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CCH® BENEFITS — 2/29/08

Determining “Value” Of Health Care Treatments Requires More Technology, Data Collection And Analysis, Experts Agree

From Spencer's Benefits Reports: Would a “value-chain” approach to health care delivery in the United States improve quality, reduce costs, and increase access? This was the subject of an article entiteld The Value Chain Case for Health Care Reform—A Conference Summary, published in the March 2008 issue of the Chicago Fed Letter, The article reviews the major points discussed by speakers representing varied stakeholders’ points of view at a two-day forum organized by the Federal Reserve Bank of Chicago and the Detroit Regional Chamber.

A “value-chain” approach often is used in the manufacturing sector to ensure that each “link” in the entire production process adds value to the final product. Unlike in the automobile manufacturing industry, partnerships in the health care services market have not produced cost efficiencies and delivery innovations, noted a health care researcher at the Wharton Center for Health Management and Economics of the University of Pennsylvania. Applying a “value-chain” approach to health care services is more difficult because many services are complex and obtained sporadically, if at all, the Wharton researcher pointed out. Consequently, often, “consumers are not well-informed on their purchase decisions,” and even if a consumer knows what to look for, information is lacking on cost and quality among health care providers. Complicating factors occur because costly medical incidents often are unpredictable, and the costs often are paid by insurance.

The value-chain approach has not been effective in health care because of (1) the inability to create and coordinate “strategic alliances”; (2) the lack of information of value/cost at each “link” in the chain; and (3) the insufficient sharing of knowledge in health care, the Wharton researcher said. “Vertical integration” attempts in health care largely have failed primarily because the costs of coordination outweighed the benefits.

To improve health care system efficiency requires better technology, the Wharton researcher emphasized. Some $554 billion, or 28% of the nearly $2 trillion that the U.S. spends on health care, currently is related to technology, which is a fast-growing component of health care. Since physicians currently determine the “value” of, and drive the decisions about the use of many medical products and services, it is vital to provide them, and patients, with thorough comparative information on the efficiencies and cost savings of medical products and services. To enable analysis of comparative effectiveness and cost, the U.S. must expand collection of data on cost, utilization, and product and service “performance.” In addition, patient involvement as an informed purchaser must be encouraged and supported, and patients must be provided with financial incentives to pursue health lifestyles, several speakers urged.

Information-Driven Model

The health care model should be “much more consumer-centric and information-driven,” agreed Scott P. Serota, president and chief executive officer of the Blue Cross and Blue Shield Association. He envisioned the role of the insurer as providing the consumer with comparative information on quality and cost and alternative treatments, as well as portable electronic personal health records.

A physician representing the American Medical Association emphasized that physicians’ should focus on the patient and be organized around medical conditions and “care cycles,” not specific procedures or incidents. He defined “value” in health care as improved health care outcomes divided by cost.

The competition-based value-chain concept cannot be very helpful to health care until U.S. society determines who will be the final arbiter of value for health care in the U.S, argued Uwe Reinhardt, Princeton University health care economist. Two important questions in applying this value-chain principle are: Who should set the “value” in the value chain?; and How should the value of services be determined (that is, by market forces or by some other process)? Determining “value” is complicated in the U.S. because the ultimate customer could be the patient, the insured person, the insurer, taxpayers, and employers, and all these parties have varied motivations and needs that are not necessarily aligned, Mr. Reinhardt commented.

The Chicago Fed Letter noted that when the state of Michigan pooled its Medicaid prescription drug purchases with those of other states, Medicaid spending for drugs dropped 5.2% in 2006. Furthermore, the state now rates health care plan performance and pays bonuses to those plans with “outstanding” performance. In addition, the Greater Detroit Area Health Council’s Save Lives Save Dollars coalition has brought together multiple stakeholders to target specific medical conditions—diabetes, heart attack/heart failure, and surgery site-specific infections—and convinced health care plans to focus on a specific set of metrics and to financially reward physicians for performance.

“The health care market is generally characterized by a lack of transparency and a shortage of information among all the agents along the value chain,” the summary concluded. “Market participants need information on costs; quality of care; and availability of procedures, techniques, and equipment. Stakeholders’ ongoing efforts to increase the quantity and quality of information “will be useful in stimulating competition and innovation where it is most needed.”

For more information, visit http://www.chicagofed.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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