A Change in the Wind

I suspect many of us in this industry have been having the same types of conversations over the last three weeks.  Now that the Affordable Care Act (ACA) is moving forward, we all will continue what will certainly be a long journey towards changing the way healthcare does business.  Value-based purchasing, creation of accountable care organizations and national bundled payment pilots will force healthcare to strike the balance between cost and quality, without sacrificing either.

To me, this change in how we do business means that some of the truths we have always known need to be challenged.  For example, in the purchased services world many things are contracted on a fee for service basis, because that is how we’ve always done it.  Cost per square foot of snow removal for maintenance contracts.  Price per pound of laundry washed for outsourced linen departments.  Cost per stop for general third party couriers.

I read an interesting article recently in the Journal of Healthcare Contracting called “Performance-Based Purchased Services Contracts”.  The author, Robert T. Yokl, describes how healthcare must move away from transactional contracts because they encourage a vendor to act…like a vendor.  To provide a service at a low cost per transaction, but not to do anything to reduce transaction frequency or align the service with true need.  Vendors will simply provide as much service as requested.

In a performance-based model, such as the one we use with our customers, the service provider can form a long-term, value-adding relationship through mission and financial alignment. Keys  to this approach are non-transactional pricing models and other mechanisms that more broadly define value. The benefits of this type of contracting arrangement are numerous, and include: productivity, better quality and a reduction of overall cost (but not necessarily cost per transaction).  This type of relationship, irrespective of the lowest cost per transaction, is best suited to reduce waste and align service to true need, which often translates into the greatest value.

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