How Should Health Care Providers Measure and Market the “Value” of their Services?

John Schneider, Ph.D

John Schneider, Ph.D

There was a time when we did not spend a lot of time worrying about the quality of the health care services we received.  Our families went to the doctor who was known as a “good doctor” and we received treatment in the nearby hospital known as a “good hospital.”  An endorsement or two from a fellow parent or respected community member was generally enough for providers to build reputations in an era when there were no alternative pathways to build a brand name.  Often, a prominently displayed diploma on the wall sufficed.  Data were scant, and quality was measured more by grandiose accomplishments, like performing brain surgery and organ transplants, rather than on more widespread process and outcome measures.

In the U.S., beginning around the early 1990s, this began to change.  Managed care organizations (MCOs) and some large employer groups began to ask a simple question: what are we getting for the all the money we are spending on health care?  Other payers began to follow the lead of the MCOs, asking the same questions.  Globally, countries with centralized health systems saw their health expenditures crowding out other public expenditures, and this encouraged them to ask the same questions about the value of the increasingly large amount of resources devoted to health care.

The transition to value has not been an easy or natural progression.  One of the main impediments to making health care more “value based” has been the lack of consensus on how to define “good” quality versus “poor” quality; more generally, will we recognize good quality when we see it?  Work on these issues has been extensive in the past couple decades,  but there remains a high degree of debate over the best or most appropriate quality measures, how to weight the importance of process versus outcomes, and how to determine the right role for consumer satisfaction.  While these debates have been churning, changes in health care information systems and reporting has created opportunities to measure process and outcomes in ways that were unimaginable only a decade ago.

We are at a juncture now where we have a large stockpile of data, an intensifying demand for providers to demonstrate quality and value, and an abundance of motivation and goodwill toward moving health care systems—in the U.S. and abroad—to more value-driven or value-based delivery models.   What makes this an interesting and challenging moment is that the old questions that prompted us to focus on value have largely been unanswered.  However, we now have a decade of health management and health services literature to review to get a feel for what works, what does not work, and what purchasers really care about.  In the remainder of this blog we highlight some of the main recurring themes in the progression toward quality measurement and providers’ approach to telling their “value story” to consumers and purchasers.

A recent report from the Healthcare Financial Management Association (HMFA) put forward a consensus on what many health care leaders view as the “four pillars” of quality within health care organizations (HMFA, Value Project, 2012): (1) purposeful engagement of the organization’ people and culture; (2) optimal use of business intelligence and data; (3) implementation of effective performance improvement initiatives; and (4) effective management of risk at the organizational and population levels.  We thought that it would be interesting to overlay these four pillars with a very interesting and recent interview of leading hospital and health system executives published in the journal Hospital & Health Networks (Dec. 1, 2013)

The HMFA report defined the first pillar, “People and Culture,” as “The ability to collaborate, effectively manage change, communicate a value message, and create accountability to value-driven goals. “  To many hospital and health system executives, this primarily means two things.  First, hospitals must continue to find ways of redirecting staff as they shrink inpatient services, expand outpatient services, and engage in population risk management to keep patients away from avoidable hospitalizations.  Second, it means creating the most productive relationships with physicians, whom remain a critical lynchpin in delivering value.  In the case of physician-hospital integration, either through employment or contract, two important questions must be asked and re-asked: Does the integration help achieve clinical goals?  Does it increase or decrease costs?

“Business Intelligence” was the second pillar identified by the HMFA report, and is defined as “The ability to collect, analyze, and connect quality and financial data to support organizational decision-making.”  Health care executives agree that one of the biggest challenges associated with using data to improve and report on value is determining which metrics have the most meaning, and, perhaps more importantly, can be readily understood by purchasers and consumers.  Key measures are 30-day readmission rate, risk-adjusted mortality rates, and complication rates.  Many of the metrics used in the Hospital Value Based Purchasing Program are also high on executives’ lists, especially the measures tracked by the National Surgical Quality Improvement Project.   An overarching need is the ability to analyze and report data in a meaningful way, and to leverage the predictive capability of large integrated datasets.

The third and perhaps most widely debated value pillar is “Performance Improvement,” defined as “The ability to reduce, and in some cases eliminate, clinical variation; reduce unsafe practices; and develop pathways and guidelines designed to minimize errors, improve outcomes, and minimize waste.”  As we alluded to above, the challenge with performance improvement lies in measurement and focus, simply because there are now so many options of variables to examine and process components to tweak.  Hospital executives agree on one measure that has grown in importance and will continue to do so, and that is patient satisfaction.  But haven’t health care executives been interested in patient satisfaction for a long time?  Yes, but there has been one very important change: data collection, quality metric standardization, and reporting standards have enabled (or at least encouraged) health care providers to make dramatic progress in clinical process improvement.  These advances have opened the door to return to talking about the patient experience.  If you look at the health care quality literature over the past two decades, this exact pattern emerges.  Health care executives also care a lot about patient safety, which cuts across process and patient measures.  Finally, part of the performance improvement side of the value story is of course “value for money,” or cost effectiveness.  Increasingly, health care providers are paying closer attention to the cost effectiveness of the procedures they perform and the drugs, supplies, and devices that they use.

