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At this point, Pathstone Partners has covered all the topics in our value lever series. In this last article we will round out the series and provide a framework to help health systems prioritize and select the appropriate value levers for any given category.
Pathstone believes taking a holistic approach will allow health systems to maximize and sustain value over the short and long-term. To achieve this, Pathstone recommends health systems take a three-prong approach (“Value Lever Prioritization”) to prioritize and select value levers for the given product or service category:
The initial step in prioritizing value levers is to understand and align with internal priorities and capabilities. Understanding your organization’s specific goals, urgencies, and skills will help determine the value levers you will prioritize. Below are key characteristics to review:
1) Goals & Objectives: What is your organization striving to achieve?
Below are common goals with Pathstone clients:
a) Improved profitability (Increased Revenue / Reduction in Costs
b) Enhanced quality of products/services
c) Standardization or reduction in variation
Many organizations may even have more specific, focused goals such as:
a) Achieve X% profit margin
b) Reduce readmission rates from hospital acquired infections by X%
2) Category Addressed: Which product or service category are you trying to impact? How does that category appear across the system?
Often, variation in the current state of a category across a hospital system can impact the value levers that can be explored. For example, let’s assume you are evaluating the make vs. buy value lever for dialysis services that are currently under a mix of in-house and outsourced models. You are analyzing the possibility of fully outsourcing or in-sourcing. Due to the comprehensive nature of the make vs. buy analysis, the ability exists to roll in evaluations of the pricing and standardization value levers within that same analysis. However, whether or not a “one size fits all” approach is appropriate will need to be closely considered in these circumstances due to the unique factors of each hospital.
3) Timeline: What timeline do you have to achieve these goals? Are there urgent deadlines in place, such as budgeting for a new fiscal year, that need to be kept in mind?
Allowing extra time for unforeseen circumstances should be considered because unexpected events often occur during the course of a project – a resource issue, a stakeholder request, a delay, etc.
4) Resources: What level of resources do you have available to support the initiative? Furthermore, what available knowledge and skill sets does your team possess to be successful?
It’s critical to try and understand if you have any resource gaps up front so that you can mitigate those impacts. Projects often require skills and additional resources that can be acquired via contract work or third-party consulting firms. Successfully incorporating these resources into projects can drive significant value worth the investment.
The next step in prioritizing value levers is understanding the characteristics of each and alignment with the organizational priorities. The characteristics typically include:
Below is an exhibit that reflects the relative characteristics of each value lever. While each value lever’s characteristics may vary depending on the category addressed, the exhibit provides a general guideline of what to expect when prioritizing these levers.
In the illustration below, it’s important to note that as each value lever gets farther from the origin the more transformative in nature it is. This means that the benefit achieved from those transformation value levers often addresses the benefit associated with the value levers that come before it (i.e. Strategic Alliances often address the benefit associated with Pricing and/or Utilization).
Value Lever Characteristics
Once you have evaluated the categories in terms of the value levers, it’s now time to synthesize the key information evaluated into an initiative proposal. Documenting the key elements of the initiative will help leadership swiftly approve and further prioritize initiatives across the organization.
Below are a few examples of information that are typically included in an initiative proposal:
Leadership teams will often look at the initiative proposals through the lens of “what are the current and future priorities of the organization”, and “do they align?” This is just one of the reasons why understanding the organizational goals and priorities at the start of the process is important, and will be further examined in our next series.
Value Lever Prioritization Summary
Evaluating all the value levers provides a comprehensive approach to cost savings. Furthermore, the results achieved through the value lever methodology promote sustainable benefit for your organization. Below is a visualization outlining the three-pronged approach for “Value Lever Prioritization” and a high-level case study utilizing this approach with our client.
This article was authored by Joseph Jang. Joseph is a management consultant with expertise in healthcare supply chain, non-labor cost reduction and performance improvement at Pathstone Partners.
