Why Healthcare Executives Should Pay Attention to the Numerator in the Value Equation: Quality

In a July 2018 New England Journal of Medicine Catalyst article, 50% of health care executives who responded to a survey stated they have either already begun the move to value (away from fee-for-service) or will be doing so within the next 2- 3 years. But what is value and how is it measured? Fortunately, 8 years ago I was fortunate to attend the Value in Healthcare Course at Harvard Business School taught by Professors Michael Porter and Robert Kaplan. Simply put, value can be defined by the equation V = Q/C, where V=value, Q=quality and C=cost. Simple enough, right? Not really. Neither the numerator nor the denominator of the value equation can be easily determined.

To illustrate, I will use one of the most common procedures performed in the country, total joint replacement (either hip or knee). Let us consider cost, seemingly the easiest of the variables. Is it the cost or the price? Is it the cost for the acute episode of care in the hospital, including the surgeon, anesthesiologist, implant costs and hospital charges or does it also include the postoperative course for 30, 60 or 90 days? What about the pre-operative costs? Diagnostic imaging? Pre-operative lab work? And cost is the easiest of the variables to determine! Using claims data, one could define the “episode” through the continuum of care, from pre-op, hospitalization, and post-op period and add up the costs, i.e. the price paid by the insurer including out-of-pocket expenses borne by the patient. But what about Quality? Is there a single measure of Quality? I think not.

As the Supreme Court Justice Potter Stewart once said, regarding his threshold test for obscenity in Jacobellis v. Ohio, “I know it when I see it.” Can the same be said of Quality? Perhaps. But what are the factors that go into the numerator of the value equation? I would argue that there are at least four different components: Patient Safety; Patient Outcomes; Patient Experience and Patient Satisfaction. Each has their own measure and within each measure are numerous components. For example, The Leapfrog Group rates hospitals across the country for their safety record, assigning each a letter grade, from A to F. But behind the letter grade are 28 different variables, each weighted into an algebraic equation. Patient Outcomes are largely assessed by the Center for Medicare and Medicaid Services (CMS), assigning a Quality Star Rating to hospitals from 1-5 stars. Like patient safety, many (more than 50) different variables go into the Star Ratings. Patient Experience can be described as what happens to patients while in the hospital and is commonly assessed by the HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) survey that is added to patient surveys upon discharge from the hospital. Sixteen different questions, such as did nurses explain your medications and side effects of any new medications to you or how well you were prepared for discharge. Patient satisfaction is most frequently assessed through written or telephone patient surveys administered after discharge. The most widely known survey tool is that developed by Press Ganey. Once again, many questions go into the survey, but most hospital leaders focus on the so-called Top Box score, that is, the percentage of patients who say that they are very likely to recommend the hospital (as opposed to somewhat likely, somewhat unlikely and very unlikely).

While it is easy to define Value in Healthcare as Quality/Cost, as shown, there are many parameters that go into each of the measures that make up what we know as Quality. As a result, many hospitals struggle trying to get their C’s to A’s and B’s and their 2 or 3 stars to the 4-star and 5-star levels. These grades and scores cannot be changed quickly, especially if one hopes to have sustained improvement over time. It takes several years and a persistent and committed effort by a health systems leadership. Nor are these duties that can be delegated to middle-management; senior leaders, i.e. C-suite executives must take ownership to improve the quality scores. Failure to do so puts their organizations at risk to lose substantial numbers of patients undergoing elective procedures who will be directed toward higher value providers.