The final pillar is “Contract and Risk Management,” defined as “the ability to assess the potential risks and benefits of acquiring other providers or engaging with them contractually to build a value-focused network, and to predict and manage different forms of patient-related risk under different payment methodologies.”  Hospital and health system executives have become much more focused on population risk management, as is the focus of Accountable Care Organizations (ACOs), but have devoted additional effort to doing their own work to manage population in the community, including greater reliance on the innovative merging of databases and information systems and the use of predictive analytics .  They see these activities as being completely consistent with improving patient outcomes and enhancing quality of care.  The challenge, of course, as one hospital executive put it, is that “one person’s waste is another person’s margin…if we keep patients out of the [emergency department (ED)], we have to repurpose ED nurses because there are fewer patients.”

This blog is meant to be a very quick overview of the challenges that hospitals and health systems face in telling their “value story.”  And it is of course not just how to tell the story, but how to then market that story to advance the strategic objectives of the hospital.  As the health care executives interviewed by H&HN opined, the role of each of these pillars is dependent on many factors specific to their institutions, and must be sensitive to the mix of payers, the patient population, physicians, and the people and culture of the organization.


-John E. Schneider, PhD & Gulaba Khan

Avalon Health Economics


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Integration of Novel Diagnostics into Clinical Practice

John Schneider, Ph.D

By John Schneider, Ph.D

Similar to drug and device markets, a critical part of the success of novel diagnostics is educating providers on clinical and therapeutic utility.  However, unlike pharmaceutical drugs, the ordering of a diagnostic test does not necessarily imply a change in provider behavior or a change in treatment strategy.   It’s a bit like whether a tree falling in the forest makes any noise.

Medicine is as much art as science, and many physicians continue to rely disproportionately on intuition, traditional forms of diagnosis, and the standard practices of the medical community—all of which are reinforced by practice cultures which vary by setting, geography, training, and so on.

With the exception of diseases and conditions in which clinical practice guidelines (CPGs) strongly promote the use of a particular diagnostic, not only are physicians under no obligation to order a test, but they are under no obligation to take action based on a test result.

For a diagnostic to have “value”—clinical or economic—the results of the test must in some way lead to a change in provider behavior in the form of an altered or augmented treatment approach, the ordering of additional tests, or referral to additional services.

This may be less of a problem for companion diagnostics, where the bundling of tests and treatments explicitly links test results and provider behavior, as in the case of, for example, the companion diagnostic HER2/neu in treatment of breast cancer. HER2/neu helps identify patients who will benefit from the oncology drug trastuzumab (Herceptin®),[1] and oncology guidelines have explicitly recognized this.[2]  But other molecular diagnostics are only effective if provider behavior changes in response to test results.  Again, the existence of an ordered test does not necessarily compel caregivers to deviate from the status quo.

The path toward moving genomic diagnostics from the laboratory into clinical practice is heavily dependent on the generation of reliable evidence of clinical utility.  A diagnostic test has clinical utility if its use leads to clinician decision making resulting in improved patient outcomes.[3]  With sufficient evidence, clinicians in leadership roles are more likely to promote the use of novel diagnostics, and such promotion is a critical first step toward incorporating biomarkers into clinical protocols and CPGs.[4]


-John E. Schneider, PhD & Cara M. Scheibling

Avalon Health Economics



[1] J. Cohen, A. Wilson, and K. Manzolillo, “Clinical and Economic Challenges Facing Pharmacogenomics,” Pharmacogenomics J 13, no. 4 (2013).

[2] S. H. Giordano et al., “Systemic Therapy for Patients with Advanced Human Epidermal Growth Factor Receptor 2-Positive Breast Cancer: American Society of Clinical Oncology Clinical Practice Guideline,” J Clin Oncol 32, no. 19 (2014).

[3] M. R. Trusheim et al., “Uncertain Prognosis for High-Quality Diagnostics: Clinical Challenges, Economic Barriers and Needed Reforms,” Pharmacogenomics 14, no. 3 (2013).

[4] R. Simon, “Lost in Translation: Problems and Pitfalls in Translating Laboratory Observations to Clinical Utility,” Eur J Cancer 44, no. 18 (2008); S. E. Taube, J. W. Jacobson, and T. G. Lively, “Cancer Diagnostics: Decision Criteria for Marker Utilization in the Clinic,” Am J Pharmacogenomics 5, no. 6 (2005).

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