Value = Outcome/Cost
Outcome is measured by comparing each person’s compliance to care standards set by the Center for Disease Control (CDC) and other academies and associations that set trusted standards for health. Another component of outcome and directly related to perceived and measured value is each person’s perception of his or her care, which is quantified by survey. In this equation, cost of care is measured as cumulative dollars spent for an individual for health over finite periods of time or over a lifetime. The same value index is a measure of the quality of care provided by physicians. The value of a physician is measured by the health status of the panel of patients he cares for.
This equation provides a quantified explanation of the long sought after explanation of the link between value, quality and cost in health. The highest value and therefore quality of care according to this equation costs the least. The equation dispels the long time held inappropriate view of health that the best care costs the most. The best care actually is always the least expensive.
Health care measured in this context looks at cost over time, not in terms of cost of a single office visit, lab test or surgical procedure. Thoughtful decisions about health strategy contribute the most to high health status and lower health expense burden. Health professionals and each of our citizens must focus on making thoughtful decisions to improve health in America.
The equation, Value = Outcome/Cost accurately predicted the failure of the past forty years of insurers trying to “manage care” because objectives for managed care were actually constants, cesarean birth rates, lengths of hospital stay, etc. (nothing to do with improved health status or quality). Applying these managed care principles to this equation quickly led to the transformation of the equation from Value = Outcome/Cost to Value = K(constant)/Cost and ultimately Value = Cost. Simply put, if insurers paid no claims, the insurer got the best value! The use of misleading nomenclature (managed care) and its adverse impact on strategy (managing to constants) has deprived us of better health for over fifty years. The equation was right; the strategy of the “managed care” era was wrong.
Getting good value in health care is achieved by measurement of improved health status according to the equation Value = Outcome/Cost. Knowing how our health measures up provides a logical basis for health reform. Without measurement, successful transformation of our health system is not possible.
The Health Gadfly