Healthcare: the Value Equation and What it Really Means: Managed Care 101 in 2010 (Part III)


The main tension about healthcare relates to its affordability and that immediately must bring this discussion the value equation.

The main tension about health care relates to its affordability and that immediately challenges us to define "value," commonly thought of as a relationship of quality, cost and access. That definition, however, will not suffice. Currently, cost is tallied up with no reference to benefit or clinical outcome; patient satisfaction (perceived more than real) substitutes for measurement of technical quality and the processes of care (compliance) are nit-picked over while clinical effectiveness gets the short shrift.

To answer these questions. I'd like to quickly digress to four concepts used in economic analysis:

1. Cost-Minimization - of various options, spending the least and being able to market/sustain that.

2. Cost-Effectiveness - a ratio of relative expenditure to effect or outcome of various options.

3. Cost-Benefit analysis - which goes further than C:E by comparing one or more actions in order to choose the best or most profitable option); and,

4. Cost-Utility analysis - which is used to "estimate the ratio between the cost of a health-related intervention and the benefit it produces in terms of the number of years lived in full health by the beneficiaries. Hence it can be considered a special case of cost-effectiveness analysis, and the two terms are often used interchangeably."

It should, therefore be clear that assessing "value" is not an easy task. There are many variables to consider, some of which are represented in the following syllogism:

Click Image to Enlarge

Clearly, the aforementioned is both overly simplistic and yet complex; the variables are many—the incentives, the liability concerns, the pressure of personal and private interests (eg, pharma, the HMO industry, entitlement programs), the demand created by illness or the fears we share about it and the vicissitudes of life—these are only some of the independent variables that complicate the equation. Nevertheless, the ever-escalating costs of healthcare and the basic issue of access are everyday palpable issues and they must be addressed.

In a pejorative sense, the syllogism suggests that health care is merely a shell game and it tells little about real cost benefit, utility or return on investment. A more rational way might be to figure what works, give non-discretionary care, priority and help identify the cost-effectiveness, cost-benefit and cost-utility of the various modalities available for discretionary care.

To do this, we need feedback, monitoring, feedback, comparative and normative statistics, feedback and non-obtrusive guidance to the practitioner at the point of care and in non-threatening, constructive peer review. Because every patient is unique and because healthcare is art and science, healthcare data must be translated into bite-sized information that is available at the point of contact and for further analysis (eg, comparative and normative statistics). However, it is vital that the statistical concepts of "episodes of care," such as Clinical Risk Groups (CRGs) and case-controlled or acuity-adjusted profiling be used in process and outcome data analysis. In fairness, both doctors and patients will benefit.

And, if you think this is pie in the sky - it already exists; it's called "Managed Care." More to follow based upon your interest.

Below, some reader responses:

On Nov 6, 2008, at 1:26 AM Ermine L wrote:

What do you mean by this posting? Do you mean that you tell the physician what to do, monitor how well they adhere, and so forth? What is "acuity adjusted profiling"?

My concern with all of this is that "he who knows not and knows not that he knows not" is a real problem in medicine right now. The problem with codifying is that we do not know what we are doing very, very frequently (disclosure, I am not a doctor of medicine). If we codify too early, we loose innovation. Innovation is the doctor saying, "let's see, if that did not work, why don't we try…." We cannot use a bottom up (research driven) model in medicine. We have to go top down ("I have a hunch given what I know about how things work.") It is the latter that ultimately leads to rewarding research, not visa versa. There was an interesting study at UCLA about how much time it would take in research years to solve a problem using sequential research and using combination therapy approaches. I calculated it for Lyme disease. It would take something like 125 years to work out the correct course of treatment given antibiotic agent, antibiotic agent combination, and duration issues. More than a lifetime, patients cannot wait. The intuitive doctor trumps the algorithm for now.

Yes, "S/He who knows not and knows not that s/he knows not" is a real problem in medicine right now"--always was. But, you would also agree the cottage industry days of health care are passé, as well. As a practitioner (pediatrician), working in a "group" (it's like herding cats, sometimes), we are plagued with inconsistencies, poor communication (the all too infrequent: 'you're on-call tonight; I'm concerned about little Johnny because.... '), doctor shopping, red herrings and blind ally diagnostic expeditions, duplication, waste and poor documentation, etc. Having data on hand (but not the pejorative HMO dictating how to practice medicine via a pop-up as has been lamented here) that, constructively can reduce unwanted variation and thereby effect quality improvement at the point of contact—that's what I am advocating.

We need more time to discuss how far we've come from intelligent design to where there are gentle feedback systems that make practitioners more aware and improve what they are doing (and maugre all their feelings—"Don't tell me what to do; I'm the doctor"). I don't think that anyone would disagree that establishing performance expectations is integral in quality management. In terms of fairness, what we study, review, critique in terms of performance must be sensitive to how sick the patient is, i.e., case-mix, what happens over time (i.e., a longitudinal record), and who does what well where and when. And not finally, the power of peer review should not be underestimated. As far as financial incentives are concerned, however, that's fraught with difficulty; it's like adding grit to the grease - prospective payment causes under-utilization and piecework payment generates pieces.

- Caldwell B. Esselstyn, MD, The Rip Van Winkle Foundation; circa 1970 "


The incentive in piecework is to generate pieces


  • cost
  • benefit
  • bureaucracy
  • efficient
  • effective
  • acuity
  • supply
  • demand
  • healthcare economics
  • case mix
  • risk
  • case controlled
  • piecework
  • health maintenance
  • managed care
  • longitudinal record

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