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HEALTH REFORM: Let’s Admit Porter and Teisberg Are (Sometimes) Right

October 5th, 2006
by James C. Robinson

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. 

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This entry was posted on Thursday, October 5th, 2006 at 10:45 am and is filed under Competition, Health Reform. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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31 Responses to “HEALTH REFORM: Let’s Admit Porter and Teisberg Are (Sometimes) Right”

  1. Thomas Barber Says:
    November 6th, 2006 at 1:19 pm

    The real issue here is an undersanding of what the level is at which you can clearly define an episode of care. At a high level it is relatively easy to define, say the cost of a total hip replacement. What is more difficult is defining what quality means - especially at a surgeon specific level. The adminstrative databases that are often used in the health insurance world do not take into account patient outcomes such as pain relief, ability to walk without a limp, and leg length descrepancy. Instead we measure what is measurable - mortality, urinary tract infections, ICU stays, early stage infections. It is more difficult to track complications that may occur over time such as late infections, decreased range of motion due to heterotopic bone formation, early prosthetic failures, etc. The reason is that secondary procedures are often done at other facilities, and those admissions are often not linked back to the total hip. An example is where a total hip is done in a university center, but the patient experiences a pulmonary embolus while staying with a relative and is admitted to another hospital to the medicine service for the treatment of that pulmonary embolus.

    The only way to track these issues is to have a prospective database - a total joint registry - of all implanted devices. We have done that within KP and have the largest total joint registry in the United States. There are few other databases to compare ours to in the US. Ideally a government funded and mandated implant registry would provide some information necessary to track complications, and outcomes. That doesn’t exist presently - it should.

    From my perspective as a surgeon the administrative databases used in the US in general can track only about 25% of what’s important in looking at outcomes from a patient’s perspective. Risk adjusting also means that the data has to be aggregated at a high level to be accurate - that means that individual surgeon data is relatively meaningless. I have looked at this many, many times and know that without sufficient volume you cannot make judgements about quality. The other part of the equation is that the team you are working with makes all the difference in the world. We have discovered that having a total joint “team” in the operating can shave 40 minutes off operative time, and provide better quality care. Yet not all surgeons have access to such teams. The majority of total hip replacements done on Medicare patients in the US are done by surgeons who do fewer than 25 hip replacements per year - and due to the low volume these surgeons won’t generally have access to these teams.

    So, until we have a national total joint registry, and are therefore able to better measure outcomes on a national scale, and have clearly definable cost per procedure it will be difficult to have competition on episode of care criteria for total joint replacement in a rational market based manner.

  2. ruthgiven Says:
    November 5th, 2006 at 10:07 pm

    According to Dr. Barber, Kaiser does not currently use “episodes of care” to evaluate/manage efficiency and quality of its providers. I can’t say whether the Permanente Medical Groups (PMGs) will move in that direction in the future but I can offer a few insights from my perspective as a former employee and a current member. Based on outcomes research I did at Kaiser in the late 1980s, my first concern about episodes of care would be having adequate data to “risk adjust” so that outcomes really reflect MD-specific efficiency and quality rather than biased selection or other patient-specific factors. Our major focus at that time was on risk adjustment of procedures and DRG admissions only. But extending the unit of analysis (for payment or quality) to episode probably requires more and better patient data for risk adjustment.

    Perhaps more detailed patient data from Kaiser’s new EMR system will make this possible. But better data does not eliminate the complexity problems noted by a number of HA blog participants. And even assuming that Kaiser’s EMR system is a semi-fixed, sunk cost – there will be additional variable costs associated with developing an episode of care-based management/reporting system using these data. Some of these costs will be financial and others will be organizational, stemming from cultural barriers to implementation. While the benefits to Kaiser of managing by “episodes of care” may be recognized, this approach will be pursued only if Kaiser decision-makers (health plan and PMG execs) decide that the benefits exceed the costs of changing from the status quo.

    My recent experiences as a Kaiser member suggest that this is unlikely to happen. The major reason is not so much the financial cost. Kaiser is currently spending multi-billions of dollars on IT hardware, software and most of all, consultants, to implement a new EMR system expected to differentiate it from the competition for the foreseeable future. My doubts are based on my knowledge of Kaiser’s organizational culture, and in particular, the PMGs’ attitudes about (i.e., resistance to) sharing MD-specific info with others in Kaiser, even other MDs and esp.with members.

