October 5th, 2006
Redefining Health Care is a tour de force, a magisterial analysis, and a long-overdue application to the health sector of core principles of business strategy. It’s also a bit of “Goldilocks and the Three Bears.” Porter and Teisberg don’t like capitation, vertical integration, integrated physician-hospital organization, multispecialty group practice, or any of the other epiphenomena of managed competition; that soup’s too hot. They don’t like fee-for-service, solo practice, arm’s-length physician-hospital relationships, “consumer-driven” high-deductible insurance, and the other attributes of the cottage industry; that soup’s too cold. What they do like, the soup that’s just the right taste and texture and temperature and, for that matter, the right price — well, that’s what the book is about.
The building block of health care is the clinical episode of care, the process through which patients with a particular condition are diagnosed, treated, followed, and managed over time. This, according to our authors, is the appropriate unit of production, coordination, measurement, pricing, marketing, consumer choice, and market competition. A focus on episodes leads to organization along service lines, with due attention to comorbidities and complementarities, rather than organization across populations (too broad) or particular procedures (too narrow). No prepaid group practice and no focused factories here, please.
Service-line organization may constitute the boundaries of an organization, such as ambulatory surgery chains or specialty hospitals, but it more commonly will be found as distinct units (with dedicated staff, financial responsibility, and brand identity) within larger and more diversified organizations. Indeed, when searching for examples of organizations doing things right, Porter and Teisberg come up with the same multispecialty names we all honor: Intermountain, Kaiser Permanente, Mayo, Cleveland Clinic, Dana Farber.
The key is to have each service line be subjected to competitive pressures on its own account, rather than let strong services carry their weaker brethren. Indeed, the fundamental flaw of business strategy, the uber-error against which Porter’s other publications warn us, is the attempt by every organization to do everything. Improvements in performance come through specialization, focus, and competition service-by-service, product-by-product. Large, conglomerate organizations typically underperform their more targeted rivals because it is difficult for management to understand where they are doing well and where poorly, where they earn a profit and where they incur a loss, where they define state-of-the-art and where they lag in comfortable mediocrity.
On the cold soup side, the fragmentation of production by specialty, site, organ system, and input, with coordination assigned to the hapless consumer with an Internet browser, flunks Value Chain 101. Take this world view of appropriate specialization and look at health care, as did Porter and Teisberg, and it’s little wonder that the authors adopt a mildly annoying tone: All health care is stupid until everyone reads their book. But a mildly annoying tone should not distract from the fact: the authors just happen to be right (much of the time).
Message to Providers
Porter and Teisberg appropriately emphasize the central role of the organization and delivery of care, putting it ahead of insurance, consumer choice, employer purchasing, and government regulation. Of course payment, choice, purchasing, and regulation, the whole demand side of the market, are crucially important, but it’s at the provider level that quality, efficiency, and customer satisfaction happen or don’t.
So it’s providers, first and foremost, who need to hear the message about appropriate specialization, differentiation, and competition for each service line. For Porter and Teisberg, today’s organizational structures, units of measurement, and bases of payment are often too broad, seeking to cover all services to all patients rather than to differentiate and excel where the firm has unique advantages. Or the organization, measurement, and payment are too narrow, with each physician taking responsibility (if at all), being measured (if at all), and being paid (this usually happens) for only one procedure or organ system or site of care.
In a book this big, there’s something for everyone — something to love and something to hate. Porter and Teisberg dislike the entire health care system and so cannot help disdaining most of its organizations, policies, and punditry. Rather than get miffed when we get gored, or smirk when the authors stumble, let’s agree that a dysfunctional system deserves a thorough drubbing, and if it required Mohammad coming to the mountain rather than the mountain coming to Mohammad, so be it.
See also in Health Affairs: Book Review of Redefining Health Care
Coming next Tuesday: Uwe Reinhardt weighs in on Porter and Teisberg.Email This Post Print This Post
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