A Novel Metric To Capture Value In Healthcare

David Kashmer (@DavidKashmer)

You’ve probably heard the catchphrase “volume to value” to describe the current transition in healthcare.  It’s based on the idea that healthcare volume of services should no longer be the focus when it comes to reimbursement and performance.  Instead of being reimbursed a fee per service episode (volume of care), healthcare is transitioning toward reimbursement with a focus on value provided by the care given.  The Department of Health and Human Services (HHS) has recently called for 50% or more of payments to health systems to be value-based by 2018.

Here’s a recent book I completed on just that topic:  Volume to Value.  Do you know what’s not in that book, by the way?  One clear metric on how exactly to measure value across services!  That matters because, after all

If you can’t measure it, you can’t manage it. –Peter Drucker

An entire book on value in healthcare and not one metric which points right to it!  Why not?  (By the way, some aren’t sure that Peter Drucker actually said that.)

Here’s why not:  in healthcare, we don’t yet agree on what “value” means.  For example, look here.  Yeesh, that’s a lot of different definitions of value.  We can talk about ways to improve value by decreasing cost of care and increasing value, but we don’t have one clear metric on value (in part) because we don’t yet agree on a definition of what value is.

In this entry, I’ll share a straightforward definition of value in healthcare and a straightforward metric to measure that value across services.  Like all entries, this one is open for your discussion and consideration.  I’m looking for feedback on it.  An OVID, Google, and Pubmed search revealed nothing similar to the metric I propose beneath.

First, let’s start with a definition of value.  Here’s a classic, arguably the classic, from Michael Porter (citation here).

Value is “defined as the health outcomes per dollar spent.”

Ok so there are several issues that prevent us from easily applying this definition in healthcare.  Let’s talk about some of the barriers to making something measurable out of the definition.  Here are some now:

(1) Remarkably, we often don’t know how much (exactly) everything costs in healthcare.  Amazing, yes, but nonetheless true.  With rare exception, most hospitals do not know exactly how much it costs to perform a hip replacement and perform the after-care in the hospital for the patient.  The time spent by FTE employees, the equipment used, all of it…nope, they don’t know.  There are, of course, exceptions to this.  I know of at least one health system that knows how much it costs to perform a hip replacement down to the number and amount of gauze used in the OR.  Amazing, but true.

(2) We don’t have a standardized way for assessing health outcomes.  There are some attempts at this, such as QALYs, but one of the fundamental problems is:  how do you express quality in situations where the outcome you’re looking for is different than quality & quantity of life?  The QALY measures outcome, in part, in years of life, but how does that make sense for acute diseases like necrotizing soft tissue infections that are very acute (often in patients who won’t be alive many more years whether the disease is addressed or not), or other items to improve like days on the ventilator?  It is VERY difficult to come up with a standard to demonstrate outcomes–especially across service lines.

(3) The entity that pays is not usually the person receiving the care.  This is a huge problem when it comes to measuring value.  To illustrate the point:  imagine America’s Best Hospital (ABH) where every patient has the best outcome possible.

No matter what patient with what condition comes to the ABH, they will have the BEST outcome possible.  By every outcome metric, it’s the best!  It even spends little to nothing (compared to most centers) to achieve these incredible outcomes.  One catch:  the staff at ABH is so busy that they just never write anything down.  ABH, of course, would likely not be in business for long.  Why?  Despite these incredible outcomes for patients, ABH would NEVER be re-imbursed.  This thought experiment shows that valuable care must somehow include not just the attention to patients (the Voice of the Patient or Voice of the Customer in Lean & Six Sigma parlance), but also to the necessary mechanics required to be reimbursed by the third party payors.  I’m not saying whether it’s a good or bad thing…only that it simply is.

So, where those are some of the barriers to creating a good value metric for healthcare, let’s discuss how one might look.  What would be necessary to measure value across different services in healthcare?  A useful value metric would

(1) Capture how well the system it is applied to is working.  It would demonstrate the variation in that system.  In order to determine “how well” the system is working, it would probably need to incorporate the Voice of the Customer or Voice of the Patient.  The VOP/VOC often is the upper or lower specification limit for the system as my Lean Six Sigma and other quality improvement colleagues know.  The ability to capture this performance would be key to represent the “health outcomes” portion of the definition.

