3M Commentary

A language of value

March 12, 2020 / By Richard Averill, MS

As the debate over healthcare reform intensifies, affordability will be a central issue. The high cost of health care can limit access to services and aggressive cost containment efforts can result in inadequate care. The dilemma facing health care is that lower costs can lead to failures in quality, resulting in a greater volume of services and attendant costs to correct the quality problem. For example, shorter hospital stays reduce costs, but a patient discharged from a hospital too quick, too sick, may lead to an avoidable readmission, resulting in an overall increase in cost.

In health care, cost and quality of care are inextricably connected. Healthcare cost containment efforts must focus not just on minimizing cost, but on balancing cost and quality to maximize “value.” From a patient’s perspective, value in health care is a positive outcome at a reasonable cost. Achieving value requires a means of judging provider quality outcome performance and quantifying the financial impact of outcome performance differences—essentially, a “language of value” that effectively links quality and cost.

Can a common language of value address issues of healthcare affordability, quality and cost? Lessons can be learned from the success of the Diagnosis Related Group (DRG) based Inpatient Prospective Payment System (IPPS). As noted in the original DRG research, a fundamental objective of the DRGs was “the ability to link medical and administrative decisions”[1] A major reason why IPPS had such a dramatic impact on hospital cost inflation[2] was that it proved to be an effective language that linked the clinical and financial aspects of hospital care, thereby facilitating effective communication between clinicians and hospital management. An operational measure of value based on quality outcomes can be just as effective.

Quality outcomes that link cost and quality can be referred to as Quality Outcome Performance Measures (QOPMs). From a clinical perspective, a positive outcome means that a medical intervention had the intended patient benefit. Clinical outcomes such as extended survival or improved function are not only difficult to define and measure, but also difficult to express in financial terms. An alternative is to evaluate delivery system performance using QOPMs associated with negative outcomes such as complications or readmissions. Delivery system ineffectiveness is an end manifestation of underlying quality problems. For example, poor hand sanitizing compliance causing avoidable infections is an underlying quality problem that leads to excess complications that have a direct impact on payments. From a delivery system perspective, a positive outcome means that the delivery system functioned as intended with no underlying quality problems.

Current Measures of Quality

Standards organizations have created thousands of clinical and delivery system quality measures. Unfortunately, most of these quality measures require tracking and reporting on the rate of adherence to specific processes, making quality measurement a complex administrative burden for providers. As a result, getting value can get lost in an overly complex attempt to measure value. Achieving good outcome performance, like low infection rates, requires providers to have effective processes in place (hand sanitizing compliance). Alternatively, measuring outcomes eliminates the need for detailed reporting of process adherence. A delivery system that is achieving positive performance on QOPMs, like avoidable complications and readmissions, is providing healthcare value.

Judging Provider Performance

To judge QOPM performance, a provider’s actual performance should be compared to the provider’s risk-adjusted expected performance based on achievable real-world benchmarks. The use of benchmarks for judging QOPM performance is essential because even the best performing providers who deliver optimal care will have a residual rate of negative quality outcomes. The benchmarks can be based on average national performance or based on the average performance of the best performing providers. The payment impact of a QOPM can be used as a means of quantifying QOPM performance in financial terms (e.g., average payment for a readmission). Furthermore, combining the payment impact of multiple QOPMs can provide an overall measure of performance (value).

QOPM Attributes

Inherent in the objective of maximizing value is the assumption that the QOPMs included in the measurement of value are under the control of healthcare providers and therefore potentially preventable. It would be neither fair nor clinically credible if the measure of value included QOPMs that healthcare providers had no reasonable ability to control or influence. For example, a hospital readmission due to a traffic accident should not be included in the QOPM for hospital readmissions.

Successful quality improvement efforts require behavior changes that typically mean changes to the culture of an organization. Quality improvement efforts are too often focused on a few isolated areas and fail to achieve substantial impact because organization-wide efforts are needed for cultural changes to occur. Therefore, QOPMs should be as comprehensive in scope as possible and not confined to a few isolated examples.

In addition, to being potentially preventable, clinically credible and comprehensive, QOPMs should be limited in number, should not impose an administrative burden to collect, have a substantial impact on payments and have a method for risk adjusting performance comparisons. The QOPMs should encompass quality outcomes from across the entire delivery system including inpatient (complications, readmissions), emergency department (avoidable post discharge emergency room visits and hospital admissions from the emergency department), same day surgery (post procedure complications) and post-acute care (avoidable discharges to a post-acute care facility). Positive performance on QOPMs is a measure of an effective delivery system that is producing value. In addition, the QOPMs can identify poor performing areas of the delivery system where quality improvement is needed.

Language of Value

QOPM performance can be the basis for integrating cost and quality into an operational means of measuring value. Because QOPMs are clinically credible and able to express performance differences in financial terms, they can serve as a uniform language of value. Regulators can use QOPMs to design value-based payment systems.[3] Healthcare providers can use the QOPMs for internal management. Payers and can use QOPMs in provider rate negotiations and establishing value-based incentive programs. Consumers can use QOPMs in selection of providers. The overall effectiveness of the delivery system will be enhanced by having a common language of value. With a common language of value that focuses on high impact outcomes where real quality improvement is possible, lower healthcare cost and better outcome quality performance can be achieved.

Richard Averill, MS, is a principal at The Hesperium Group and serves as senior healthcare policy advisor to 3M Health Information Systems.


[1] Thompson, J., Averill, R., Fetter, R., “Planning, Budgeting, and Controlling – One Look at the Future: Casemix Cost Accounting,” Health Services Research, Health Administration Press, The University of Michigan, Ann Arbor, Summer 1979.

[2] Russell, Manning. The Effects of Prospective Payment on Medicare Expenditures. The New England Journal of Medicine, 320(7), 1989.

[3] Averill, R., Hughes, J., Goldfield, N., “Paying for Outcomes, Not Performance: Lessons from the Medicare Inpatient Prospective Payment System”, The Joint Commission Journal on Quality and Patient Safety, 37(4):184-192, April 2011.