I tweet a lot about the important difference between price transparency and cost transparency. (I was a premed-accounting major…) A couple years ago lots of folks talked of cost transparency, when, in my opinion, they really meant price transparency. I kept corrected people. I eventually gave up. Though I should note that most of the time I see price transparency correctly used now. But it got me thinking about the relation among price, cost, quality, and value on one hand, and my favorite subjects, workflow and process.
Usually one starts with an outline. However, in this case, there is diagram, which I explain, in detail, later, which shows how everything fits together: price, cost, quality, value, workflow, and process.
Here is some background. What do people usually mean by workflow and process? Systems thinking is all the rage in healthcare. What is the relation among systems, workflows, and processes, at least to this systems engineer…?
Productivity 101. Economists usually speak of labor productivity, but it is a more general notion that that. It is simply outputs divided by inputs. To double productivity means to double the output due to the same level of input, or to maintain the same level of output while cutting input in half,… and so on. I’m sure you get the basic idea. It is similar, by analogy, to amplification in electronic circuitry. Your radio takes a very week radio signal and turns it into a very loud audio signal. Highly productive systems, organizations, economies, workers, can do a lot with only a little.
This is perhaps the meatiest slide of the slide deck, and therefor requiring the most explanation.
The basic point of this slide was simply to translate a general systems engineering idea into a healthcare systems engineering idea. Price and cost are inputs to a “service line”, a bundle of workflows and processes necessary to provide a specific healthcare product or service. Think, the price, versus the cost, of a hospital procedure, such as an appendectomy. The price is set by market and/or regulatory forces. The cost is the expense to the hospital. This expense depends on the costs to the hospital of labor, consumables, durables, rent, etc. These costs also depend on prices in markets, but from the point of view to THIS organizations, they are costs. (Just as the prices the hospital charges are costs to patient and/or payers.) I know it is confusing. They are the same. And they are NOT the same. From the point of view of the healthcare organizations, the difference between price and cost is retained by the organization as profit (in the for-profit instance) or surplus (in the non-profit instance).
— Charles Webster, MD (@wareFLO) May 16, 2016
Firms use internal cost information to set prices. In general, they charge what a market will bear, unless constrained by regulations. However, if they cannot charge at least as much as their known true costs, in the long run, they will go out of business, leave the market, drop that service line, or figure out how to perform the workflows more inexpensively.
Quality is the degree to which a workflow and/or process fits the purpose of the workflow, that is, satisfy the goals of the workflow. Quality exists irrespective of price. However, value is a relationship between quality and price. In principle, if you know price and you know quality, then you know value, so transparency with respect the price and quality should be sufficient for transparency with respect to value. (I’m sure it’s more complicated… but I’ve got to make some simplifying assumptions somewhere, otherwise this whole hot mess is simply too complicated to think about at all!)
If you are providing me a product or services, why should I care how you do it? As long as the price and quality are right, I should like to view you as a “black box”, right? The problem is that healthcare workflows are so complicated, and they meander over and through so many healthcare, and health IT, systems, it’s getting harder and hard to figure out where to draw the boundaries between black boxes.
In fact, a big, big trend in business today is to take your back-office and enterprise workflows and processes and make them into front-office self-serve workflows and processes. Millennials don’t want to deal with you face-to-face, by phone, or through email. Just give them an app, so they can check the status of something, cancel something, or to modify some workflow or process, in real-time, to their satisfaction and convenience.
The only technology that can manage these, previously blackbox-enclosed, workflows is workflow technology. It models the workflows (sequences of smaller black boxes, called activities or tasks). It executes the workflows. It makes the workflows available, at scale, to folks outside the black box. They can make blackboxes transparent, at least regarding workflow, but that is actually a really big deal.
I need to work on this slide some more. The basic thing I’m trying to convey is that the route to making a service line, and entire bundle of workflows and processes, transparent in operation, is to break up the blackbox into smaller, interacting black boxes. In workflow management and business process management parlance, these are activities, tasks, steps, etc. They have inputs and outputs to each other. They cause things to happen to a patient, and they receive actions from a patient. They drive costs and provide information for the firm. What keeps all the ducks in a row? Workflow engines, which are single most defining architectural feature of workflow management and business process management systems.
Above is a typical list of features and advantages of process transparency. In a 2015 five-part series published in Healthcare IT News I wrote at length about task and workflow interoperability. I was writing about healthcare B2B task and workflow interoperability, not C2B (customer to business) or B2C (business to customer) interoperability/visibility/transparency. However the general principles hold for all three combinations. (Though one does wonder, what might C2C interoperability/visibility/transparency mean for healthcare…. for perhaps patient family members and bird-of-a-feather disease-centered support communities and support groups.)
This is what wrote about task visibility (transparency)…
This is what I wrote about workflow visibility (transparency)…
OK! We covered price, cost, quality, and value transparency, and then workflow or process transparency. What is the relation between the former and the later? In the long run, not only can we not optimize the former without the latter, in many cases, we cannot even measure important aspects of the former without the latter. A majority of healthcare costs come from expensive human labor. The only practical, scalable way to measure this costs is through some form of activity-based cost accounting. These activities are the same activities that workflow management systems and business process management systems model, execute, measure, and monitor.
In my 2015 series I noted two categories of people and organizations laying foundations and pursuing workflow interoperability in healthcare: health IT companies and organizations, and companies from the workflow management/business process management industry. Since then two more groups joined the fray. On one hand we have the citizen developers and citizen integrators, who are creating new health IT systems and workflows. On the other hand, we have standards organizations, such as HL7 and OMG (Object Management Group), both of which are beginning to address standards and technology necessary for task and workflow interoperability. (By the way, I just came back from a workshop on this subject, the Healthcare Business Process Management Notation Workshop, in San Diego.)
To summarize my argument, why price, cost, quality, and value transparency require workflow and process transparency….
Prices and costs are different concepts. Therefore price transparency and cost transparency are different concepts. Prices, and therefore price transparency, are influenced by markets and regulations. Costs are determined by resource expenses (people, consumables, rents) and technology (methods for transforming resource inputs into outputs). Competition pushes prices toward costs (which is why cost transparency is necessary for long run price transparency). Quality is how well workflows and processes fulfill their needed intended purposes. If we know price and quality, then we know value. And some form of workflow technology is necessary to monitors all the activities that make up the workflow and processes that transform inputs into outputs.
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