How Decision Makers in Healthcare are Using Value Analysis to Minimize Costs and Optimize Patient Health Outcomes

The Need for a New Strategy in Healthcare

Healthcare costs in the United States is soaring out of control and have been rising for patients, healthcare professionals, and healthcare systems at an alarming rate. For years, healthcare systems have been trying and failing to lower costs associated with healthcare delivery. 

According to the Center for Medicare and Medicaid Services (CMS), the United States spent an estimated $3.81 trillion on national health care.  This is 5.5% higher than next highest country. Even with these elevated costs, the United States continually fails to match or exceed patient outcomes of countries that spend significantly less on healthcare. 

To solve this financial healthcare crisis, we must first define the problem, establish goals, develop a solution, and finally, measure the outcomes. Historically, efforts to create a solution to control healthcare costs have fallen short, however now with the implementation of a value analysis program, healthcare goals are achievable.

Defining the Goal, and Measuring Outcomes

The goal is to create a healthcare system that is both affordable and effective. Improving patient outcomes while lowering costs is the primary objective for healthcare institutions.  While different solutions have been tested, few have been effective. 

When testing new models to achieve a more impactful and affordable healthcare system, outcomes must be measured against the goals of the institution.  Reducing errors, enforcing practice guidelines, making patients better consumers, and implementing electronic medical records, have all been tried to cut costs while working to improve patient outcomes. 

A few of these new models include:

  • Reducing errors
  • Enforcing practice guidelines
  • Implementing electronic medical records
  • Advising patients to be smarter consumers

While all of these have tried to cut costs and improve patient outcomes, no single solution has had much of an impact on the healthcare industry.  The most likely answer will lie, not with a single-step solution, but a multi-step value analysis program.

The Six Components That Make Up the Value Analysis

Value analysis is a multi-step healthcare cost implementation plan that is made up of 6 steps. The six components that make up value analysis are:

  1. Organize into integrated practice units
  2. Measure outcomes and costs for every patient
  3. Move to bundled payments for care cycles
  4. Integrate care delivery across separate facilities
  5. Expand excellent services across geography
  6. Build an enabling information technology platform


The First Step

The first step changes the way clinicians are organized to deliver care. The structure is called an Integrated Practice Unit (IPU) and essentially means clinical and nonclinical personnel work as a team to provide a personalized full care cycle for the patient’s condition, the disease, related conditions, complications, post-treatment care, etc. In practice, IPU’s provide faster treatment, create better outcomes, and lower costs.

The Second Step

The second step in a value analysis program is analyzing and measuring results. This is done in order to track patient improvement and record impact resulting from the healthcare professional’s care cycle. This is often overlooked by healthcare professionals. When patient outcomes are tracked, it is usually no more in depth than mortality and safety which does not help to gauge the quality of patient care.  Patient medical outcomes that should be tracked, fall into three tiers.

Tier 1:  Health status achieved (functional status)

Tier 2:  Outcomes related to the nature of the care cycle and recovery

Tier 3:  Outcomes relate to the sustainability of health

Many healthcare institutions have seen their market share improve by focusing on the improvement of these metrics. The Cleveland Clinic is an example of an organization that instituted these measures and seen positive results and market share growth.

Another component of this second step is to measure the cost of the patient’s full care cycle. There is a significant lack of accurate cost information in healthcare.  Most hospital accounting systems are department based, not patient based, and have little accurate information on the cost of a full cycle of patient care.  To recognize value, cost must be measured at the medical condition level, and the costs tracked for the treatment of the condition. This helps providers find ways to reduce costs without negatively affecting the patient outcomes and often improving them. 

The Third Step

The third step in a value analysis program involves moving to a single payment to cover the full patient care cycle.  This single or bundled payment model helps to improve outcomes and value, but also reduces provider costs. These bundled payments should include severity adjustments and other adjustments that are needed post care. Many countries have adopted this approach and have saved money. For example, in Germany, the bundled payment average is below $5,000 compared to over $19,000 on average in the US. The primary reason for this is the lack of an accurate cost model.  This could be resolved with the correct measurement of costs. The single or bundled payment model has been proven to help providers better coordinate their care and cut costs for both patients and providers. 

The Fourth Step

The fourth step deals with the large and growing proportion of health care that is provided by multi-site healthcare delivery organizations. To achieve a true system integration, organizations must balance four related sets of choices.

  1. Define the scope of services
  2. Concentrate volume in fewer locations
  3. Choosing the right location for each service line
  4. Integrating care for patients across locations

Providers must give up service lines to improve the value of care for their patients. To implement an integrated care delivery system, providers must define the scope of services that they can deliver effectively. Providers should concentrate their services for each condition to fewer locations to serve as experts in their field and provide patients with the best care possible.

The Fifth Step

The fifth step is an expansion of geographic care reach. This is done to provide the highest quality patient care by finding the best IPUs for the team regardless of location.

The focus for this component should be on improving value and less on expanding volume. This can be done through the hub-and-spoke model where for each IPU, satellite facilities are established and staffed by the parent organization.  Clinicians rotate among facilities to promote a team culture.  Another other option is clinical affiliation and this occurs when IPU’s partner with community providers or other local organizations and can utilize their facilities.

The Sixth Step

The final component of value analysis is building and enabling an information technology platform. The sixth component is the key to make value analysis effective and its purpose is to be patient centric. 

The role of the information technology platform is to keep data organized by patient while using common data definitions to make it easy to communicate patient needs quickly. It should encompass all types of patient data; patient images, notes, lab tests, and everything needed for the continuum of patient care. A centralized medical record should be available through a platform that is accessible to all caregivers, so a patient does not have to continually distribute their medical information. The system should include templates and expert systems for each medical condition. Templates make it easier to find data quickly and provide access to important information faster.

Implementing this system makes it easier, faster, and cheaper by having a one-stop-shop for information.


As you can see, there is a clear need for change in the healthcare industry. The single-step solution has done little to fix the problems as we are overspending without increasing the value of patient care. It is necessary to shift the focus of the healthcare system to improving patient outcomes. Value analysis has been shown to be the most effective action for increasing patient care while also decreasing costs. It is becoming more and more clear that a multi-step, total restructure of the healthcare system to focus on patients as implemented by the six-step value analysis program is the solution.

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