(2) Be applicable across different service lines and perhaps even different hospitals.  This requirement is very important for a useful metric.  Can we create something that captures outcomes as disparate as time spent waiting in the ER and something like patients who have NOT had a colonoscopy (but should have)?

(3) Incorporate cost as an element.  This item, also, is required for a useful metric.  How can we incorporate cost if, as said earlier, most health systems can’t tell you exactly how much something costs?

With that, let’s discuss the proposed metric called the “Healthcare Value Process Index”:

Healthcare Value Process Index = (100) Cpk / COPQ

where Cpk = the Cpk value for the system being considered, COPQ is the Cost of Poor Quality for that same system in thousands of dollars, and 100 is an arbitrary constant.  (You’ll see why that 100 is in there under the example later on.)

Yup, that’s it.  Take a minute  with me to discover the use of this new value metric.

First, Cpk is well-known in quality circles as a representation of how capable a system is at delivering  a specified output long term.  It gives a LOT of useful information in a tight package.  The Cpk, in one number, describes the number of defects a process is creating.  It incorporates the element of the Voice of the Patient (sometimes called the Voice of the Customer [VOC] as described earlier) and uses that important element to define what values in the system are acceptable and which are not.  In essence, the Cpk tells us, clearly, how the system is performing versus specification limits set by the VOC.  Of course, we could use sigma levels to represent the same concepts.

Weaknesses?  Yes.  For example, some systems follow non-normal data distributions.  Box-Cox transformations or other tools could be used in those circumstances.  So, for each Healthcare Value Process Index, it would make sense to specify where the VOC came from.  Is it a patient-defined endpoint or a third party payor one?

That’s it.  Not a lot of mess or fuss.  That’s because when you say the Cpk is some number, we have a sense of the variation in the process compared to the specification limits of the process.  We know how whatever process you are talking about is performing, from systems as different as time spent peeling bananas to others like time spent flying on a plane.  Again, healthcare colleagues, here’s the bottom line:  there’s a named measure for how well a system represented by continuous data (eg time, length, etc.) is performing.  This system works for continuous data endpoints of all sorts.  Let’s use what’s out there & not re-invent the wheel!

(By the way, wondering why I didn’t suggest the Cp or Ppk?  Look here & here and have confidence you are way beyond the level most of us in healthcare are with process centering.  Have a look at those links and pass along some comments on why you think one of those other measures would be better!)

Ok, and now for the denominator of the Healthcare Value Process Index:  the Cost of Poor Quality.  Remember how I said earlier that health systems often don’t know exactly how much services cost?  They are often much more able to tell when costs decrease or something changes.  In fact, the COPQ captures the Cost of Poor Quality very well according to four buckets.  It’s often used in Lean Six Sigma and other quality improvement systems.  With a P&L statement, and some time with the Finance team, the amount the healthcare system is spending on a certain system can usually be sorted out.  For more info on the COPQ and 4 buckets, take a look at this article for the Healthcare Financial Management Association.  The COPQ is much easier to get at than trying to calculate the cost of an entire system.  When the COPQ is high, there’s lots of waste as represented by cost.  When low, it means there is little waste as quantified by cost to achieve whichever outcome you’re looking at.

So, this metric checks all the boxes described earlier for exactly what a good metric for healthcare value would look like.  It is applicable across service lines, captures how well the system is working, and represents the cost of the care that’s being rendered in that system.  Let’s do an example.

Pretend you’re looking at a sample of the times that patients wait in the ER waiting room.  The Voice of the Customer says that patients, no matter how not-sick they may seem, shouldn’t have to wait any more than two hours in the waiting room.

Of course, it’s just an example.  That upper specification limit for wait time could have been anything that the Voice of the Customer said it was.  And, by the way, who is the Voice of the Customer that determined that upper spec limit?  It could be a regulatory agency, hospital policy, or even the director of the ER.  Maybe you sent out a patient survey and the patients said no one should ever have to wait more than two hours!)

