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The Value Code: Throwing Out The Baby With the Bathwater

Posted Sep 07 2008 8:10pm
I've been reading an old book a friend once recommended while she was employed at the now-bankrupt Arthur Andersen. The book, "" was intended for prospective Andersen clients and probably remained quite useful as the consulting group re-invented themselves under the Accenture name.

It was famously published at the peak of the Internet boom. I'm not kidding, it was published in May 2000, two months after the March 10 intra-day high on the NASDAQ. It is filled with examples of companies that had come to understand how to create value from the arrangement of their intangible and difficult to measure assets.

Most of the companies no longer exist and the ones that survive today have learned how to value their assets in more old-fashioned ways than relying on intangibles. The authors never mustered the credibility to write anything else, except for Barry Libert who in between other ventures.

Enough time has passed to forget about how Arthur Andersen stretched the truth on their audits under a lame premise of reflecting the true underlying value of all those intangibles. But the temptation is always there to throw the baby out with the bathwater. The authors had a point. The true value of many things is not reflected in their price; the market for products is never efficient the way equity markets are. There is a strange rationality to economic decisions on the micro level but it is not always the correct decision based on an external objective framework.

Spock once challenged his father about marrying his human mother rather than a rational, logical Vulcan woman more like him. "It seemed logical at the time," was Sarek's response. So many things that patients do seem to have been sensible at the time.

A book on value written at the peak of a financial bubble teaches me that things may seem valuable or not based on a sentiment framed by the times. I'm not going to throw the book and its ideas out because of bad timing.

What is particularly relevant is that we are all looking for more value out of health care; patients, doctors, payors... everybody. But what value is that exactly? Value is perspective-dependent and has to be defined. It is hard to believe that an employer with a pension and health care benefit liability and a managed care insurance company define value the same way. Certainly a physician and a patient don't quite see ye to eye, but it's a better bed-mate than a Wall-Street reporting insurance com pany.

I've been looking at what primary care physicians do in terms of risk assumption and asserting that reimbursement is inadequate for the level fo risk. But risk (specifically the risk-management skill of the physician) is insufficient only a part of the determination of value to the patient. A lot of decisions depend on how that value is perceived at the moment. Illness has a strange way of changing the perception of value from a treatment!

More to come...
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