Quality in the Era of Value-Based Purchasing
Rahul K. Shah, MD George Washington University School of Medicine, Children’s National Medical Center, Washington, DC The concept of value in healthcare is not novel—almost everyone is familiar with the well-known equation: value = quality of care/cost of such care. To increase the value of healthcare delivery, we can simplistically increase the quality of the care that is delivered or the perception of that delivered care; one can also reduce the cost of that care. Currently, the in-vogue statement is “value-based purchasing.” This month’s column will attempt to convey my strong sentiment about how value-based purchasing is actually a complex transaction that will fundamentally change the way we approach the care we deliver to patients. Further, Academy members are uniquely positioned, as a result of the diverse patients we care for, to lead and help explain this concept within our offices and organizations. The concept of value-based purchasing is predicated on the premise that with all else being equal, the cheaper option should be chosen. Using the value equation above, we can see that if we hold the quality of care as a constant, then the way to drive up the value of care is to choose the less costly alternative. Value-based purchasing is juxtaposed to volume and intensity of service programs. Healthcare has been predominantly based on the volume/intensity of service model. For example, more cases generate more volume, which means the “rainmaker” would be more highly compensated; another way to think about volume-based reimbursement is that the patient that has a longer length of stay would yield more revenue to the hospital than a similar diagnosis patient that has half as long of a stay. Indeed, many hospitals are caught with feet in both of these worlds: the volume model and the value-based purchasing model. I have been struggling to make the business case for quality from a surgical perspective within a paradigm of value-based purchasing. However, the following analogy should shed some light on this complex issue. Let us start with a common surgery that has more or less a relatively tight range of fixed costs to perform the case—an adenotonsillectomy. There are myriad techniques to perform this procedure, and they all have fixed costs that probably range from .5x all the way to about 4x (“x” denotes the average fixed costs to perform an adenotonsillectomy). We rarely think past this point, and I am sure that most Academy members are not too terribly concerned about the fixed costs of our cases. However, in a value-based purchasing mindset, we would need to take into account the entire spectrum of care to make a business case. For example, if there is a method to perform an adenotonsillectomy that costs 4x (four times the average cost), then in a volume/intensity of care model, we may not look favorably at this method, and management/administration may not want this technique with such high fixed costs and low profit margins. In an era of value-based purchasing, if the overall quality of the patient care improves and their outcomes improve, then there would be a rationale to consider using this device despite the increased fixed costs. For example, if the patient can be discharged sooner (even from PACU), the result is less use of hospital resources (expenses) and thus using the value equation from the opening of this column, the overall costs have decreased slightly but the quality for the patient has improved. This would result in higher reimbursement than otherwise in a value-based reimbursement model. By using a concrete example from our realm of care, I hope this column helps explain how complex value-based purchasing/reimbursement is and how as healthcare providers we must be cognizant of the entire spectrum of the patient’s care delivery. This is even more complex for our Academy members as otolaryngology-head and neck surgery spans a uniquely broad (out-patient, in-patient, emergency, elective, etc.) range of care. We encourage members to write us with any topic of interest and we will try to research and discuss the issue. Members’ names are published only after they have been contacted directly by Academy staff and have given consent to use their names. Please email the Academy at qualityimprovement@entnet.org to engage us in a patient safety and quality discussion that is pertinent to your practice.
Rahul K. Shah, MD
George Washington University School of Medicine, Children’s National Medical Center, Washington, DC
The concept of value in healthcare is not novel—almost everyone is familiar with the well-known equation: value = quality of care/cost of such care. To increase the value of healthcare delivery, we can simplistically increase the quality of the care that is delivered or the perception of that delivered care; one can also reduce the cost of that care.
Currently, the in-vogue statement is “value-based purchasing.” This month’s column will attempt to convey my strong sentiment about how value-based purchasing is actually a complex transaction that will fundamentally change the way we approach the care we deliver to patients. Further, Academy members are uniquely positioned, as a result of the diverse patients we care for, to lead and help explain this concept within our offices and organizations.
The concept of value-based purchasing is predicated on the premise that with all else being equal, the cheaper option should be chosen. Using the value equation above, we can see that if we hold the quality of care as a constant, then the way to drive up the value of care is to choose the less costly alternative. Value-based purchasing is juxtaposed to volume and intensity of service programs.
Healthcare has been predominantly based on the volume/intensity of service model. For example, more cases generate more volume, which means the “rainmaker” would be more highly compensated; another way to think about volume-based reimbursement is that the patient that has a longer length of stay would yield more revenue to the hospital than a similar diagnosis patient that has half as long of a stay. Indeed, many hospitals are caught with feet in both of these worlds: the volume model and the value-based purchasing model.
I have been struggling to make the business case for quality from a surgical perspective within a paradigm of value-based purchasing. However, the following analogy should shed some light on this complex issue. Let us start with a common surgery that has more or less a relatively tight range of fixed costs to perform the case—an adenotonsillectomy. There are myriad techniques to perform this procedure, and they all have fixed costs that probably range from .5x all the way to about 4x (“x” denotes the average fixed costs to perform an adenotonsillectomy). We rarely think past this point, and I am sure that most Academy members are not too terribly concerned about the fixed costs of our cases.
However, in a value-based purchasing mindset, we would need to take into account the entire spectrum of care to make a business case. For example, if there is a method to perform an adenotonsillectomy that costs 4x (four times the average cost), then in a volume/intensity of care model, we may not look favorably at this method, and management/administration may not want this technique with such high fixed costs and low profit margins.
In an era of value-based purchasing, if the overall quality of the patient care improves and their outcomes improve, then there would be a rationale to consider using this device despite the increased fixed costs. For example, if the patient can be discharged sooner (even from PACU), the result is less use of hospital resources (expenses) and thus using the value equation from the opening of this column, the overall costs have decreased slightly but the quality for the patient has improved. This would result in higher reimbursement than otherwise in a value-based reimbursement model.
By using a concrete example from our realm of care, I hope this column helps explain how complex value-based purchasing/reimbursement is and how as healthcare providers we must be cognizant of the entire spectrum of the patient’s care delivery. This is even more complex for our Academy members as otolaryngology-head and neck surgery spans a uniquely broad (out-patient, in-patient, emergency, elective, etc.) range of care.
We encourage members to write us with any topic of interest and we will try to research and discuss the issue. Members’ names are published only after they have been contacted directly by Academy staff and have given consent to use their names. Please email the Academy at qualityimprovement@entnet.org to engage us in a patient safety and quality discussion that is pertinent to your practice.