    In trying to understand the prospects for large, well-integrated medical groups to adopt an “episode of care” approach to management, Jamie points out what seem to be obvious benefits: “Service line focus and performance-based payment perhaps can make large organizations a bit more transparent and a bit more manageable to those within them, physicians and well as patients?” Although more transparency sounds great from both management and customer/patient perspectives, greater transparency re PMG MDs’ comparative performance is not something that Kaiser seems ready to promote anytime soon.

    To illustrate, let me share a personal experience. A couple of years ago, due to family history of colon cancer, it was recommended that I have a colonoscopy. With my public health and research background, my first reaction was to figure out if the risks (potential costs) of this screening test outweighed the benefits for me, personally. I quickly learned that, aside from anesthesia, the main risk is from perforation and this happens in general in 1 in 1,000 cases. Perforation can be very serious; morbidity can be severe and there is a 5% mortality rate. The literature I consulted indicated one way for patients to reduce risk was to find a GI specialist who was very skilled and experienced at this procedure.

    Ideally, it would be best to compare MDs’ actual complication rates, but given lack of data, I realized that using procedure volume as a proxy was the best I could do. As a Southern California member, I am able to get my care from any Kaiser location in this part of the state. At that time, there were approximately 25 GI specialists who did this procedure and so before I committed to any one of them, I asked for the following comparative information: 1) colonoscopy complication rates over the past 2 years, if it could be appropriately risk adjusted; and, if not available; 2) colonoscopy volumes over the past 2 years. I think I also requested the number of years that each MD had been doing this procedure.

    Kaiser’s response was extremely disappointing. They (Member Service Dept and the Southern California Permanente Medical Group - SCPMG) initially ignored my requests for this information for at least 3-4 months. I suspect they were hoping that if they delayed long enough I would just give up and leave them alone. While I eventually got a referral to an MD who I expect fit my criteria for high quality based on other evidence I had, I never got any comparative procedure volume statistics. I believe I was finally told that the medical group did not keep these statistics in any form that could be used to easily generate a report. But my impression is that they felt it inappropriate for members to see to see this information that could reveal any variation among SCPMG MDs.

    Transparency is the ideal in any market situation, but in health care this runs smack up against the culture of medicine, where secrecy is clearly the norm. Confidentiality is not universally bad. It is probably necessary for many aspects of peer review to function effectively. For example, surgical morbidity and mortality conferences allow MDs to at least acknowledge and deal with problems that have occurred, without the immediate threat of assigning blame. But if this attitude about the value of secrecy limits release of ANY comparative info about MDs, patients will never be able to make informed choice of a provider. Based on my recent experiences, Kaiser MDs are no different from any others in this respect.

    But of course I could be wrong about the PMGs’ willingness to release this info to members in the future. I had been hopeful that things would improve when George Halvorson became CEO of Kaiser, since his public statements while at HealthPartners were very supportive of consumers’ needs for MD-level information. Re Kaiser’s future plans, I would be very interested to get feedback from Dr. Barber, other PMG MDs and/or any others associated with Kaiser. Perhaps my experience was unique to SCPMG, so a specific question for Dr. Barber: Can a Northern California Kaiser member who is a prospective total hip replacement patient get comparative information on MD-specific complication rates for this procedure or at least procedure volume data?

    I certainly can understand the concern about validity/reliability of outcome measures such as MD-specific complication rates until we feel confident about the accuracy of risk adjustment. But I’m still puzzled and quite disappointed that procedure volume, esp. for something as common as colonoscopy, was not available. I do not see why Kaiser members who request it can’t have access to this level of data even today. And if Kaiser is not willing to release MD-specific procedure volume data, I don’t see much hope that Kaiser members will ever get greater transparency re episodes of care.

