The Goblin, The Cobbler, and The Elf: Value Based Care for Beginners

Being a healthcare and blockchain company, we get a lot of questions about what Valued Based Care is since that is the focus of our existing product, ConnectingCare.

I have a secret I want to share though: Value Based Care is far from complex. In fact, it is so elegantly simple it’s a little scary it’s just now picking up momentum in healthcare. I wouldn’t be true to my colors as a Yale MBA if I didn’t explain it with some kind of market metaphor…but I wouldn’t be true to my colors as a former teacher I didn’t make this metaphor a little silly. So… allow me to tell you a story I am calling: The Goblin, The Cobbler and The Elf.

The Goblin, The Cobbler, and The Elf: A ConnectingCare Story

In a town there was a Cobbler. In the town where the Cobbler lived, people’s shoes were constantly needing repair. When people came to ask him to fix their shoes, the cost would vary wildly. Sometimes it would cost quite a lot, creating problems for the townspeople. Additionally, the Cobbler seemed to rush through all his fixes. Sometimes this would be okay, but often times the townspeople would have to return to get the shoes fixed a second or third time.

One day the townsfolk asked the Cobbler why his cost changed so much. And why didn’t he take more time speaking with the shoe owner to make sure each shoe was fixed the best way possible.

The Cobbler broke down in to tears. He loved fixing shoes and helping people but he was under the control of a Goblin. You see, even though the Cobbler owned his own shop, all of his finances were run by a Goblin and the Goblin only paid the Cobbler for the amount of shoes he fixed. The Goblin forced the Cobbler to fix more and more shoes, so it didn’t matter to the Goblin if the Cobbler fixed the shoes correctly; in fact, the Goblin got paid more if the shoes weren’t fixed correctly because each additional repair cost too. The Cobbler was getting weary and was very sad.

Break from the story.

This is what has been going on in healthcare and is known as “Fee for Service.” A doctor’s payment is tied to the number of patients they see and procedures they do. The quality and the cost don’t factor in.

Return to story.

One day an Elf came to the Cobbler and said he had devised a new system which would give the Cobbler freedom from the Goblin. The Cobbler was excited to hear what the Elf had in mind:

The Cobbler wouldn’t be evaluated based on how many shoes he fixed, but on how well he fixed them. The Elf explained that this would be better for people’s individual shoes, which would mean less people would have to visit the Cobbler, and it would actually cost less. The Elf told him that the price for fixing shoes would be 25 coins. If the the Cobbler could fix the shoes for less than 25 coins(using less material, etc.), he could keep the savings, or give the townspeople a refund.

But the Elf gave a warning: If the Cobbler spent more on the shoes than 25 coins or did a bad job he would have to redo, the Cobbler would have to pay for everything above 25 coins himself.

The Cobbler agreed and the Elf banished the Goblin. The Cobbler found that he could now devote more time to listening to what was wrong with people’s shoes. This meant people had to return to the Cobbler less frequently, and he was actually able to reduce how much it cost him to fix people’s shoes. The Cobbler found his joy of fixing shoes again and the people rejoiced.

To be continued….

Healthcare Application

Value Based Care is, very simply, connecting healthcare payments to the quality of a patient’s care. There are many aspects of quality but it includes making sure patients aren’t readmitted to the hospital, and that care doesn’t become unnecessarily expensive.

This means physicians have the incentive to provide the right and best care to each patient. One example is a hip replacement. The cost of a hip replacement in an average Value Based Care model is roughly $25,000. If the doctor provides great and appropriate care, she/he can earn and keep those savings or even share them with the patient. If they do a poor job, however, and the result is an infection or hospital readmission, the doctor is penalized.

It’s a great system. Early models have shown a reduction in cost and an improvement in outcomes.

This new system has its own perils however: Remember the Elf’s warning? This is where ConnectingCare comes in.

You will hear about it in a future installment of the ConnectingCare saga. Stay tuned!