Category Archives: Strategy

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The Valuation Process in Health Care

One of the reasons that the health care system in the US  has been incredibly difficult to administer is that it is influenced by many different and often disparate forces.  There are economic forces at work.  Is this an industry that can/should be managed strictly by free market economics?  Is the presence of the middle man (insurance companies) a necessity  There are social/political/moral forces at work.  Is health care a right or a privilege?  Does an advanced civilized society have an obligation to provide health care to every citizen or can it comfortably allow the less fortunate to suffer disease, disability and death?

All of these forces complicate the ability to actually place a value on health care and decide what health care should cost.  Don’t be fooled by any current valuation system.  With respect to physician reimbursement Medicare uses a formula known at the Physician Fee Schedule.  Almost half of the payment for a provided service is based on what is known as a work relative value unit or wRVU which in turn are part of the resource-based relative value scale or RBRVS.  However, relative is a relative word.  The relative in RBRVS is used to compare various services that are delivered by providers.  An example would be an office visit by a primary care provider vs a knee replacement by an orthopedic surgeon.  This does not address the true value of health care in society.  To really assess the economic value of health care services wouldn’t it be better to compare the office visit by a primary care provider to tickets to an NFL football game?  Or the knee replacement to the cost of a vacation?  So a more meaningful resource-based system would evaluate health care services relative to the resources in the entire economy.

Do the current middle men (insurance companies) in the system provide value or do they just add a complicated expense?  Some say that the impending health care reform is in reality health insurance reform.  The importance of insurance companies most likely arose in response to the inability or disinterest of providers to manage the economics of the industry.  Is is possible to develop a culture wherein physicians became responsible stewards of the resources so that the middle man becomes obsolete or at least less of an adversary to both patients and physicians?

This is not meant to be an arrogant rant on the importance of health care and the professions of medicine.  HCR believes that health care is a service that an advanced and civilized society can and should provide to all citizens.  A totally laissez-faire approach is not feasible in that a large segment of society is likely to be left without service.  HCR also believes that when we finally get it right we can do it in a way that meets the needs of all involved.  Idealistic over optimism?  We need to think big.