  3. James C. Robinson Says:
    October 30th, 2006 at 6:47 pm

    Most advocates of episode pricing and service line organization see them as a (partial) palliative to the piece-rate payment and organizational fragmentation of mainstream medicine. But it’s also useful to ponder what benefits, if any, they might offer to an integrated delivery system like Kaiser Permanente, recently represented here on the HABlog by Dr. Tom Barber. Ortho surgery, Barber’s specialty, is a prime candidate for episode thinking, as the main procedures usually have a beginning, a middle, and an end. Without being any kind of Porter/Teisberg booster, it does seem to me that even a large multispecialty group practice needs to know where it’s making money and where losing it, where it’s topping the quality charts and where slinking along in mediocrity. Service line focus and performance-based-payment perhaps can make large organizations a bit more transparent and a bit more manageable to those within them, physicians as well as patients?

  4. Thomas Barber Says:
    October 28th, 2006 at 5:11 pm

    The debate here, and Porter & Teisberg’s thesis demonstrate a lack of knowledge of the complexity of healthcare systems, and the inability of many of us within healthcare to clearly understand quality and value by episode of care. When I worked in hospital cost accounting for a time prior to becoming a physician, it was clear that insurers and hospitals not only didn’t have a handle on costs, but they has less of a handle on the quality they were buying. A free market in episodes of care depends on knowledge of what you are buying (quality, service, access) and the cost. The complexity of our systems, even in a procedure that one would think would be emenable to this approach - total hip replacement- are such that true transparent understanding elude us. As an orthopedic surgeon and physician leader I have spent a great deal of my career trying to understand the differences from one physician to another , from one hospital to another, and from one system to another. Having consulted with the National Health Service in England on total hip replacement procedures, I assure you that they do not have a handle on understanding quality, service, and access for this procedure either. Everyone is trying, and eventually we will get there. But in my estimation we are no where near the point where a consumer (much less a healthcare provider) could pick a “total hip episode” provider, based on quality and cost parameters.

    To rGivens I have to say that the complexity of a service such as renal transplant demands extensive scrutiny and understanding. Certainly in most traditional measures of quality the renal transplant program was immensely succesful - low mortality, very high kidney survival rates, few complications. It is what wasn’t measured that was the problem - access to the program. In every area you will see examples of complexity tripping up outstanding providers. In England a one year wait for a total hip is routine, as is a two week hospital stay (has improved over the last few years). They care deeply about their patients, and their OR efficiency is remarkable. But they didn’t routinely measure access, or service, or LOS and didn’t understand the complexity of the systems they are dealing with. The interactions and communication of the doctors, adminstrators, physical therapists, nurses, discharge planners, OR techs, anesthesiologists, consulting physicians, and of course the most important ,the patient are critical to success. An integrated system provides the best integration and communication and the plan by Porter ignores that reality.

    Dr. Robinson’s answer is that traditional medicine has tried episodes of care before, and it wasn’t succesful - I personally was involved in an attempt to sell total hip services to insurers in Boston in 1986, and other episodes of care type of provision of services were tried throughout the 1990’s without great success. The best success has come from specialty hospitals - cardiac and orthopedic where synergy and common goals have led to top quality and low cost. This has been at the expense of the community hospital, and perhaps at the expense of decreased access to emergency services. The complexity and lack of clear quality parameters means that a free market becomes less likely to be succesful as one moves from aggregation at the plan or group level to a more specific episode of care.

  5. Michael Sherman Says:
    October 18th, 2006 at 6:38 pm

    Value-based purchasing from groups of providers who come together for the purpose of creating episodes of care: what a novel idea…or perhaps not. Isn’t that what Oxford Specialty Management attempted in the late 1990’s? While their attempt was cut short by other problems at Oxford, it is my recollection that is was difficult for most providers to come together and create pricing, even more so for the chronic conditions than for procedures. While integrated delivery systems and networks that have close ties with facilities and include multiple physician types have the ability to play in this environment, the fact of the matter is that most physicians are in practice settings where coming together for pricing purposes is a challenge. In that sense, Porter and Teisburg seem to have an academic rather than a real world solution. In situations where physicians and facilities have attempted to come together, there have been a number of challenges, starting with how to share the pie, both between hospital and physicians and among the various physician specialists. I certainly recall conversations among cardiologists, cardiac surgeons, and cardiac anesthesiologists discussing the development of integrated case rates, which do not make me proud to be a physician.

