Value-Based Competition Key to Healthcare Reform

June 1, 2007

Rising costs are not the biggest challenge facing our healthcare system, but rather the need to improve the dollar-related value of the services being delivered

WASHINGTON—Rising costs are not the biggest challenge facing our healthcare system, but rather the need to improve the dollar-related value of the services being delivered, according to Michael E. Porter, PhD, MBA, of Harvard Business School, and coauthor Elizabeth Olmsted Teisberg, PhD, MEngr, of Darden Graduate School of Business, University of Virginia, Charlottesville.

They spoke at a press conference about their recent article "How physicians can change the future of health care" (JAMA 297:1103-1111, 2007). "Unless we can dramatically improve the value for all the healthcare dollars being spent, we're never going to solve our healthcare problem," Dr. Porter said.

He contends that today's preoccupation with cost shifting and cost reduction undermines physicians and patients. While most healthcare reform discussion tends to center on the payment system, Dr. Porter focuses on the delivery system. "There is a very striking dilemma in the United States. We have 21st century technology being delivered with a 19th century healthcare system," he said.

Healthcare is the only sector of our economy and society "that has not undergone the kind of modernization and reconfiguring that we see everywhere else," he said. He argues that the fundamental problem is not cost or whether the system is government run or market based, but rather how to improve the dollar value of the care being delivered. "Value is the health outcomes per dollar spent," Dr. Porter said, adding that outcomes are multidimensional and include not only survival but extent of recovery or disability, errors, complications, recovery time, recurrences, and other aspects of the patient's health experience.

Three Steps to Change

"Because the fundamental task is to restructure the delivery of healthcare, we believe this is something that only physicians can do," Dr. Porter said. "In other words, physicians have to get out of the bunker mentality and take the lead in healthcare reform." He discussed three fundamental steps needed to properly restructure the healthcare system.

The first step is to define the goal of healthcare as value for patients—quantified health outcomes per dollar spent on care. "Ironically, none of the current goals in the system are structured toward value," he said. Instead, our system is driven by what Dr. Porter characterizes as the wrong kind of competition, a zero-sum competition in which one entity wins by another entity losing. In the right kind of competition (positive-sum), entities compete to improve results and are rewarded for excellence; consequently, costs will be contained.

"No amount of government oversight or intervention will help unless we get all the actors in the system to start competing for value," he stressed.

The second step in creating a value-based system is organizing care around medical conditions rather than specialties or procedures. This involves forming centers that bring specialties and expertise together to encompass the patient's entire cycle of care. "Value for patients comes from the overall effect of the entire sequence of activities, not from any individual service," he said.

The third step in reforming the system is measuring results and the cost it takes to achieve those results. Today's various quality movements are not actually about quality, he said. Instead they are focused on processes of care. The current fad, he said, is about measuring how the doctor practices by following an established protocol. "Rather than trying to control the process, you have to measure results," Dr. Porter said.

He acknowledged that designing risk-adjusted outcomes is complicated, but clinicians can and should develop meaningful measures. "It has been convincingly demonstrated that measuring results is the best way to reduce costs and improve outcomes," he said.

Competition on value, Dr. Porter believes, will ensure better outcomes for every healthcare dollar spent. "Let's not get detoured by discussions on waste and administrative costs; the real problem in healthcare is the way we deliver services. Value-based competition is the solution, and physicians must lead the way," he concluded.