When you look at the data you collected, you find that 200 patients came through the ER waiting room in the time period studied.  That means 2 defects per 200 opportunities, which is a DPMO (Defects Per Million Opportunities) of 10,000.  Let’s look at the Cpk level associated with that level of defect:

Table located at https://ssbblky.wordpress.com/2009/11/19/is-3-sigma-quality-level-good-enough/

Ok, that’s a Cpk of approximately 1.3 as per the table above.  Now what about the costs?

We look at each of the four buckets associated with the Cost of Poor Quality.  (Remember those four buckets?) First, the surveillance bucket:  an FTE takes 10 minutes of their time every shift to check how long people have been waiting in the waiting room.  (In real life, there are probably more surveillance costs than this.) Ok, so those are the costs required to check in on the system because of its level of function.

What about the second bucket, the cost of internal failures?  That bucket includes all of the costs associated with issues that arise in the system but do not make it to the patient.  In this example, it would be the costs attributed to problems with the amount of time a person is in the waiting room that don’t cause the patient any problems.  For example, were there any events when one staff member from the waiting room had to walk back to the main ED because the phone didn’t work and so they didn’t know if it was time to send another patient back?  Did the software crash and require IT to help repair it?  These are problems with the system which may not have made it to the patient and yet did have legitimate costs.

The third bucket, often the most visible and high-profile, includes the costs associated with defects that make it to the patient.  Did someone with chest pain somehow wind up waiting in the waiting room for too long, and require more care than they would have otherwise?  Did someone wait more than the upper spec limit and then the system incurred some cost as a result?  Those costs are waste and, of course, are due to external failure of waiting too long.

The last bucket, my favorite, is the costs of prevention.  As you’ve probably learned before, this is the only portion of the COPQ that generates a positive Return On Investment (ROI) because money spent on prevention usually goes very far toward preventing many more costs downstream.  In this example, if the health system spent money on preventing defects (eg some new computer system or process that freed up the ED to get patients out of the waiting room faster) that investment would still count in the COPQ and would be a cost of prevention.  Yes, if there were no defects there would be no need to spend money on preventative measures; however, again, that does not mean funds spent on prevention are a bad idea!

After all of that time with the four buckets and the P&L, the total COPQ is discovered to be $325,000.  Yes, that’s a very typical size for many quality improvement projects in healthcare.

Now, to calculate the Healthcare Value Process Index, we take the system’s performance (Cpk of 1.3), multiple it by 100, and divide by 325.  We see a Healthcare Value Process Index of 0.4.  We carefully remember that the upper spec limit was 120 and came from the VOC who we list when we report it out.  The 100 is there to make the results easier to remember.  It simply changes the size of the typical answer we get to something that’s easier to remember.

We would report this Healthcare Value Process Index as “Healthcare Value Process Index of 0.4 with VOC of 120 min from state regulation” or whomever (whichever VOC) gave us the specification limits to calculate the Cpk.  Doing that allows us to compare a Healthcare Value Process Index from institution to institution, or to know when they should NOT be compared.  It keeps it apples to apples!

Now imagine the same system performing worse:  a Cpk of 0.7.  It even costs more, with a COPQ of 425,000.  The Healthcare Value Process Index (HVPI)?  That’s 0.0165.  Easy to see it’s bad!

How about a great system for getting patient screening colonoscopies in less that a certain amount of time or age?  It performs really well with a Cpk of 1.9 (wow!) and has a COPQ of $200,000.  It’s HVPI?  That’s 0.95.  Much better than those other systems!

Perhaps even more useful than comparing systems with the HVPI is tracking the HVPI for a service process.  After all, no matter what costs were initially assigned to a service process, watching them change over time with improvements (or worsening of the costs) would likely prove more valuable.  If the Cpk improves and costs go down, expect a higher HVPI next time you check the system.

At the end of the day, the HVPI is a simple, intuitive, straightforward measure to track value across a spectrum of healthcare services.  The HVPI helps clarify when value can (and can not) be compared across services.  Calculating the HVPI requires knowledge of system capability measures and clarity in assigning COPQ.  Regardless of initial values for a given system and different ways in which costs may be assigned, trending HVPI may be more valuable to track the trend of value for a given system.

Questions?  Thoughts?  Hate the arbitrary 100 constant?  Leave your thoughts in the comments and let’s discuss.