Thinking you need to make the economic case but aren’t sure where to start? Start here.
Most of the time, innovation in healthcare delivery is driven by clinical motivations or a desire to improve outcomes or patient experience. However, eventually it becomes necessary to demonstrate the value of the process, device, or solution because you need to show payer or provider that it also makes business sense.
Once you reach that point (or think you reach it)…then what do you do?
I frequently interact with organizations who struggle with this question. They’ve never done anything like this before, so they are not sure where to even start.
One way to begin is to answer some basic questions that can help direct your efforts and clarify what’s needed. These include:
- Who is the audience?
- This is the most crucial question to answer, as it will inform everything else you do. Another way to ask this question is “what is the perspective” from which value will be viewed? Payers, patients, clinicians, and policy makers may experience very different types and amounts of value from the same solution. Payers see value in the form of cost avoidance from reduced utilization, while clinicians see value in reduced costs and greater efficiency (among other things), and patients value their quality of life and clinical experience as well as reduced out of pocket costs.
- What is the value you want that audience to recognize – is it financial, experiential, clinical, or something else?
- Value is subjective, and highly dependent on the perspective you identified in the previous question. As stated above, different perspectives may experience different types of value, but also different amounts of value within the same type. So, while both payers and patients can experience lower costs, the amount of cost reduction will differ. If you’d like more detail on types of value, consider the article I recently wrote about the difference sources of value one typically sees.
- How is that value measured or quantified?
- Here we get at the essence of the issues surrounding the concept of “value”. Namely, that it is a subjective and, in many ways, an “unmeasurable” quantity, so that we are left to try to measure surrogates we feel represent or reflect the value we seek to demonstrate.
- What data or information are available or at your disposal?
- Sometimes certain data just simply do not exist or are too hard to acquire (think about trying to demonstrate to a hospital the improvement in their reputation or brand as a result of the better care your solution allows them to delivery); other times data is too confounded with other components of the healthcare system (or other solutions or activities) to be of use in demonstrating the value of your solution. Understanding what data are available will inform what type of value you can actually demonstrate to your intended audience.
Let’s consider an example:
Say that you are a digital health company with a new solution that improves care management for patients with a particular chronic condition. The solution improves the accuracy of diagnosis and allows clinicians to more quickly identify the appropriate treatment regimen, thereby improving patients’ care experience and giving them more confidence in the clinical pathway they are on.
Who is the audience?
There may be several options depending on your situation. A common audience is a payer, like a health plan, who you hope will cover your solution or establish a contract with you to provide your solution. Obviously, there is value in your solution for clinicians and patients as well, but if your audience is a payer, then that immediately directs you toward a very specific type of value to demonstrate.
What is the value you want payers to recognize?
Demonstrating value to payers means showing how your solution either reduces costs or increases revenues (or both). Most often, innovative healthcare solutions will reduce the intensity of care, avoid adverse events, lower utilization, or reduce costs some other way. In our example, you may also be able to make an argument that your solution can increase revenues by promoting member retention through improvements in patient experience.
How is that value measured or quantified?
Demonstrating cost-savings or cost-avoidance to a payer is typically done by quantifying or estimating the adverse events your solution avoids or the utilization it lowers, and then linking that to reimbursement dollars associated with those events or that utilization. Additionally, if you can link your solution to increased member retention due to satisfaction with care, then value may also include estimates of the amount of improved retention and the associated dollar value per member per month.
What data or information are available or at your disposal?
The available data or information can take multiple forms. Sometimes you may have pilot data or results from a clinical study that demonstrates a difference in outcomes or utilization. Other times you may leverage published literature or others’ research to estimate the impact. In some situations, you may need to relay on expert opinion or personal experience. This last type of information may seem less credible to your audience, but sometimes it’s all you have.
With those answers, you will have a much clearer picture of what needs to be done and what it will take to do it. As noted previously, these answers can look very different for different audiences – even with the same product or device.
To further illustrate this, let’s change the intended audience from a payer to a private organization who you would like to be acquired by. Perhaps it is another, larger, digital health or device company.
What is the value? Perhaps some of the value is the same, because they, too, may eventually want to pitch the solution to a payer. But, it’s also possible that some of the value for this audience may include other components, like additional market capture. That is, if patients are diagnosed more quickly and receive more appropriate treatment when your device is used, perhaps fewer patients drop out of therapy and instead continue along the clinical pathway. This can be a value proposition for that company you’re looking to be acquired by, especially if they have a complementary solution that clinicians are already using. Basically: your solution helps increase the number of patients who are seen by clinicians who already use the acquiring-company’s solution.
How is it measured and what data are available? Measuring or quantifying that value involves estimating (or finding data on) current and potential market capture within the particular clinical area, and then applying a monetary value for each additional patient or step in the process. As before, what can be quantified will also depend on what data or information are available, so for the last question you’ll have to determine where one would find that information and how applicable or accurate it is to your situation.
With these questions answered, you now have a good basis for determining your next steps. For example, if you don’t have pilot data and don’t know what’s available in the current literature, you may decide it’s necessary to compile relevant research into a single location that will include key estimates and values.
Subsequently, you will need to decide how best you want to leverage the available information to quantify and demonstrate the value to your intended audience. The magnitude and thoroughness of the analysis will be dictated by multiple factors, including the value to your audience and the complexity of the given situation. You may be able to do a simple cost-avoidance or ROI analysis yourself, but you may also find that your resources are better spent hiring a professional to do it for you. However, at this point you are well on your way to crafting an effective, meaningful value assessment.
There are many ways to try to encompass or quantify the value associated with improvements in care delivery. An intuitively appealing way to consider value is through a two-step process. The first step attempts to assess the size of the potential “opportunity,” the second explores the “magnitude” of the impact of the solution as a function of that opportunity. Situations with larger opportunities and where the solution addresses a larger portion of that opportunity are cases where the value will be larger.
To provide more detail, let’s look at each step in turn.
First, assuming an adequate need has been established, quantify the size of the opportunity that exists by exploring the specific characteristics of the situation. Larger opportunities are those where:
- The condition(s) involved is(are) more common or more prevalent (conditions like diabetes and hypertension as well as health encounters like clinic visits or routine check-ups, etc.)
- Current treatments require frequent and/or costly encounters (e.g., specialty care, etc.)
- Negative consequences/outcomes are common (e.g., ED visits) and/or costly (e.g., surgery, long-term rehabilitation, etc.)
- There is a high incidence of comorbid or subsequent conditions/events
- Care is known to have inefficient care delivery (e.g., poor communication, higher amounts of waste, etc.)
When compared with a smaller opportunity, a large opportunity will often impact more patients with conditions that require more costly treatments or disease burden.