the FUTURE of VALUE-BASED CARE is in the hands of EARLY STAGE ENTREPRENEURS
a strong value proposition starts with identifying the right market-product fit
SEPTEMBER 2022
by Sanchita Pasi
Healthcare ecosystems in the United States and in Europe are accelerating their efforts to complete the transition to value-based care, and startups are supporting this colossal shift. Two organizations, EIT Health (European Institute of Innovation and Technology) and ICHOM (International Consortium for Health Outcomes Measurement), have advanced frameworks to measure patient-centered outcomes that support implementation. Some of our very own portfolio companies are trailblazing this transformation by leveraging data and advanced analytics.
Despite the concept has been around much earlier, the term “value-based care” has broadly been adopted by all healthcare industry players only since 2006, when Michael Porter and Elizabeth Olmsted Teisberg used this term in their book Redefining Health Care to prescribe a shift in managing competition amongst healthcare players, from gaining cost advantage and bargaining power to delivering higher value for the patient over the full care cycle.
Historically, medical providers have been rewarded for volume and amount of care provided, instead of outcomes of the care delivery from a patient’s perspective, in a model called fee-for-service of which the United States is exemplary. Here, manufacturers have been focused on volume-based pricing strategies (at the expense of a tighter focus on benefits provided to patients). Given an abundance of technology solutions, providers and physicians have more access to expensive or potentially redundant diagnostics and treatments compared to colleagues in other countries — and in a system where they are reimbursed directly for service volume, they are essentially encouraged to make more use of diagnostic and treatment services, even if the related health improvement is marginal at best. And with healthcare insurance to (historically) shield patients from the actual cost of care, with neither incentives nor information to do so, why should patients limit the use of expensive resources either? They do not.
“The realization that spending should be contained has led to the concept and promotion of outcomes-oriented and value-based care. From a clinical perspective, new healthcare services and products should improve health outcomes relative to their incremental cost. From a health-economic perspective, the value of a healthcare service or product is the additional cost incurred by the service or product relative to the improvement in health outcomes the care offers. From a health-economic perspective, the value of a healthcare service or product is the additional cost incurred by the service or product relative to the improvement in health outcomes the care offers.” ~ Jan B. Pietzsch, Byers Center for Biodesign, Journal of Medical Devices JUNE 2019, Vol. 13
Porter and Teirberg recommended a framework that clearly outlines the conjoint goal for all industry stakeholders to keep the focus on value, or health outcome for patients per dollar spent, for patients as a means to gain unrestricted competition based on outcomes rather than costs. A crucial aspect of this proposal was a multi-stakeholder approach and an organizational change that compensated the provider for delivering value to all patients.
“The way to transform health care is to realign competition with value for patients. Value in health care is the health outcome per dollar of cost expended. If all system participants have to compete on value, value will improve dramatically.” ~ Michael E. Porter, Redefining Health Care: Creating Value-Based Competition on Results
The first value-based model was implemented in the United States: the Patient-Centered Medical Home (PCMH) was introduced by the American Academy of Pediatrics in 1967. PCHM aimed to improve the quality of primary care and patient outcomes, which would result in lower healthcare costs. In addition, they managed to identify a fundamental crux of the new model: a multi-stakeholder approach was designed to maximize the value delivery. As different stakeholders perceive costs and benefits differently, aligning individual, often conflicting drivers to one single goal guarantees the highest form of commitment to redefining value in terms of the aggregate impact on society, rather than meeting personal goals.
Today, almost all major healthcare systems have committed to work towards adopting this delivery model in which providers and healthcare professionals are paid based on value, rather than volume.
THE DEVIL IS IN THE DETAILS
This all sounds really amazing, however.
value: what is it, exactly?
Cambridge definition: the amount of money that can be received for something.
This seems straightforward, but from whose perspective? Money received by the physician? the provider? the manufacturer? Or money invested by the patient? And what about insurers’ money?
Also, what is “something”? What outcome should we be focused on measuring?
The EIT Implementation guide for value-based care has addressed the wide lack of clarity of the term “value” and created a framework for all players to identify the true meaning of outcomes vs cost from the perspective of the patient.
The definition of value in health care is outcomes that matter to patients divided by the cost to achieve these outcomes. — EIT Health, Implementing Value-Based Health Care in Europe: Handbook for Pioneers (Director: Gregory Katz), 2020.
By following this principle, the definition can be translated into the form of a mathematical equation allowing every layman to understand which lever drives “value: the numerator (outcomes) designates condition-specific results that matter most to patients (functional recovery, quality of life); whereas the denominator (cost) applies to the total spending for the full cycle of care delivery.
It is equally important to underline the outcomes that are referred to and measured across the entirety of the patient care continuum, from primary to tertiary care including post-intervention care for every condition. Given the lack of transparency and standards on outcomes measurement, the International Consortium for Health Outcomes Measurement ICHOM has chosen to address this gap in the health systems. Their purpose is to support providers, payers, and industry players by measuring outcomes, creating standards for every condition, and guiding through implementation.