    The success of Professor Herzlinger’s writings is evident in the performance of a myriad of focus factories that have delivered both convenience and value to the consumer, from the players in the dialysis industry focused on the facility portion, such as Da Vita, to the recent interest in the “MinuteClinic” model, focusing on a limited number of diagnoses and treatments that are based on clear guidelines and protocols. The significance of activist consumers seeking to play a more central role in managing their health care will, if anything, accelerate with the new generation of transparency tools relating to cost and quality that are coming out of entrepreneurial companies seeking to ride this trend.

    As one individual noted above, “episodic-based pricing is a great idea in theory;” however I would not hold by breath waiting for providers to come together to embrace the concept.

  6. ruthgiven Says:
    October 17th, 2006 at 6:50 pm

    I’ll try to answer Jamie’s question and suggest some implications.

    We don’t see episode of care pricing and service line based organizations because consumers are not demanding it. Probably most don’t understand that this way of delivering care might be better (from a quality and/or cost perspective) than how it’s delivered now. There may be a few exceptions, but benefits of this approach have simply not become obvious to enough patients to push the market to a critical mass. And if consumers are not clamoring for this approach, why would health care providers (very conservative as a group based on my past experience working for the California Medical Assn) bother with the cost/effort of changing their traditional mode of operation? In addition to general increase in costs/hassles to change this well-established model of care, I’m of the opinion that most providers (unless they know for sure how, relative to the competition, superlative their care is, and feel this is unrecognized) DO NOT want consumers/patients to have more transparency about cost and quality. The providers in fact like the murkiness of the current price/quality info environment just fine as it is.

    Implications? 1) until patients (large numbers of real patients and not just policy wonks) understand that care could be better if organized as suggested by Porter/Teisberg, they will not demand this approach and no provider will have any incentive to make related organizational and info changes; 2) even if patients eventually get educated, begin to demand such changes in medical care organization AND are willing to pay more to cover related system transition costs, MDs are likely to resist. Making more information available will only help those unrecognized, above-average performers – but hurt those who are average or below (the majority). Not exactly the same situation, but this is what Leapfrog discovered when it tried to get major hospitals in the St. Louis Area to participate in its IT implementation and quality survey. As someone at BJC apparently told Louise Probst of the Gateway Purchasing Group (and not to for attribution!), providing info can only be expected to reduce local hospitals’ status in the eyes of consumers. Given these two barriers, I think that evolution of the health care marketplace in the direction that Porter/Teisberg favor is highly unlikely.

  7. SteveBeller Says:
    October 16th, 2006 at 9:15 am

    If I may attempt an answer to nainil’s excellent questions:

    1. Is healthcare patient driven or provider driven?

    It has been driven by the powerful constituents, which have lobbyists able to influence policy. These influencers include the pharmaceutical companies, medical device manufacturers, insurers, and healthcare providers. Unfortunately, patients/consumers and researchers have lacked much influence. Some argue that employers as have the power to make a difference (see CPHR ). While there’s recent movement toward patient-driven systems, there is a long way to go.

    2. How do we find an equilibrium amongst the healthcare dynamics?

    Through consumer-centered, universal healthcare, transparency of the price and quality of care delivery and healthcare plans, incentives tied to accountability and performance, value-based competition, and increased support for good collaborative research would be very helpful.

    3. Is there any particular standard or certification that can prove healthcare is properly regulated?

    There are professional licenses, the FDA, some established standards of care, and the threat of malpractice suits, and consumer watchdog and advocacy groups. But there are weakness in post-market drug and device surveillance; in the oversight by professional organizations; in the generation, evolution, dissemination and use of evidence-based guidelines; in power and influence consumer groups; and in the collection and analysis of clinical outcomes data.

    I agree that global thinking – seeing the “big picture” and understanding how all the parts of our healthcare system interact – is essential for making decisions about meaningful reform. Empowering and enabling patients/consumers, researchers/scientists, and employers to help influence the system’s transformation would balance the power. Adopting a non-zero sum economic model is also an important aspect of any win-win strategy.

