Originally posted 9/28/18 on Valid Points
In hunting for high performance health care organizations – those that consistently deliver better health outcomes and/or lower costs in high value niches – we can assume that, at a minimum, really excellent vendors have credible long term (>24 months) data that demonstrate their superior performance. Their clients enthusiastically shower them with testimonials. They can scale their operations to generate the same excellent results in new locations or with new populations. Their impacts endure over time, continuously driving improved performance.
Perhaps most importantly, though, the leaders of these companies typically have become so comfortable with the dynamics of their management processes that they’re willing to put their fees at risk against the performance targets they claim they can achieve.
For example, one vendor consistently obtains better health outcomes and about a 50 percent cost reduction in its niche. It will financially guarantee purchasers a 25 percent cost reduction on the patients it touches. Because its niche generally represents about 20 percent of total health care spend, the guarantee functionally translates to a 4-5 percent reduction in total spend, a compelling value proposition.
This value can’t be overstated. A performance guarantee signals the vendor’s confidence in its ability to make a specific difference. But a vendor unwilling to go at risk for his performance claims conveys the expectation that the client should go at risk instead. In this situation, the vendor gets paid, with a margin, whether or not it delivers value or is accountable, and the purchaser pays whether or not the vendor performs. That heads-I-win-tails-you-lose arrangement is what the health care industry has depended on for decades, and that has brought us to the terrible crisis we’re in.
Several caveats apply here. One is that management of clinical, financial or administrative risk is a statistical endeavor. Even under the best circumstances, things mostly work out as hoped, but the fact that they occasionally don’t is pretty much a hard reality. Performance guarantees can only be made across populations, not at the individual patient level. Health care is a complex enterprises, and subject to the human condition’s variation.
Also, a vendor on the hook for specific performance levels must be able to demand that the purchaser comply with steps critical to reaching that performance. If, for example, a vendor promises to improve the results of allergy patients, he must have first access to patients with allergies or allergy-related complaints. The Summary Plan Document (SPD) may need to be amended to identify and treat the vendor as preferred, and financial incentives – e.g., waived copay – may be deployed to encourage patients to seek care from the preferred allergy vendor.
Ultimately, performance guarantees are a way of holding vendors accountable for promised performance. They are litmus tests that reflect how seriously vendors takes both their commitment to management of the risk in question, and their relationship with the purchaser.
A “high performer” designation almost certainly supposes that a health care vendor willingly guarantees performance. That guarantee becomes a line in the sand that changes the rules of engagement between health care vendors and organizational buyers, demanding accountability by closing the gap between promised and real world results, and re-infusing the health care enterprise with value that was lost in the current paradigm’s drive for exorbitant revenues independent of quality.
Brian Klepper is The Validation Institute’s Executive Analyst and Editor.