March 24

The Role of Value Analysis Teams in the World of Value-Based Purchasing


“The Hospital Value-Based Purchasing (VBP) Program, designed by the Centers for Medicare and Medicaid Services (CMS), adjusts what Medicare pays hospitals under the Inpatient Prospective Payment System (IPPS) based on the quality of inpatient care the hospitals provide to patients. For fiscal year (FY) 2019, the law requires that CMS reduce a portion of the base operating Diagnosis-Related Group (DRG) payment amounts otherwise applicable to a participating hospital for each discharge by two percent, and that the estimated sum total of these reductions be the amount redistributed to participating hospitals based on their performance on a previously-announced set of quality and cost measures. (CMS estimates) that the total amount available for value-based incentive payments in FY 2019 (to participating hospitals) will be approximately $1.9 billion” (, 2019). The American Hospital Association states that VBP affects payments for inpatient stays in more than 3,000 hospitals across the country. As you can see, this schema opens up a whole new world of reimbursement challenges for healthcare providers and requires a new holistic role for value analysis teams nationwide.

New World of Value-Based Purchasing

VBP incentive payments to your hospital(s) are not based only on cost reduction, but also on clinical care, safety, community engagement, and efficiency along your patients’ pathways. Each domain contributes 25% to your hospital’s VBP Total Performance Score to qualify for VBP payment adjustments. For instance, if your value analysis team is able reduce the purchase price of a $5,000 hip replacement by 10%, that’s only a $500.00 savings. However, if your value analysis team is able to reduce your patient’s hip replacement pathway or lifecycle cost of $45,000 by 10%, through improved efficiency and length of stay, this equates to a patient’s pathway cost savings of $4,500. Which savings calculation do you think will have a greater impact on your hospital’s bottom line?

Holistic Approach to Value Analysis

We teach our clients’ value analysis team leaders and members, in our three-day advanced value analysis training program, to use a new request for a product, service, or technology, or a new or renewal group purchasing contract, as a catalyst to look at the patient pathways where these commodities are employed. Why? Because as my hip replacement example demonstrates, there are more savings to be achieved in a patient pathway value analysis study than evaluating a standalone product, service, or technology.

This is exactly what happened when one of our 391-bed community hospital clients decided not to sign off on a new GPO wound care contract until they studied their patients’ pathways or the lifecycle cost of this commodity group. The result of this wound care value analysis study reduced this client hospital’s ulcer rate by 10% while reducing its wound care supply spend by $262,000 annually. This is the result of what a holistic approach to value analysis looks like. Doesn’t that make more sense to you?

The Value Analysis Game Has Changed Forever

If your value analysis teams are just evaluating new products, services, and technologies but not studying their patient pathways, you are only making a dent in your healthcare organization’s costs, quality, or outcomes. Only by having your value analysis teams study the total patient pathways of the products, services, and technologies you are buying can you receive the full benefit of your hospital’s VBP incentive payments. The next time you receive a new product, service, or technology request, or a new or renewal GPO contract to vet, remember that there are more savings, safety, and quality improvement opportunities available to your healthcare organization with the holistic value analysis approach to cost and quality management. 2019. Hospital Value-Based Purchasing.

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cost management, cost reduction, group purchasing, healthcare, healthcare organization, hospital, hospitals, Inpatient Prospective Payment System, reimbursement, savings, value analysis, value analysis training, value-based, value-based purchasing, VBP

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