All insights · Economics
Value Creation Is Not the Same as Value Capture
A better surgical journey creates value. Whether your institution keeps any of it is decided by the contract, not by the clinicians.
Executive tension
When a pathway improves — shorter stay, fewer complications, less ICU — the assumption is that the hospital is better off. The savings are real; surely they land somewhere on our side of the ledger.
Why that can be wrong
Under a bundle payment, a shorter stay lowers the hospital's cost against a fixed price: the hospital captures the gain. Under fee-for-service billing, the same shorter stay lowers what the hospital bills: the payer captures the gain and the hospital may lose contribution while carrying the cost of change. In one prior programme, payer cost per episode fell 12.4 % and hospital variable cost fell 16.4 %, yet contribution margin per episode did not rise. Value was created. It was mostly captured by someone else.
ONE AXIS reframe
Economic alignment must be read before anyone is asked to change. Three situations recur. Alignment A: the institution that implements captures the value. Alignment B: value is shared. Alignment C: the institution that implements may lose while another party captures — the situation in which good clinical programmes quietly die. Naming the alignment early turns an ethical problem into a contractual one: shared savings, payer co-funding, bundle renegotiation, or the decision to realize value through capacity instead of billing.
Framework
For each pathway, unit of analysis is procedure × provider × payer × contract. For each unit: what happens to hospital revenue, variable cost and contribution when the journey improves; what happens to payer cost; who therefore funds the transformation — hospital, payer, both, or a sponsor. Report hospital value and payer value in separate columns. Never add them.
Executive implication
Before approving a pathway programme, ask finance one question per major payer: if length of stay falls by a day, does our contribution go up or down? If the answer differs by contract, the programme needs a commercial design, not only a clinical one.
Measurement consequence
Value statements should carry the stakeholder view — hospital, payer, patient — and the state of the value: realized, estimated or potential. A single 'savings' figure that mixes stakeholders and states is not a result; it is a press release.
Closing question
When your surgical pathway improves, who actually captures the resulting value — and did you decide that, or did the contract?
Selected evidence
Prior founder-led bariatric programme, private hospital: payer cost per episode −12.4 %, hospital variable cost per episode −16.4 %. Claims Registry BAR-004, BAR-005; before–after design; prior experience, not an ONE AXIS client outcome.