“Doctors think about prostate cancer in terms of PSA levels. The average patient doesn’t. That’s why we need to change how we evaluate and talk to patients about their health.” — Michael Porter, ICHOM
why measure outcomes?
To measure is to know. What you cannot measure, you cannot improve.
Measuring outcomes in the health spectrum allows us to learn gaps in efficiencies for current standards of care and improve performance and patient care. Patient Reported Outcomes (PROs) are the missing link that bridges the gap between measuring outcomes that really matter to patients by allowing patients to report directly on their condition and not requiring a clinician’s interpretation. In the emerging team-based approach to delivering care, especially in cardiovascular and oncology, PROs enable longitudinal monitoring of treatment efficacy and psychological status of patients for all providers to use. Electronic systems allow for decentralized care and true remote patient care, especially to carry out clinical trials. There is growing international interest in integrating electronic PROs into routine practice as digital therapeutics.
Patient-Reported Outcomes (PROs) are defined by the National Quality Forum as “any report of the status of a patient’s health condition that comes directly from the patient, without interpretation of the patient’s response by a clinician or anyone else.”
For example, by comparing two hospitals intervening on prostate cancer, the typical outcomes measured by providers and payers are mortality rates, length of hospital stay, and/or readmissions, and the hospitals might be equivalent just based on these outcomes. By measuring outcomes that actually affect the patient’s physical and mental state, like impotence and incontinence, we might see high variations in the quality of care that directly affect the cost of care.
show me the money!
In estimating the total cost, all steps of the continuum of care should be taken into account, beginning with prevention, leading to a diagnosis, and continuing through recovery or stabilization of a chronic condition. Value-positive innovations take into account spending around the technology use and not just the procedure or other care activity as a standalone event — and, across the entire care cycle: from primary to secondary to tertiary care.
Since VBC’s core proposition is to maximize outcomes per dollar spent, the “cost” denominator of the value equation can bear a lot of resemblance to a well-established methodology that is cost-effectiveness analysis (CEA). CEA provides a framework from the perspective of society and the healthcare system to compare the relative value of different diagnostics and treatment interventions: for example, health economics most frequently uses the quality-adjusted life years (QALY) as a metric that provides a combined assessment of life expectancy and quality of life during that lifetime.
For instance, in patients with acute coronary syndrome, a CEA comparing ticagrelor plus aspirin versus clopidogrel plus aspirin showed that the ICER for ticagrelor plus aspirin is approximately
$30,000 per QALY gained, which would be considered efficient use of resources. For an individual patient, however, out-of-pocket costs for ticagrelor can be incredibly high, resulting in decreased medication adherence, features that are not consistent with VBHC.
For entrepreneurs, translating the benefits into a revenue stream requires understanding economic barriers and driving incentive systems at provider and payer levels. A necessary task for entrepreneurs in the health sector is to prepare for the barrier of “perceived budget constraint” in the face of uncertainty around new technology. A common way for entrepreneurs to incentivize early adoption at both payer and provider levels is to adopt risk-sharing payment models to accelerate market access, and help achieve competitive differentiation as this requires the sales strategy to focus on clinical quality rather than cost. Historically, financial arrangements favored volume-based rebates, also called fee-for-service, where reimbursement is assigned based on what service a healthcare provider provides. Within value-based care, reimbursement is contingent upon the quality of care provided, therefore risk-sharing contracts deploy an outcomes-based payment model: fee for performance.
In summary, the definitions of patient-centered outcomes and costs are critical to aligning on as any value-based care initiative is set, specifically within procurement. While this is far from easy, the discourse and exercise have proven to be useful tools to guide decision-making about healthcare resource allocation and are increasingly used in healthcare systems to inform decisions for new technologies.
IMPLICATIONS FOR HEALTH TECHNOLOGY ENTREPRENEURS
New technologies constitute an essential cost driver in healthcare and entrepreneurs play a massive role in making the right decisions at the early stages of development and developing the right value proposition to drive technology regulatory approval, user adoption, reimbursement and commercialization, and patient care.
Entrepreneurs and capital investors hold a strategic responsibility in the medical context as they can define the standards to which technology should adhere in order to increase early adoption and reduce commercial risks. This is done by building a value proposition that responds to the needs of all stakeholders. Most entrepreneurs have historically focused on building technology and then find a clinical need to fit their innovation. This has been at the crux of the majority of failed ventures in the healthcare, and medical device space especially. Most startups fail to recognize that in order to minimize the regulatory and adoption risk, it is more efficient to build technologies to meet specific, unmet healthcare needs with a clear value proposition on how the solution addresses a clinical need.
