The Healthcare Value Equation

Prior to leaving for Denver and the LeadingAge Annual Meeting & Exhibition last week I posted here in the Pub several questions I was anxious to have answered by LeadingAge members.  I was not disappointed by the vibrant and impactful discussions and sharing of ideas that has come to epitomize that event.  Indeed, I learned a great deal of incredibly valuable insights, as usual.  But it was what I did not observe that – while not terribly surprising – has me nonetheless concerned about many member organizations’ futures.

Overall, I would characterize the leadership view at most organizations toward Healthcare Reform and its attendant ramifications as being acutely aware, justifiably concerned and yet still very uncertain about what types of organizational changes will be required to survive.  And where there is a greater level of certainty, the perceived changes needed tend to be of a more tactical and pragmatic nature, rather than transformational.

I realize this is to be expected because change is anathema to our human psyche.  Even changes that bring about sought after and desired results in our lives are usually disruptive, requiring adaptation, resiliency and an unplanned exertion of focus and energy.

The dynamics of organizational change are such that if you take the individual energy required to adapt to change and then multiply that by the number of individuals comprising an organization, the product will be exponentially higher.  This is primarily owing to differences in the means and speed at which individuals accept and adopt to change.  And the process by which an organization reconciles these differences is a function of effective organizational change management.

Whenever I give a presentation on Healthcare Reform I share what I have learned as a student of Michael Porter’s work on Value-Based Healthcare.  I seek to convey the singular concept that will serve as the platform upon which all future performance improvement efforts must be based.  I refer to this concept as the E = mc2 of future healthcare delivery: Value = Outcomes/Cost.   This is also the formulaic basis upon which leadership teams at organizations that provide healthcare must base their organizational change efforts.

This may seem like a simple enough concept, particularly when we compare its application in almost any other industry in which a product or service is exchanged for currency (or another product or service).  In healthcare, as we know, our delivery system has largely obfuscated the applicability and worth of this formula – first through employer-provided insurance beginning during World War II and then several decades later and subsequently through complex provider payment designs developed by Medicare, Medicaid and commercial insurers.

As Porter asserts, today healthcare providers compete on bargaining power, volume and control of the patient, rather than value.  The demographic and economic realities of this 21st century require a paradigm shift in the competitive model of healthcare delivery, where market advantages will be achieved through actual and perceptual positions of value created for the patient.  Such a shift cannot be achieved through incremental improvements in cost reduction and process improvement – however grandiose the means of pursuing such goals may be.  It requires a transformational shift in how the healthcare organization views itself.

It also requires a new way of thinking about how we understand and define Outcomes; and how we track, analyze and report on Costs.  I will write more on these topics in the future.  But for now, my message is that those senior housing and care organizations that embrace this way of thinking – and determine how to manifest an organizational strategic positioning based on value – will be much more likely to survive and even thrive in the future. 


Pub Chat # 3 ~ Marcia Tetterton

This edition of Pub Chat coincides with the release of a new report published by Artower Advisory Services, which summarizes findings and observations from the recently completed Organizational Readiness Assessment Survey Instrument (ORASI©).  For more information, please click on the links below: 

   ORASI© Press Release         2012 ORASI© Summary Report

With the recent decision handed down by the Supreme Court regarding the constitutionality of the Patient Protection and Affordable Care Act, the probability has increased substantially that healthcare providers will have to implement significant changes in the way they do business. To assist providers of home healthcare and hospice in determining their organizational readiness for Healthcare Reform, the Council of State Home Care Associations commissioned the adaptation of an organizational readiness self-assessment survey developed by Artower Advisory Services for use by member agencies.

Over 940 participants from member agencies of 26 state associations took part in the survey during the period April 3, 2012 through July 3, 2012. The primary purpose of this effort was to help those agencies and the state associations to which they belong better understand the areas where attention, focus and training are necessary to help prepare home healthcare and hospice agencies be successful under Healthcare Reform.

You can listen to my interview with Marcia by clicking on Larry’s microphone, below:

~ Sparky