Value for Money – What Healthcare Leaders Need to Know

If you’re a leader or executive in a Canadian healthcare organization, there’s little doubt that you’ve heard the term “value for money” with increasing frequency. And, actually, it goes beyond hearing about it, the pressure is on for your organization to build demonstrating value for money into your operations and core business strategy – and then deliver.

So why the intensified focus? In addition to the economic pressures being experienced by provincial governments to balance their books and do more with less, cost and value have been such an ongoing concern for the funders of public and non-profit organizations alike for such a long time that value for money (VfM) has now become entrenched as a policy imperative.

A focus on achieving VfM is here to stay so savvy healthcare leaders are taking steps now to embrace the concept and embed VfM thinking into their organizations. With this in mind, let’s take a closer look at the concept of value for money.


The Meaning of “Value for Money”

While the term “value for money” is tossed around as though it’s a universal concept, would you be surprised to know that we don’t have global consensus on the meaning of VfM?

A quick review of the literature shows that there are some consistent elements included in most approaches to defining and assessing VfM. Three consistent elements include:

Economy: The cost of the program or procurement item while also keeping output quality in mind

Efficiency: The volume and quality of the outputs achieved for the input or investment (i.e. implementing the program or implementing/using the procurement item)

Effectiveness: The outputs achieved for the cost/investment required by the program or procurement item while also keeping in mind equity in the distribution and/or consumption of those outputs

Some approaches set Equity apart as a standalone dimension that looks at whether the benefits (i.e. outcomes) of the input/investment are distributed fairly.

The focus across these elements is on the cost of the investment or input in relation to specific benefits delivered by the resulting output such as quality, volume/number, and the people who are reached/benefiting. However, it turns out that there is more to assessing VfM – just thinking about costs and benefits alone provides an incomplete picture. More on a more fulsome approach to VfM shortly.


The Challenge of Assessing “Value”

Part of the problem with determining VfM is the definition of value itself. Many people think that “value” is an objective idea and that we all have a similar perspective on what value is or looks like. However, this just isn’t true.

You see, value is a very subjective concept that varies from person to person, from situation to situation, over time, and in different physical locations.  That is, a patient’s perspective on value may be different from a physician’s perspective and the LHIN’s perspective. AND that patient’s perspective on what constitutes value will change over time, across the continuum of care, and throughout the progression of their disease state (for example). As you can see, the concept of value is very fluid and subjective so the way your healthcare organization looks at and defines value must also be flexible and variable.

Because the perspectives on value can be different from stakeholder to stakeholder, it can be difficult to develop a definition of value that satisfies all stakeholders. One solution is to focus the definition of value from the perspective of your organization’s primary stakeholder. However, in my experience, a more productive approach is to find the common ground amongst stakeholders’ perspectives on value OR to just include these differing perspectives within your definition of value (the triple aim approach to defining desired organizational outcomes is a good example of incorporating differing drivers of value).

In summary, it’s important to realize that the definition of value can change from assessment to assessment for a variety of reasons – the key is to build flexibility into any framework you adopt for describing and assessing value for money within your organization.


Social Value – Another Part of the Value Imperative

Social or public value is an idea that comes from the non-profit/NGO sector and relates to the value their programs create for society. Social value is relevant as a concept for the healthcare sector because the desired strategic outcome for most healthcare organizations includes improving the functioning of the healthcare system and/or enhancing patient and community health outcomes. These are clearly society-level impacts.

In his article “Measuring Social Value”, Geoff Mulgan reveals that an accepted but rather generic concept of value revolves around the idea that value arises from the interaction of supply and demand in the markets. Leveraging this perspective, Mulgan suggests that social value arises from the interplay of effective demand (i.e. someone such as an individual citizen or the government (on behalf of the citizenry) is willing to pay for a service or outcome) and effective supply (i.e. the service or outcome is affordable and is implementable).  The degree to which a particular program or solution optimizes the effective demand – effective supply relationship determines the relative social value created (and its relative value as a solution).

These ideas are useful for expanding our thinking about, and assessment of, value for money and they have indeed been shown to be relevant in the healthcare system.


A Framework for Thinking about VfM

Through his work with the National Health Service in the UK, Geoff Mulgan has created an effective framework for thinking about value that includes the traditional VfM elements but goes beyond to incorporate the idea of social value. This tool is used to guide organizational thinking about the value of any proposed program or innovation and is designed to leverage and embrace the subjective nature of value assessments.

Here are the elements of Mulgan’s framework:

Effective Demand Elements (desirability of the program or innovation)

1 Strategic Fit (how well the proposed innovation or program meets the needs and strategic objectives of the organization)

2 Potential Health Outcomes (including the likely impact on quality-adjusted life years and patient satisfaction)

Effective Supply Elements (degree to which the service or outcome is affordable and implementable)

3 Cost savings and economic effects (this is where the 3 or 4 traditional VfM elements can be included)

4 Risks associated with program or innovation implementation

To see how this framework is used in the NHS, please click on this link.

Mulgan reports that the perceived value of this approach to VfM includes that (1) it attempts to include value that is accrued to multiple stakeholder groups (through an expanded set of value criteria), (2) it enables a consistent approach to making VfM decisions, (3) it makes what organizations value and their VfM assessments transparent to all; and (4) it provides a textured yet simple approach to thinking about and assessing value.


Value for money is an important imperative for healthcare leaders today yet there is a certain level of discomfort with the existing approaches that take a limited approach to defining value.

New and more innovative frameworks take a broader perspective on the definition of value. The good news is that healthcare executives looking to introduce VfM thinking and assessments within their organization don’t have to create new models and/or introduce complex tools to take a more wholistic approach to this important concept.

Sound examples, frameworks, and tools that have been tested in the healthcare sector exist and they are easy to implement as soon as your organization is ready.


Coming in future blogs: Tips for Effective VfM Measurement and Assessment, and Building Value Thinking into your Organization’s Culture



To learn more about Value for Money concepts, check out the articles leveraged for this blog post:

“Measuring Social Value” Geoff Mulgan, Stanford Social Innovation Review, Summer 2010,

“Evaluation Methods for Assessing Value for Money” Farida Fleming, October 2013,