Value for money

HSRC-ASU 2012 Dissemination Conference identifies seven factors

by Eugene S. Schneller, Ph.D

As the U.S. health care system is challenged by changes brought about by health care reform and the difficult economic climate, achievement of "value for money (VFM)" has become an increasingly important concept depicting a health care system that seeks to achieve maximum benefit and quality for the funds it expends for both clinical and administrative services.

Health Sector Supply Chain Research Consortium of the W.P. Carey School of Business at Arizona State University (HSRC-ASU) 2012 Dissemination Conference identified seven factors pertaining to achieving value for money including:

VFM 1 - Value for money is achieved by a new view of the organization of care and new payment schemes

VFM 2 - Value for money is dependent upon overcoming fragmentation in purchasing and logistics

VFM 3 - Value for money is achieved by having information on products and their contribution to care

VFM 4 - Value for money is dependent upon reducing transaction costs for moving products to the point of use

VFM 5 - Value for money is dependent upon suppliers seeing opportunity and policies supporting innovation

VFM 6 - Value for money is best managed around aligned incentives

The paper written in follow-up of the HSRC-ASU 2012 Dissemination Conference, pulls-together observations and strategies associated with achieving VFM within the U.S. and considers the applicability of international strategies in the U.S. Full white paper can be accessed at http://wpcarey.asu.edu/hsrc-asu/completed-projects.cfm

A unique contribution of the paper is identification of a variety of collaborative efforts across the health care value chain. The suggestion is that changes and improvements in the system are attributable to the ability of competing and supporting entities to see and accrue advantage within a context of trust and mutuality of goals with such efforts requiring information exchange, the sharing of resources, openness and improved communication.

Payment for health care services has frequently been focused on episode of care with emphasis on hospitalization. In the U.S. and increasingly in Europe, DRG systems have been utilized to encompass the costs associated with such patient encounters. Accountable care organizations (ACOs) in the U.S. and "care hubs" in the U.K. have shifted focus to the patient moving through the health care system, in and outside of the acute care environment, with contributions by participating entities to optimize care for the patient.

The idea of bundled payments challenges clinical and business managers to develop plans to sustain, if not improve quality of care, and reduce cost. This is an environment demanding, for the first time, high levels of accountability for evidence basis, quality and cost. It considers the constellation of services and products associated with a patient’s illness and recovery. As purchasers of services and materials will be highly incentivized to seek the best performing entities, there is little doubt that the ability to collaborate, both formally and informally, across care and supply platforms will be a prerequisite to become a best performing entity.

Fragmented purchasing and logistics strategies reduce the opportunity to bring buyers and sellers together to (1) reduce costs associated with the supply chain function and (2) achieve both clinical and broader policy goals through purchasing.

In the U.S. several decades of group purchasing efforts have led to a consolidated set of organizations engaging in collaborative purchasing, especially in the area of commodities. While there is variable penetration of collaborative purchasing efforts across Europe, there is, as in the U.S., a strong interest in designing and refining group purchasing platforms to achieve the best VFM. Such refinement includes decision making as to the best geographical and governance configuration for collaborative purchasing platforms.

Collaborative efforts in logistics are only emerging in the U.S. and abroad. Full outsourcing of purchasing to GPOs remains a relatively rare occurrence. Rather hospitals and systems tend to be very selective in their choice and use of partnerships.

Over the last decade there has been increased interest in documentation of best clinical practices, development of clinical guidelines and dissemination of findings into the clinical arena. In the U.K., the National Institute for Health and Clinical Excellence (NICE) has scrutinized practices as well as materials. In the U.S., comparative effectiveness research (CER) is viewed as an avenue to provide evidence basis to clinical decision-making and provide information for clinicians, policymakers and patients.

VFM is dependent on the existence of upstream/downstream information exchanges on unmet patient need and a need for products to meet the goals of safety, value and affordability.

The figure above, developed by Eugene Schneller, Co-director HSRC-ASU, characterizes the consequences for supplier engagement when clinical evidence and a standard of care are present or absent along with availability of evidence of product superiority or equivalency. For products where an existing clinical standard of care supports their use and data is available supporting product effectiveness (Affirm), suppliers find themselves in a strong marketplace position with buyers who are increasingly confident that their clinical constituents have good reason to exercise preference. Alternatively, when there is no existing standard of care and no data supporting product differentials, suppliers will be disadvantaged in their ability to attract physician loyalty/preference and will find it necessary to compete (Compete), not just on the basis of product but on service pertaining to the management of the product in the clinical environment including order, inventory and payment management and by providing education and other clinical support. Similarly, buyers will utilize standard of care and product equivalency information in their value analysis team efforts and subsequent collaborative efforts with clinicians in product selection and in negotiations with the supplier community.

The health care supply chain is characterized by high costs for multiple reasons including the impact of advancing technology on product costs, lack of collaborative relationships, lack of comprehensive alignment between provider organizations and clinicians, the inability to comprehensively track and capture product movement and cost across the supply chain, inconsistent data and fragmented Information Technology (IT), insufficient connectivity and data, the absence of unique device identification (UDI) and unresolved difficulties associated with order transactions and distribution inefficiencies.

IT fragmention and lack of connectivity is an issue in the U.S. and abroad. Although some IT companies in the U.S. have helped to bridge the gap, full implementation of these systems has not taken place. This leads to expensive and unnecessary duplication of effort.

The increased focus on evidence basis/CER as well as increased sensitivity to VFM is leading to recharacterization of the buyer-seller relationship. The buyer-seller relationship is evolving into one with a blended clinical, economic and policy-driven voice. New consideration for the buyer is to secure products that contribute to quality patient care, satisfy clinician acceptibility and provide economic value. New consideration for the supplier is to engage in R&D to innovate new products to support this triparite and to engage the buyer on the basis of product contribution to patient care.

Suppliers who can demonstrate the contribution of their product to achieving the above goals will have a distinct strategic advantage. The Center for Medicare and Medicaid Innovation is designed to test care and payment models to achieve better health at lower costs. However, the Center has not yet recognized the materials environment as a target for improved care through product innovation.

In progressive systems supply chain professionals are being rewarded for orchestrating the alignment of the purchasing function with important business and clinical efforts as well as with the hospital mission. There is greater insight into the value that the supply chain can bring to the provider organization. Alignment of goals is facilitated by the performance rewards for supply chain leaders being linked to improvement in supply chain specific metrics and supply chain’s contribution to broader organizational mission and goals. Internal alignment is achieved as physicians are employed by the hospital and incentivized to meet goals associated with high quality patient care and financial viability. This is an environment in which supplier and buyer are challenged to improve their levels of efficiency, without compromising quality.

Eugene S. Schneller earned his Ph.D. at New York University. He holds an honorary physician assistant (PA) degree from Duke University. Schneller’s consulting efforts, at Health Care Sector Advances, bring the most recent strategic thinking into practice for hospitals, GPOs and other supply chain organizations. He is Professor and former Director, School of Health Administration and Policy, College of Business, Arizona State University and former Director of the Division of Health Administration and Policy in the Arizona College of Public Health. He is Dean’s Council of 100 Distinguished Scholar and directs the Health Sector Supply Chain Research Consortium.