  8. Nainil Chheda Says:
    October 14th, 2006 at 6:37 pm

    After reading the above dialogue and comments, there are various questions tha come to my mind:
    1. Is healthcare patient driven or provider driven?
    2. How do we find an equilibrium amongst the healthcare dynamics?
    3. It is said that Healthcare is the most regulated industry in the USA. However, Is there any particular standard or certification that can prove healthcare is properly regulated?

    The players in the healthcare market together govern how reforms are made and how it affects the overall delivery of healthcare. We need to think globally. Patient Centric healthcare would prove a \”Win-Win\” situation.

  9. SteveBeller Says:
    October 13th, 2006 at 2:15 pm

    The Porter & Teisberg book offers good ways for healthcare providers to compete on results. With some good collaborative effort, defining care cycles (episodes of care) for all major conditions can be accomplished. And it shouldn’t be too difficult for providers to form clinical practice units focusing a specific condition and treatment of patients over the full cycle of care. Likewise, it shouldn’t be too difficult to reward providers who deliver the best value (clinical outcomes divided by cost) with increased referrals and financial incentives.

    However, besides the problems inherent in CDHC and P4P the biggest challenge, imo, boils down to knowledge.

    That is, what would it take for all stakeholders (patients, providers, payers, purchasers) to know the safest, most effective, and most efficient ways to: (a) prevent a particular patients at-risk of developing a condition, (b) select and render/receive care based on the best evidence-based guidelines/protocols/pathways for a particular patient with an acute or sub-acute condition, (c) manage a particular patients with a chronic conditions, and (d) render end-of-life care to a particular patient.

    And what would they have to know and have in order for such appropriate, high-value care to be delivered in a safe, effective, efficient, timely, available, and affordable manner?

    And finally, what would it take for valid, risk-adjusted quality and cost metrics to be made transparent and understandable by consumers, so they can make knowledgeable decisions about choosing a provider?

    It is imperative that we answer these questions, especially considering today’s “knowledge void” problem; our “low fidelity” healthcare system; the very slow adoption of health information technologies; and the splits between well-care and sick-care, between mind and body, and between traditional and alternative & complementary medicine.

    As such, I see value-based competition as focusing on only one important aspect of our incredibly complex and multifaceted healthcare crisis.

  10. James C. Robinson Says:
    October 12th, 2006 at 6:45 pm

    Okay, so no one has asked the obvious question, and so I will ask it myself. If episode-of-care pricing and service-line organization is such a good idea (as declared by Porter/Teisberg and re-declared by yours truly), why don’t we see more of it already? Certainly the real world is full of imperfect information and mis-aligned incentives, but, still… It would seem that scheduled surgeries (e.g., knee/hip replacement), maternity (delivery), and other forms of care where there is an identifiable beginning, middle, and end of the episode would be good candidates (with due accomodation for severity differences, outliers, etc.). Why do the pundits keep pointing to examples from Indianapolis in the 1980s and Oxford Healthcare in the 1990s? Why not something from the here and now? Wassup?

  11. ruthgiven Says:
    October 10th, 2006 at 1:32 pm

    I would like to follow up on the discussion re “episodes of care” by moving from the abstract to a very concrete and current example. I’m interested in blog participants’ feedback on the recent Kaiser Permanente (KP) Northern California kidney transplant situation.

    For those who have not heard, in August, KP was effectively fined $5 million by the California Department of Managed Health Care (DMHC) for harm to members resulting from the failed implementation of an in-house kidney transplant program at its San Francisco Medical Center. This followed the June release of a CMS report which said that the program was understaffed, its record keeping and training were non-existent or inadequate, and some dialysis patients were not matched with organs, even when perfectly matched kidneys were available. According to CMS, the program was poorly planned and run and even as problems surfaced in 2004 and 2005, no one in KP management seemed to be aware of the risk to patients.

    The main impact was that the number of Northern Cal KP dialysis patient members getting kidney transplants dropped by 65%, from an average of 168 per year in 2003 and 2004 when these cases were sent to UCSF and UC Davis, to 63 in 2005, the first full year transplants were internally performed. The KP transplant unit problems only came to light in May when the local CBS TV station and the Los Angeles Times broke this story based on information from a whistleblower, the former department administrator fired when he made his concerns known to his superiors in TPMG (The Permanente Medical Group, official title of the medical group that provides care for Northern California KP members).

