Where’s the Value? Installment II

Introduction

Your customer, Teri, sends you a message…”Dude, the project is going to the Value Analysis Committee.” The slightest bit of hope and positive anticipation hits you…you’re thinking, “Uh, hopefully, Teri will be on the committee and will have the presence to remind everyone about our killer features.”  Then you settle in for a long winter.

Your strategy and planned actions need to reflect your knowledge of the Value Analysis process, and your proficiency to exert some level of influence on the Committee’s progression and conclusion. To help clarify the stages and gates of the process, and provide you with some insight into do’s and don’ts, we need to understand when Value Analysis is best employed by a facility.

When to Employ Value Analysis

Value analysis is designed for situations where asymmetrical alternatives, or incomplete substitutes, are being considered to solve a Clinical, Operational, or Financial problem. Value analysis is not designed to defray controversial supply decisions; project  champions and organizational leadership are charged with managing controversy. Therefore, a small set of situations are suggested as triggers for the value analysis process. These situations are those where a facility encounters decisions that include:

1. Ambiguous or emerging potential benefits in patient care, outcomes, or satisfaction resulting from a technology, process, or vendor change.
2. Outsourcing a core organizational function, e.g. food service, or biomedical engineering.
3. Innovative and new supply options that displace multiple current modalities, e.g. new diagnostic or therapeutic options that replace current care pathways.

Value analysis can be employed in vendor substitute selection, where one vendor displaces another one entirely…orthopedic or cardiac implants are a prime example. However, if the clinical studies and medical opinion support the notion that vendor A can substitute for vendor B, value analysis is arguably unnecessary. Justification can be done on basis of proof statements, without the diversion associated with the Value analysis process.

Furthermore, the Group Purchasing Organization (GPO) affiliation of the organization can be used to justify most vendor replacement decisions. GPOs have well developed processes for value analysis and clinical advisory boards. As a member of a GPO, the hospital can reduce cost and increase speed by adhering to contracted supplier schedules for most requirements. Replicating the GPO assessment rarely has a positive return for the hospital.

What is required for effective value analysis?

Assessing enterprise value properly requires time-value analysis, and a large dose of related cost accounting. The financial analysis should establish costs associated with different components of a procedure including direct and indirect labor, overhead, and ancillary costs.

Therefore, the value analysis process is best informed with granular data, i.e. what are the fixed and variable costs affected by the evaluated device or service? Committees need financial analysts, or sometimes your product knowledge to provide:

1. Cost transparency about the current state
2. Benefit accounting about the future state, including rigorous job-order-costing analysis
3. Project implementation management controls

Without these elements, it is difficult to determine the true value potential of a project. Importantly, project implementation controls are among the most difficult of the three to acquire, but these controls are necessary to ensure a successful outcome.

At its conclusion, the value analysis process quantifies the multidimensional value equation, including the costs associated with change and management, i.e. the cost to deliver the outcome.

Next, we will discuss how to influence with the benefit of clinical evidence in the context of value analysis.

What have you experienced?

Join the conversation, and tell us how you have helped clarify the value picture for your customers.

By:
Gunter F. Wessels, Ph.D., M.B.A.
Total Innovation Group Inc., Practice Principal, Partner
and
Sam O’Rear
Total Innovation Group Inc., Senior Partner