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Value-Based Healthcare: a Visionary Model Constrained by Deep-Seated Dynamics

We hear more and more every day about how value-based healthcare (VBHC) principles are going to bring profound changes to the healthcare supply chain by fostering a model that recognizes the external forces on supply chain. There are three key issues at the core of healthcare that are holding back any progress towards an effective VBHC program and hindering the powerful technologies to support it within providers’ organizations:  1) a lack of cohesive and aligned cross-functional objectives; 2) poor availability and reliability of data; and 3) a complex cost equation.

Cross-functional alignment

It’s important to acknowledge that supply chain cannot really achieve in isolation any substantial improvements to healthcare efficiency and outcomes. The interdependence of supply chain and clinical, finance, IT, and risk management functions, and the roles they play together, can either be enabling – or paralyzing – depending on the dynamics at play. Price-beating tactics have long been the preferred tool of hospital supply chain and contracting personnel in dealing with vendors to reduce cost. Unfortunately, this approach has fostered an environment that’s inhospitable to collaborations aimed at creating mutual value and broader savings. Instead of turning to supply chain to achieve results today that its outdated toolbox has long been unable to deliver, some hospitals are now engaging their C-suite to work alongside supply chain. This new engagement allows supply chain to devise effective holistic strategies together with other key functions with the goal of breaking through stubborn functional silos. Many hospitals and IDNs are aiming for cross-benefits and value through coordinated actions that move their organization in the right direction with the support of each independent function and allow them to take on higher challenges together as a whole. 

Data availability and reliability

It’s also become evident that by putting the patient at the center of VBHC, organizations are forced to align their business objectives of improved patient outcomes and lower total system costs with what is at the core of their healthcare mission – patient care delivery. But aiming for better outcomes and lower costs requires establishing a cohesive approach with measures in place and a baseline to be able to measure and report improvements. Unfortunately, poor quality, inconsistent, and incomplete data are all too often fueling the decision-making processes at hospitals and leading to misinformed choices. In order to accurately price the cost of care delivery, comprehensive data on product usage – along with all the clinical information about the specifics of the procedure and health status of the patient – are mandatory requirements. 

However, in addition to the lag in data quality and availability, there are two other hurdles to overcome: 1) looking at better patient outcomes at a lower cost as a single objective; and 2) understanding all the elements of cost and patient outcomes. Despite very promising applications and (over) enthusiasm for them, new technologies like blockchain and AI cannot alone address such challenges. They can’t provide value or solve the issues that transcend supply chain and care delivery, or begin to address VBHC, as long as the information that feeds these two data-hungry technologies is, at best, unreliable or absent. There’s a fundamental need, therefore, to: 1) collect consistently reliable and comprehensive data, ideally through automated technologies in a format that is standard and can be easily shared and exchanged; and 2) put in place relevant measures and Key Performance Indicators to establish a baseline and then track results and progress on the cost/outcomes front.

Complex cost equation

In order to contemplate an effective implementation of a reasonably sound VBHC program, it’s important to recognize that the cost equation is quite complex. Many cost elements are not reliably measurable, or are just outside the control of the functions that are involved in that cost determination or made responsible for driving the results, like supply chain. For instance, any cost element that is related to the amortization of assets or the cost of labor, utilities, or real estate are completely out of the control of supply chain. The same goes for qualifying and measuring patient outcomes. But within supply chain, with good data and performance indicators, some elements of supplies costs can be contained and costly variation limited. 

However, on the clinical side, due to the fact that patient care is extremely complex with many variables, and executed based on the best judgment of individual clinicians and their ability to perform, the standardization of products used for specific procedures and the setting of time budgets for the performance of a procedure may reach some serious limits in their practical application. Thus, prescribing a set of products for a specific procedure because their cost is lower and the outcome is anticipated to be better may not work so well when so many other cost considerations have not been fully weighed.

Even with excellent data to inform the purchasing process, supply chain may have its hands tied, and the organization as a whole may be unable to be effective at making changes that positively affect the hospital’s bottom line and their patient outcomes at the same time. This intersection of cost and patient outcomes seems to be an excellent candidate for AI analytics to prescribe a substantiated approach and product mix that are patient and disease centric, and inform hospitals on the specifics to deliver the best care at the lowest cost for each patient. 

Final thoughts…

It seems that eyes are mostly on clinicians or supply chain when it comes to making VBHC successful. In reality, clinicians and supply chain managers can only worry about the things that they can control, but the state of VBHC as it stands in the U.S. right now is to ask them to worry about elements that are all too often out of their control (and possibly not in the right hands from the patient’s perspective). Collaboration across multiple functions, supported by reliable data, is key if we truly want to achieve the promise of VBHC.