This philosophy is behind the Biodesign process, a methodology born, practiced, and taught at Stanford Byers Center for Biodesign, which focuses on deeply understanding healthcare stakeholders’ needs as a path to health technology innovation. In its purest form, the process starts with the identification of important unmet health needs, by directly observing the full cycle of care from diagnosis and treatment to recovery and billing. Next, Biodesigners begin to invent: they brainstorm potential solutions for each of their top needs, organize their ideas and objectively compare them against key criteria for satisfying the needs. Failures emerge early and iteration can lead to better solutions. The best solutions emerge by researching everything from intellectual property issues and business models to reimbursement and regulatory pathways, in a “survival of the fittest” type of strategy that leaves only a few solutions worthy of generating an invention and a plan for execution prototyping (including an approach to evidence generation, patenting, regulatory approval, and reimbursement, charting the market potential for the innovation, and exploring sources of funding). This process is also at the core of how we go about finding and selecting the best startups for us to invest in.
“A well-characterized need is the DNA of a great invention.” ~ Paul Yock, Founder of the Stanford Byers Center for Biodesign.
Another way to minimize capital expenditure on long and complex R&D is de-prioritizing user feedback at the right stage. Most ventures gather user feedback (beyond clinician) long after their key R&D activities take place and face significant commercialization challenges. Finding product-market fit, or rather market-product fit, in healthcare ventures requires working backward from the end and being problem-focused rather than solution-focused. Some helpful steps to define the problem you are targeting:
- WHO is affected by the problem (patients, payers, providers). Starting with quantifying the affected patient population (prevalence, incidence) is a common framework, but it might be worthy to understand (and potentially quantify) the effect of not addressing the problem at the provider and payer levels. This can more frequently be done by starting with analyzing the whole patient pathway and clinical workflow and identifying gaps in efficiency.
- WHO would use the solution? A critical element to consider in the healthcare market is that the user journey might differ largely between the physician prescribing the technology (or using it him/herself) vs the patient benefiting from the problem.
- WHO would pay for the solution and why? As part of the business model definition, the revenue model is strictly correlated with understanding not only who benefits most from the technology but also who would be willing to pay. Within the payment structure, it is crucial to identify payers´ and providers’ needs and drivers: public and private payers have different payment systems and metrics that influence their willingness to pay for innovative technology. A common but loosely understood concept is reimbursement. In Europe, reimbursement is country-specific and follows a clinical evidence pyramid (with case reports providing the lowest quality of clinical evidence, randomized clinical trials, and meta-analyses providing the highest quality) and demonstration of economic value (cost vs outcomes). Early investment in reimbursement analysis and planning might seem a luxury but it can be a game-changer and a true competitive advantage for early-stage startups. Tip: VCs really care about de-risking of early-stage ventures, and reimbursement is one of the most critical elements that can take the risk out of the investment!
- WHY is it a problem and WHY has a solution not been found yet? Is it a lack of innovation, lack of incentives, or lack of clinical standardization?
- HOW is the problem managed today? Understanding the status quo requires a deeper look into current clinical guidelines which are usually set by clinical associations like the European Society of Cardiology or the American Academy of Neurology. Mass adoption of technologies follows the development and reiteration of these guidelines. For example, in 2019 adoption of diagnostics for Coronary Microvascular Dysfunction (CMD) increased massively as the ESC guidelines integrated the recommendation of intracoronary microvascular assessment in patients with angina and No Obstructive Coronary Arterial dysfunction (NOCAD) as a class IIa recommendation9. This milestone required years of development of the clinical understanding of CMD and innovation at equal speed to build the clinical validation behind early diagnosis and treatment alternatives.
Our call to action…
This is complicated, we agree!
However, you cannot postpone this part — especially economics. Understanding this complexity and how to navigate it successfully is challenging, but will make the company stronger. It is best to eliminate this risk early on — and if the economics just does not work out, well, it’s best to know before you waste years of your life on something that will simply not be sustainable enough to ultimately solve the need at hand! There are plenty of other unmet needs upon which to build new technology innovations and businesses.
If you do it it makes life easier for capital investment, especially from us — call to action! We care about this stuff! We are much more impressed by a nimble team who truly gets this, than by a fancy gadget that feels like the proverbial hammer looking for a nail.
Did I mention that this is complicated? — brace yourself as more info will be shared in the next post on how our portfolio companies are tackling these aspects in various ways to push for the health ecosystem to accelerate the implementation of patient-focused and value-based care.
Sanchita Pasi
Additional sources:
- Porter, M., Redefining Health Care: Creating value-based competition on results
- Institute of Medicine (US) Roundtable on Value & Science-Driven Health Care; Yong PL, et al.. Value in Health Care: Accounting for Cost, Quality, Safety, Outcomes, and Innovation. Washington (DC): National Academies Press (US); 2010. 2, Stakeholder Perspectives on Value.
- Porter, M., What is Value in Health N Engl J Med 2010; 363:2477–2481
- Cowper PA, et al. Economic analysis of ticagrelor therapy from a U.S. perspective: results from the PLATO study. J Am Coll Cardiol. 2015;65: 465–76.
- Knuuti J, et al.; ESC Scientific Document Group. 2019 ESC Guidelines for the diagnosis and management of chronic coronary syndromes. Eur Heart J. 2020; 41:407–477.
- EIT Health, Implementing Value-Based Health Care in Europe: Handbook for Pioneers (Director: Gregory Katz), 2020.
