Evolution 7 Revisited - "Value, again"
Click on the title and you'll return to my April 9 post on value, a discussion of what things are worth.
Then I came across a piece in the April 4 issue of The New Yorker - "Piecework," an article by Atul Gawande about "Medicine's money problem - that made me think I'm not the only one who studies on this issue. In fact, Gawande outlines the story about a Harvard economist, William Hsiao, who was "commissioned to measure the exact work involved in each of the tasks doctors perform."
"It must have seemed a quixotic assignment, something like being asked to measure the exact amount of anger in the world. But Hsiao came up with a formula. Work, he decided, was a function of time spent, mental effort and judgment, technical skill and physical effort, and stress. He put together a large team that interviewed and surveyed thousands of physicans from almost two dozen specialties. They analyzed what was involved in everything from forty-five minutes of psychtherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer."
Just a bit more...
"They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work.... Eventually Hsiao and his team arrived at a relative value for every single thing doctors do. Some specialists were outratged by particular estimates. But Congress set a multiplier to convert the relative value into dollars, the new fee schedule was signed into law, and in 1992 Medicare started paying doctors accordingly."
I haven't gone to this much trouble to decide how to price our services. But the key is the formulas we use; they need to be based on a logic that can be made to make sense - at least made acceptable - to our customers.
Is your pricing logical?
Then I came across a piece in the April 4 issue of The New Yorker - "Piecework," an article by Atul Gawande about "Medicine's money problem - that made me think I'm not the only one who studies on this issue. In fact, Gawande outlines the story about a Harvard economist, William Hsiao, who was "commissioned to measure the exact work involved in each of the tasks doctors perform."
"It must have seemed a quixotic assignment, something like being asked to measure the exact amount of anger in the world. But Hsiao came up with a formula. Work, he decided, was a function of time spent, mental effort and judgment, technical skill and physical effort, and stress. He put together a large team that interviewed and surveyed thousands of physicans from almost two dozen specialties. They analyzed what was involved in everything from forty-five minutes of psychtherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer."
Just a bit more...
"They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work.... Eventually Hsiao and his team arrived at a relative value for every single thing doctors do. Some specialists were outratged by particular estimates. But Congress set a multiplier to convert the relative value into dollars, the new fee schedule was signed into law, and in 1992 Medicare started paying doctors accordingly."
I haven't gone to this much trouble to decide how to price our services. But the key is the formulas we use; they need to be based on a logic that can be made to make sense - at least made acceptable - to our customers.
Is your pricing logical?
posted by Mark Burris - BURRIS at 4/21/2005 01:13:00 PM
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