Where’s the Value?

Today, with the pressures of healthcare reform, many healthcare provider teams and committees are reviewing multiple projects. The aim of this activity is to verify and validate the impact of a purchased good or service on cost and quality. If you have a solution aimed at a large client, your solution is being judged by its ability to meet internal thresholds of savings and measurable improvements in quality. This evaluation can be costly in the staff time invested to properly investigate the efficacy of a solution. This cost is increased by the distraction from the day-to-day duties of committee members.

What is Value Analysis?

In plain language, Value Analysis is an evaluation process where alternative solutions, or devices, or procedures are profiled according to the total (enterprise) value expected from the use of each supplier’s solution. It is adequately represented by this formula:

Value = (Tangible and Intangible benefits) – (Cost)

The difficulty in value analysis grows from the complexity of perspective-based analysis;

• Should physician preference weigh more than evidence-based procedure?
• What perspective should be taken when examining tangible/intangible benefits?
• Which benefits deliver more value to which level within the institution?
• What are the appropriate measures of value for this provider?
• How do actions from value analysis impact the business goals of the enterprise?

Applying the Value Analysis Process is justified when the change produced by the project could significantly impact the perceived value of the enterprise (the healthcare provider). Therefore, when the enterprise decides to apply Value Analysis to a specific project, the clinical, operational, financial hurts that provoked the need for change should be clearly articulated, and the impact of change from execution of the supplier’s solution in the project should be quantitatively estimated.

Where are the Pitfalls?

Unfortunately, the process of value analysis is susceptible to some self-generated information gaps and blind-spots. If the criteria used in the process are not aligned with the mission of the organization, the process can result in a lost contribution of value from a solution. In practice, value analysis is imperfect, and expensive.

Why then does value analysis happen so often? What is the value in value analysis? The answers to these questions are straightforward. The value analysis process is designed to verify clinical claims, operational requirements, and financial outcomes of a project. Therefore, it is applied in the following areas:

• a major capital acquisition
• a new product or device
• a new technique, approach, or care-pathway change

Alarmingly, we have observed that a formal value analysis process is increasingly over-used, and often misapplied. Consequently, while notable exceptions exist, many of these committee-driven decisions could have been more simply addressed with routine supply chain management processes, ironically, at a much lower cost.

In this short series, we are going to discuss the use of value analysis, and the impact on providers and suppliers. Engaging with institutions during their project evaluation process is critical to the success of the supplier. To win, suppliers must learn how to more effectively demonstrate the value-impact of their solutions based upon the provider’s criteria. Finally, best practices will be described in various cases.

Why Value Analysis?

Some supply chain decisions for healthcare providers have long term consequences, including: reshaping practitioner behavior, aligning incentives, consumer marketing, and affecting patient outcomes. Evaluating new technology that supports a new medical service requires a thorough justification, and boundary spanning thinking. Too often, however, the price of the asset or service is often a starting point in these value analysis considerations. However, more thorough investigation usually proves that price is a minor contributor in the value equation, whereas the functionality and efficacy attributes deliver much more value.

The value-oriented supplier should accept more responsibility to deliver a practical and credible value proposition for represented solutions by:

• the supplier’s assessment of provider’s clinical, operational, and financial hurts
• the specific impact of the solution on a provider’s identified hurts
• an understanding of the customer’s business goals and how the solution ensures the attainment of project KPIs for the provider

If a supplier neglects to provide this value-based support of the provider’s project, that provider will likely engage their committee-driven value analysis process too quickly.
What are the requirements of effective value analysis? We will discuss this dimension in the next installment.

What are your thoughts on value analysis? Join the conversation and leave a comment or question.

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