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With all the focus on value-based care it’s interesting that there is no single definition of value.  In trying to reduce the definition for healthcare to a formula there is general agreement that the denominator of value is cost. Various numerator definitions attempt to describe benefit.  A quick search on the internet reveals  numerators ranging from simply “quality” to “quality +service + access.” Beyond this variation there’s no standard definition of quality, service or access.  For that matter there is inconsistency in defining cost as price vs. the overall impact on costs.  

Clarifying this concept of value in healthcare is increasingly important as providers face the challenge of entering into a variety of value based contracts that embody inconsistent definitions of value. This issue is particularly important as health plans and providers consider the adoption and dissemination of new technologies.   While quantitative estimates vary from 25-75%, there is general agreement that new technology is a major driver of overall medical cost trend.1

Let’s assume that the value of a new technology involves an estimate of its incremental benefit divided by an estimate of its impact on overall costs.  The difficulty of calculating the cost is evident in the wide range of estimates just cited regarding the overall cost impact of new technology.  This variation is a reflection of the multiple and complex ways that technology can impact overall costs.  It may substitute for an existing service; expand the number of treatable conditions; enable more aggressive treatments; intensify the use of technology for the same condition; drive changes in operational efficiencies that impact health system capacity; broaden the definition of diseases; or extend life, for which each patient induces additional years of health care consumption.2

Depending on how the individual innovation is priced and integrated into care, each of these types of impacts can put upward or downward pressure on overall medical costs. Furthermore, it’s very possible that a new technology will increase costs in the short run but reduce them over time, or vice versa.  When Sovaldi was introduced six years ago for the treatment of hepatitis C, it dramatically increased short term cost trends, but held the promise of reducing long term costs by removing the need for future liver transplants. On the other hand, introduction of laparoscopic cholecystectomies reduced the cost of this procedure initially but increased overall costs in the long run by expanding the number of people undergoing the procedure.  Of course, each of these innovations created benefit independent of their cost implications.

At a high level it’s easy to see that some innovations, such as the Polio vaccine offered huge value, being low cost and preventing significant mortality and lifelong morbidity.  It’s also fairly clear that the introduction of Nexium, differing from Prilosec only in that it is a single isomer of omeprazole,  offered little, if any, value.  That said, most technical innovations in health care fall between these extremes. 

So how do we sift through all of this complexity? That’s exactly the challenge that Dr. Steven Pearson took on in founding the Institute for Clinical and Economic Review (ICER) in 2006. It was established as, “an independent and non-partisan research organization that objectively evaluates the clinical and economic value of prescription drugs, medical tests, and other health care and health care delivery innovations.”3 The idea was to create a transparent and evolving process that incorporates scientific evidence, patient preferences, economic analysis, and both long and short term benefit to quantify the incremental value of new healthcare technologies.  While the process goes through a three year cycle of review and updating, the current approach represents a robust methodology reflecting the input of all relevant stakeholders.  It  incorporates clinical effectiveness, cost-effectiveness, patient preferences, long and short term economic analysis, as well as contextual considerations which incorporate impact on different stakeholders such as health technology companies, hospitals, doctors, health plans, and communities.  Their goal is to identify a fair price that drives fair access and supports future innovation.4

As providers and payers continue their journey toward value based care developing a deeper common understanding of value will be critical to ensuring this current popular concept evolves into a sustainable framework for achieving the quadruple aim. 


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Dr Lustick

Dr. Martin Lustick

Senior Vice President, NextGen Advisors

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care.

Dr. Lustick earned a BA in History from Cornell and an MD from Columbia. After completing his pediatric residency at Children’s Hospital National Medical Center in Washington, DC, he was in clinical practice for 17 years with Kaiser Permanente of the Mid-Atlantic States. While there, Dr. Lustick held various management and leadership roles, including chief operating officer for the 800-physician medical group. He oversaw development of their hospitalist program, population health capability, and open access delivery model.

Dr. Lustick then served as chief medical officer for ThompsonHealth—a small health system in Canandaigua, NY—where he provided clinical oversight for hospital, SNF, nursing home, IT, and out-patient physician practices.

In 2005, Dr. Lustick assumed the role of SVP & CMO for Excellus BCBS which covers 1.6 million lives comprised of Medicare, Commercial, and Medicaid. In his 13+ year tenure there he led a variety of strategic initiatives, including a patient-centered medical home program which served as the foundation for the plan’s value-based payment strategy. He also led the implementation of an automated authorization program for care management services, development of a clinical quality improvement strategy, and creation of innovative programs in management of low back pain, screening and prevention, opioid addiction, and chronic disease management.

Dr. Lustick has also been very active in the community, serving on boards and committees confronting issues such as: healthcare capacity planning, Health Information Exchange, mental health, substance use disorders, social determinants of health, and childhood obesity.