If clinical quality has value, shouldn’t it have a valuation?

By

EY Global

Multidisciplinary professional services organization

4 minute read 10 Jul 2018
Related topics Life Sciences Health

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We explore the criticality of identifying how quality fits in with its other assets.

Providers have long recognized their individual and collective responsibility to offer highly reliable, safe care that meets the holistic needs of patients. Provider systems understand that they need to deliver high-quality, cost-effective care to be viable long term.

But it is not all clear that clinical quality has been properly considered as a determinant in M&A transactions, even at a time when a great deal of market activity is focused on quality and costs. It is crucial to identify how quality fits in with its other assets, particularly in a valuation scenario.

The health sector is being disrupted by a number of forces that threaten sustainability and elevate the importance of quality. As a society, we are aging and our care has become more complex. By 2060, nearly one in four Americans will be over age 65 (up from 15% in 2015) and the number of people with multiple chronic conditions is projected to double by 2060.

These two trends are creating unsustainable increases in cost, squeezing out other priorities and opportunities for investment. As the industry continues to shift from volume to value, reimbursement is moving away from fee-for-service to value-based care. This introduces new risks to revenue.

Under the Centers for Medicare and Medicaid (CMS) Quality Strategy, there are incentives and penalties linked to quality performance, which have direct impacts on an organization’s revenue and bottom line; Commercial payers are not far behind, with companies like Aetna, Cigna and certain BlueCross BlueShield plans diving in.

In value-driven care, it’s important to know what your risk exposure is, and where additional investment can move the needle and realistically turn that around.

Investing in patient safety and clinical quality has a price, but it is smaller than the price of not addressing them directly. The EY Clinical Quality Valuation Tool helps hospitals understand their quality risks or strengths (see inset). CQVT includes standardizing capabilities and diagnostics that can quantify where problem areas are. CQVT works in tandem with a qualitative assessment methodology, based on principles of high-reliability organizing from Johns Hopkins Armstrong Institute for Patient Safety and Quality, with whom we work closely through a strategic collaboration.

Why is understanding the value of clinical quality a benefit to organizations?

For one thing, it identifies opportunities for improvement initiatives for quality and patient safety. This includes important safety indicators like hospital readmission and infection rates, but also revenue risk, cost analyses and an idea of the ROI for investments in improvement.

For another, it helps identify risk points and strengths in a transaction scenario, both from revenue and operational perspectives. An unbiased assessment of clinical quality risk can result in a commensurate premium/discount. The high-reliability methodology, as part of the qualitative assessment, helps shed light on stability of quality performance in order to determine a proper, holistic valuation.

Quality valuation should be an ever present analysis — to understand where your organization is, and how your approach to clinical quality affects your market value. Linking quantitative and qualitative results is an important part of this analysis.

There is a moral imperative to provide the best quality care possible for patients, and the pursuit of improving the delivery of value-driven care helps to fulfill that obligation. At EY, our mission is to build a better working world. We, along with our clients and colleagues in the health sector, believe that healthy societies are a key part of that goal. And it’s truly a win-win: improving patient safety and quality also improves organizational value. An organizational focus on preventable harm has been shown to decrease the length of stay, reduce post-surgical infection and decrease variability in direct costs.

A safety-driven culture also results in higher employee satisfaction. Understanding how your organization approaches clinical quality, and how it compares to the competitors in the market place is essential for understanding every provider and hospital system’s value.

EY Clinical Quality Valuation Tool

The EY Clinical Quality Valuation Tool (CQVT) utilizes a proprietary, quantitative approach and works in tandem with a qualitative assessment methodology based on principles of high-reliability organizing that comes from research conducted by Johns Hopkins Armstrong Institute for Patient Safety and Quality. The qualitative assessment evaluates an organization’s maturity across five components of high-reliability organizing.

The EY Clinical Quality Valuation Tool helps:

  • Create a framework by which management can evaluate which investments in quality improvement will produce the most value, in a manageable timeframe, including the feasibility of introducing a fix, the yield benefit and timeframe of potential results
  • Identify problem areas and opportunities
  • Quantify and prioritize investment opportunities
  • Provide a holistic view of the organization, so that operational/process support is custom fitThis approach provides a clear road map to enhancing quality, safety and value by defining specific improvement investments, identifying areas of greatest risk and prioritizing those initiatives that will have the greatest impact on valuation.

About the EY — Johns Hopkins Medicine Collaboration

The EY-Johns Hopkins Alliance is a strategic collaboration that helps providers avoid preventable harms, manage risks and improve operation efficiency. This supports effective care with positive, sustainable and measureable results.

Summary

Understanding how your organization approaches clinical quality, and how it compares to the competitors in the market place is essential for understanding value.

About this article

By

EY Global

Multidisciplinary professional services organization

Related topics Life Sciences Health