by Tom Robertson
Executive Director, Vizient Research Institute

I have no musical talent whatsoever. I could not, as they say, carry a tune in a bucket. But I thoroughly enjoy Broadway productions, in particular the old Rodgers and Hammerstein classics. One of my favorite show tunes is “Some Enchanted Evening” from South Pacific, in which Emile de Becque, a mysterious French plantation owner, contemplates meeting someone who will change his life. Another song from the same musical, “Happy Talk,” has none of the life-changing gravitas of the signature show stopper – it serves as more of a diversion. In contrast to sweeping strings and a rich baritone voice, its melody is almost jangly. In many ways, “Happy Talk” aptly describes much of the policy conversation surrounding efforts to slow the rate of increase in health care spending.

A term that has become ubiquitous over the past several years, and one that has the potential to confuse business strategy, is “the shift from volume to value.” The introduction of payment incentives linked to various measures of quality brought with it the terms “value-based payments” and “value-based purchasing.” Despite the fact that the new incentives accounted for only a small portion of the overall payment – typically less than the percentage of a restaurant bill represented by gratuities – enthusiasm for the use of the term “value” seemed to grow exponentially. It culminated in the commonly adopted belief that we were experiencing a fundamental “shift from volume to value.” Taken literally, the term asserts that volume is less important than it was before; in the extreme, it could imply that volume no longer matters at all. It’s not uncommon to hear people refer to value-based payments as replacing fee-for-service methodologies. It’s at that moment – when incremental incentives are confused with a wholesale shift away from fee-for-service payments – that our eyes are diverted from the road ahead and buzz words become dangerous.

Volume still drives revenue for health care providers. Health systems still worry about market share. Service line strategies are still anchored around growth. No one would be better off financially with markedly fewer patients. Ambulatory infrastructure with enormous fixed costs means that economic viability requires volume. When Medicare changed from cost reimbursement to prospective payment in the form of DRGs that was not the end of fee-for-service payments. The “service” was redefined as a hospital confinement rather than each component, but hospitals are still paid for each admission. Lengths of stay declined sharply as providers realized that throughput was essential in order to make room for the next patient – the next unit of service. If anything, the change to DRGs amounted to a shift from volume to more volume.

A review of claims data uncovered pervasive variation in care processes within health systems. Provider consolidation and system formation came with the promise of the right care at the right place at the right time. A closer look, however, found higher variation in resource consumption within health systems than exists between health systems. Had there been a real shift from volume to value in the way providers are paid, such intrasystem variation would have been difficult to accommodate. In large part, the persistent variation is a symptom of the lack of any shift away from volume. Health systems formed to protect or manage market share. The reality is that volume is every bit as important today as it was before anyone began talking about value.

The problem with waiting for payer systems to provide incentives for doing the right thing is that they rarely do. If we are to see a shift toward value, it’s unlikely to be away from volume. A more realistic aspiration is to urge providers to improve value because it’s the right thing to do, while acknowledging that volume will always matter. By being swept up in a wave of enthusiasm over an illusory “shift from volume to value,” we risk being wrong twice. Volume will continue to drive economics, and the payment system will not sufficiently reward value … we need providers to increase value intrinsically.

Joan Rivers was a witty, acerbic comic whose catch phrase “can we talk?” always led to an unvarnished look at the things we did. I have no musical aptitude, but I have a musician’s ear for economics. When I hear things that are economically out of tune, like a sharp or a flat note, it hurts my ears. Every time that I hear “the shift from volume to value,” I just want to say “can we talk?”

About the author and the Vizient Research Institute. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: November 12, 2019