microeconomic principles as well.

Sound CVA is built around some variation of the phrase, "we will buy the least expensive product that meets clinical requirements." This statement represents the microeconomic minimum (lowest point) as well as an equilibrium point (a point that balances two opposing forces and makes them relatively stable). Represented in Figure 1, this equilibrium point for CVA optimizes the best interests of both clinical outcomes and fiscal responsibility. As the cost (and by proxy, quality) goes up, fiscal acceptability goes down. Conversely, clinical acceptability goes up as cost/quality goes up.

Figure 1

One way a CVA program can find this elusive equilibrium point is from a carefully-structured CVA product trial. For example, if a hospital system is looking at exam gloves, it should obtain pricing from all vendors and analyze the results. The resulting options (called scenarios) should be ranked in descending order by total savings opportunity. The scenario with the largest opportunity should be trialed first. If it is clinically acceptable, the trial should end and that product should be selected for contract. If it is not clinically acceptable, the scenario with the next best opportunity should be trialed. If acceptable, the trial should end. This process should continue until a clinically acceptable scenario is found.

What is happening from a microeconomics standpoint is that the trial process starts at the point of highest fiscal acceptability (in the upper left of Figure 1) and continues to slide down the curve to the right until it reaches the line of clinical acceptability, which indicates that the trial is a success. At the point where both lines intersect is "the least expensive product that meets clinical requirements." Since it is clear that there are microeconomic forces at work in this process, it is important to begin by effectively chartering the CVA program.

During construction of a CVA program, it is crucial to carefully position (and word) the program’s charter, since the stated charter can have dramatic (and potentially unforeseen) consequences. For example, if an organization chartered its program with the statement that, "we will select the clinically best product that we can afford" instead of the usual charter of, "we will select the least expensive product that meets clinical requirements," the program could result in a completely different outcome. If the organization publicly positions itself as financially healthy for the benefit of the bond market, a clinician’s perception will be, "we can afford better stuff."

Just as many people go out and buy a new car when they get a big bonus or a promotion, stakeholders will think the organization can now afford to buy higher cost items. This practice will lead to pressures to increase overall costs as represented in Figure 2, which contrasts the two paths: "The clinically best product that we can afford" will send the message of "we can buy more expensive supplies or equipment" versus "the least expensive product that meets clinical requirements," which will signal "we must save money."

Figure 2

Finally, it is absolutely critical to have a clear process for measuring cost savings. For example, when clinicians (who are not CVA specialists) think about saving money, they are prone to consider reducing labor costs (usually nursing), reducing the number of steps to perform a task or reducing the time that it takes to complete a task. It is imperative to explicitly include price-at-the-pump in the equation; otherwise even well-meaning, cost-conscious clinicians will optimize for something other than what we the organization is trying to achieve with the CVA program. This is why there should be clinical representation on CVA, but CVA should remain a supply chain-driven, savings-oriented program.

The changes in the healthcare environment put increasing pressure on balancing the needs of both the CFO and CMO. Fortunately, sound clinical value analysis and good management skills can build the foundation upon which both clinical quality improvements and cost savings are possible. Through careful structure, definition and leverage of microeconomic principles behind CVA, the industry can achieve equilibrium.