Understanding the Components that Influence Value in Healthcare

These days, “value” is all the rage. If you are a medical device or med-tech start-up, everyone is telling you how important it is to demonstrate the value of your solution to clinicians, health systems, and especially investors. Unfortunately, start-ups are typically given little (if any) guidance regarding how, exactly, to do that. And once these firms start digging a little deeper, they realize that it is a lot more complicated than they’ve been led to believe. This article is the first in a series about the components that influence value, and how to address them. To begin, we’ll talk in general terms about these components and related activities, and in later articles we’ll dive more deeply into the details of each one.

Initially, when thinking of how we would identify or quantify cost-savings, ROI, or the budget impact of a novel solution, we probably think of the care pathway like this:

If that were the case, estimating the potential impact and attributing that impact to our novel solution would be pretty straight-forward. But, in reality, that care pathway probably looks more like this:

That is, the encounters or events we are interested in exist within a larger, more complex system of other encounters, events, disease states, environments, and human factors, and reside within a complex infrastructure with various payment and reimbursement mechanisms and care delivery structures. In short: it’s complicated.

When we zoom out and examine this process with a wider lens, we see that care delivery, patient outcomes, and the associated value is dependent on more than just a specific diagnosis, event, or procedure. And therefore, to be able to accurately describe the value that our novel solution provides we must fully understand all the components that influence value. Only then can we identify the value that can credibly be attributed to our solution.

While any model or description of the US healthcare system will inevitably be an oversimplification, I have found that the following informs much of what device and med-tech start-ups need to consider in order to be able to assess, quantify, and describe the value of their novel solution:

This figure identifies 5 major components that influence the value that can be quantified and attributed, and suggests specific activities one needs to pursue to uncover value. Specifically, the value that one can identify, quantify, and attribute depends on:

1.      Its location in the care pathway. This includes whether it attempts to prevent/reduce the risk of a disease or event, is used at the point of care, is involved in rehabilitation/recovery, is relevant for chronic care management, or some combination. This informs which clinical settings are relevant, what type of clinical staff are involved, and what procedures, metrics, and outcomes may be useful. Finally, this allows one to understand the timing of care, outcomes, antecedents or subsequent events, and the flow of costs, payments, and reimbursements.

2.      The relevant scope and perspective. This is essentially the answer to “what type of value” and to “whom”? If one is attempting to reduce in-hospital infections, for example, cost-savings (the type of value) to a hospital (the “who”) during the hospital stay reflects a different scope and perspective than improvements in quality of life (the type of value) to patients (the “who”) during the 90-day period following discharge. Both reflect value but each would be measured and quantified very differently. A critical component will be to examine whether the costs (money, time, effort, etc.) your solution will impose will be borne by the same individuals who will experience the benefits – this alignment can inform how difficult it will be to convince someone to adopt your solution.

3.      The potential impact of change. This reflects both the size of the opportunity to improve care or efficiency and the amount of that opportunity your novel solution seeks to capture. I’ve written about both previously, but essentially, the size of opportunity involves things like the size of the potential patient population, the cost and intensity of care, the seriousness of complications or adverse events, and other similar things. The amount of potential value capture is informed by the extent to which your solution can address the gap, avoid various complications or adverse events, reduce care utilization or costs, etc.

4.      The level of disruption. Harking back to the care pathway we described earlier, this component considers how much you are looking to change the way care is delivered, managed, or paid for. Large changes to established processes can require changes to policy as well as to human behavior and decision making. Essentially, this asks you to consider how difficult it will be for health systems or patients to implement and adopt your novel solution. Does it add steps to the care pathway? Does it require more infrastructure or technology? Does it change the setting or care or who is accountable for quality and patient outcomes?

5.      The existence of barriers and amount of uncertainty. Before novel solutions are implemented and adopted into care systems, it is impossible to know for sure how things will go. This component involves potential barriers to adoption that may be related to policy, regulations, human factors, technology, infrastructure, geography, or other practical matters. Additionally, when estimating potential value, there is typically uncertainty in estimates of the effectiveness of your solution, relevant cost-savings, the timing of when value capture occurs, the ability to attribute improvements to your solution, etc. The source, type, and size of this uncertainty – and existing plans to mitigate this uncertainty – directly influence the value you are attempting to describe.

Addressing these components involves gathering information, specifying details, and considering the full picture of patient care. In the figure above I list four activities: mapping the care pathway, exploring relevant perspectives, sizing the opportunity and potential value capture, and identifying barriers and sources of uncertainty.

Once these have been completed, the following will hopefully be true:

• You will understand the patient journey and the flow of value
• You will have confirmed demand for a solution from one or more perspectives
• You will have identified the appropriate target audience(s)
• You will have formed one or more specific value messages for the target audience(s)
• You will have quantified the monetary and non-monetary value
• You will have a strategy to address or mitigate potential barriers or sources of uncertainty
• You will know the types of materials you need to develop to communicate your value message(s) to the target audience(s)
• You will have a plan for next steps, including for developing those materials and encouraging the implementation and adoption of your solution

But, before we get there, we need to back up and talk in more detail about the individual activities. In the next article we will explore the first one: mapping the care pathway.  Keep an eye out or sign up below to make sure you don’t miss it!

If you liked this article, consider subscribing to receive regular thought leadership.