On the Much Used (and Abused) Word "Value" in Healthcare
A must read speech by Uwe Reinhardt (RIP). Selected statements:
Now, when I listen to all this prattle on value among people of the real world, I ask myself, what the hell do these people actually mean by that? Well, you typically find it defined as outcomes relative to cost, and then encompassing efficiency. Now, you can have fun with this expression in New England as I had, there were all providers, they were all from the supply side and I said, “It’s a great expression, I never thought of it as an economist but let me play with it. See what you can do with this.” So let’s look at this equation. The first thing you’ll know is that quality is multi-dimensional, it’s a vector. We geeks, have a certain aversion to dividing a vector by a dollar figure. Somehow it is hard to teach this, so we invented this little magic machine that can mush up vectors of quality with vectors of utility, feelings, and out comes this thing called a “qaly” (quality adjusted live year). And you know, Bismarck says you should never inquire how laws are made it’s like making sausages. This is worse, this is actually a little bit like making dog food, but you know earnings per share on an income statement is worse in terms of its reliabilities. So let us look at this ratio where we have value equalling qaly over cost, which, by the way, the inverse of that is just what we call cost effectiveness.
The more you think about this ratio, you run into a very famous law, Alfred E. Newman’s. Now, who in this audience knows Alfred E. Newman? You’re the most educated. You know kids nowadays don’t know anything, no wonder they’re so weird. They’re not well-read. We all grew up on Mad Magazine which kept us sane. If you hadn’t read Mad Magazine you’d all be nuts by now because Alfred E. Newman understood the world. Here is this famous law, one person’s healthcare cost is another ones healthcare income. Now that’s worth a Nobel laureate. So following Alfred E. Newman’s law, I’m going to write it like this and you can do that to healthcare providers and you see their little eyes ask, could this be true? Who here has ever served on a hospital board? I have on both for profit and not for profit. At any health clinic, what do they talk about: growth, growth, growth. It means revenue, so they don’t want to hear this. They want more qalys and more revenue, that’s what they really want. So, ask yourself this question; has anyone ever thought that the supply side folks want to create value for the patient by cutting their own revenue? I’ve never heard of that.
Imagine a hospital board with an agenda item: 30 minutes on enhancing value for patients by lowering our revenue. Not thinkable. Has anyone ever seen such a board, or even an agenda item? I have served for over a decade on these boards, and not once. You know growth usually gets an hour; patient safety now gets a half hour. But efficiency, not once have I ever heard of it. It gets worse. We have this equation: revenue equals price times quantity times volume. Can you imagine how obscene that is to a hospital executive? Because they ask, “You mean we can create value by cutting prices? Aren’t prices and quality positively correlated?” And you say, “Why would you say that?” Even if you’re drunk, why would you ever say that? You know, so the hospital raises its price and you get more value.
Highly recommended!
