Redefining Health Care
How competition can drive down costs and improve quality
PORTER: Health care's zero-sum competition model adds costs and results in severe quality problems.
Photo by FRANK SITEMAN
University professor Michael Porter never planned to write a book on health-care reform. In fact, he expected brickbats in response to a coauthored article in the June 2004 Harvard Business Review that described why competition in health care had failed. Some health-care experts, he feared, would take offense at any critique written by mere management professors. To the surprise of Porter and coauthor Elizabeth Olmsted Teisberg, an associate professor at the University of Virginia’s Darden School, the article evoked a flood of encouraging letters and e-mails.
“The response wasn’t ‘you’re crazy,’ or ‘competition has no place in health care,’” recalls Porter. “We felt obligated to turn the diagnosis in the article into operational principles for the kind of health-care system that would deliver value for patients, and a set of recommendations for getting there.” After two more years of research, Porter and Teisberg produced Redefining Health Care: Creating Value-Based Competition on Results. The book describes a path to reform in which every actor in the system is focused on improving value for patients, as mea-sured by health outcomes per dollar expended. Porter recently talked about the book.
The American model of health-care delivery is largely private and competitive. Yet costs are soaring, access is restricted, and consumers are unhappy. What’s wrong?
The U.S. system has the wrong kind of competition. We have a zero-sum competition to assemble bargaining power, shift the cost to others, grab more of the revenue versus other actors in the system, and restrict services.
Zero-sum competition undermines value by adding unnecessary administrative costs. It also leads to strategies and organizational structures by health plans, providers, and system participants that are misaligned with patient value. For example, providers consolidate into groups to gain clout against insurers, even though value is not created by breadth of services but through excellence in treating particular medical conditions.
A recent report shows that Medicare costs for identical conditions vary greatly from state to state, and even within states, with no apparent difference in the quality of care. How do you explain those differences?
These findings are just the latest in a body of important work by John Wennberg and his colleagues at Dartmouth. This was the last piece of the puzzle for us in truly understanding the problem. We have known for a long time that U.S. health care is high cost. What everyone assumed was that U.S. health care was very high quality, which at least made the high costs understandable.
What Wennberg and others did was to show that U.S. health care also has severe quality problems. Indeed, there is every possible quality problem you can imagine: incorrect diagnoses, drug errors, unnecessary complications, failed treatments, too much care, and too little care. Also, there are huge differences in quality across providers and across geography that persist.
For us, this framed the problem: How could we have a high-cost system that also has poor quality? In a world of normal competition, that cannot happen. Efficient, high-quality players thrive and grow, and the inefficient or poor-quality players fix their problems or go out of business. So finally, we understood that the right question was: Why is competition failing? And that question led us to the distinction between zero-sum competition and positive-sum competition, and a focus on defining the relevant markets or levels where competition in health care should occur.
How do we get from the current mess to a value-driven health-care system?
The U.S. system can be reformed from the bottom up. One of the most hopeful things we discovered during our research is that a revolution has already started. Any hospital, or physician practice, or health plan, or employer can take positive steps in the direction of value-based competition and be better off, even if nothing else changes.
Reforming the U.S. system does not require a top-down, big-bang, government-led regulatory change. But the government can actually help a lot through modifying and extending key policies, particularly in results mea-surement and removing restrictive and unnecessary impediments to competition. For example, the need for physician certification by each state means that when The Cleveland Clinic wants to offer a national second-opinion service it has to scramble to find staff doctors who have certifications in all the states even though the clinic is a preeminent medical center. There are a striking number of other examples such as this where laws actually work against delivering value to patients.
Why isn’t high-quality health care more expensive?
Health care is not like buying a car. If you want leather seats in a car, this costs more because leather costs more than vinyl. Health care is different, because most of the time the best-quality health care is also the lowest-cost care. Getting the diagnosis right saves a lot of wasted and unnecessary treatment, so costs go down. Avoiding errors reduces costs. More skilled or less invasive surgery allows the patient to go home quicker, and costs go down. The lowest costs of all arise when the patient is managed so that he or she stays healthy. The best way to achieve lower costs is actually to drive up quality. That’s the dynamic we need to harness.
What would health-insurance plans do differently in a value-driven system?
Health plans have eroded the trust of many of their subscribers during the era of gatekeeping, denial of claims, and restricted networks. As a result, some believe we ought to get rid of health plans and move to a single-payer system where the government is the payer. We disagree, because health plans have important value-adding roles in the system, such as collecting results information, advising patients, and referring physicians.
We think that health plans are also the logical place in the system at which to aggregate medical records. Right now, the medical record resides with each provider, and providers must request records from each other. That proves to be a very cumbersome and inefficient system, which creates delay and duplication. Individuals must own their record, and the health plan is the place to assist each subscriber by pulling all the parts of his or her record together.
What do we do about 45 million uninsured people?
We need to get them covered. Universal insurance is not only fair, it is also the only way to truly achieve a high-value system. In the United States, emergency and acute care is already being provided to the uninsured, but we go about it in the worst way imaginable. We treat the uninsured only after they get sick and in expensive settings. This is paid for with cross subsidies and charity. The cost of moving to universal insurance will be less than sometimes supposed because much is already being spent on care for the uninsured, and there will be savings from providing preventive care and disease management.
To get to universal insurance, however, the problem is not just the poor. In Massachusetts, state government discovered that a significant proportion of the uninsured had incomes of $90,000 a year or higher. Health insurance must become mandatory, to make sure that everyone pays their fair share while they are healthy rather than just buying insurance when they think they will need it.
Should people who make bad personal health choices pay more for their health insurance?
We are moving to a system where individuals will have to be engaged in their own health, or face the consequences. Health is a joint venture between patient and doctor. Doctors can’t succeed unless the patient actively participates. More employers are asking employees to participate in health-risk screening and disease management, or bear higher premiums for their health insurance. This movement will spread.
— Roger Thompson