    The DMHC is now investigating KP’s member complaint system to determine why these problems did not come to management’s attention in a more timely manner (or at all). The California Assembly Committee on Health held a public hearing in August on transplant issues in general, including the KP situation. As a result it is likely that a number of bills will be introduced in the next legislative session on related issues, possibly including: whistleblower protection, patient complaint system improvements, and better public oversight of capitated medical groups’ quality of care. For more details, the best sources are the Los Angeles Times and the San Francisco Business Times.

    The blog discussion above got my attention, in particular re KP-relevant questions of what should be considered an episode of care for ensuring highest “value” and who should be held responsible for quality/cost outcomes. Given my background (20+ year member, former KP employee researcher, and economist focusing on the HMO industry), I suspect KP’s primary reasons for internalizing this program were to reduce costs and improve quality of care for future members on dialysis, a number expected to grow significantly as obesity trends contribute to higher rates of type 2 diabetes. I’m sure that KP (TPMG, more specifically) was hoping to be as successful with transplants as it had been with its internalized cardiac programs. Although this may have been the long-run plan, in the short-run (approx. 2 years into program implementation) the major impact of internalization has been to reduce access to transplants for dialysis patients at KP. As a current KP member, I sincerely want to believe that reducing access to care was NOT a conscious part of the original plan, but instead that problems occurred simply as the result of managerial incompetence. Still not good, but the lesser of two evils. But this is hard to accept in light of the facts – staffing and facility resources at KP’s San Francisco Medical Center were simply not adequate to treat the volume of patients that KP should have expected, based on its recent past experience.

    Since this story went public in May, the questions I have been asking myself and pose to you are:

    1) What is the relevant episode of care in this situation? Based on KP’s decision to internalize the program, it would seem to be successful long-term treatment of a dialysis patient, whether ending in transplant or not. But in the first few years of this program, the key quality outcome indicator TPMG repeatedly referenced was the low mortality rate of the transplanted patients only – pretty much ignoring what was happening to those knocked off the waiting list or pushed into “transplant limbo.”

    2) Who should be held accountable for good and poor outcomes? Who, in particular, is responsible for this situation? According to Porter and Teisberg, value is derived from the optimal organization and delivery of care, which should be the purview of the providers. In KP, this is clearly the role of the Permanente Medical Groups, including TPMG. While Kaiser Foundation Health Plan contracts annually with TPMG, it does not dictate how care should be given. That is left up the physicians, at least according to the “Principles of Permanente Medicine,” published in 2000 by the Permanente Federation in the aftermath of the managed care backlash. Surprisingly, however, there have been virtually no official public statements on the kidney transplant problems from anyone in TPMG since this story came out.

    The CMS and DMHC reports make clear the nature and seriousness of KP’s transplant unit problems. As a longtime KP member, what I would like to know most of all are: 1) the causes; 2) if and how they may affect other aspects of care at KP; and 3) how best to address them.

    One possible cause is KP’s prepaid approach; TPMG is capitated as a group. Note that this is what differentiates KP from the other multi-specialty organizations that Porter and Teisberg recognize and Jamie, above, says we “honor.” Certainly, concern about costs (esp. if there is imperfect quality of care information for members) could lead to providing less care than is optimal. Some vocal KP critics have focused on this explanation, in particular citing the for-profit status of TPMG. In their opinion, reducing access to costly transplants was simply a way to generate additional profits for TPMG partner MDs.

    I’m more inclined to think that the source the problem can be traced to a number of other related factors, including: the “culture of medicine,” bureaucratic rigidity, organizational politics, lack of critical internal insight and probably most of all, KP’s size, which for years has probably been in the region of “diseconomies of scale,” at least related to key aspects of management oversight. Negative scale effects seem particularly apparent in the lack of functioning communication systems among the different levels of management (both within and among TPMG and Kaiser Foundation Health Plan and Hospitals) and particularly between management and health plan members.

    I sincerely hope to get feedback from current KP employees (and esp. people in TPMG). As of yet, there has been little public response from KP management at all, esp. TPMG, except to say (paraphrasing Mary Ann Thode, regional president and official KP responses to the CMS and DMHC reports): ‘we can’t deny that there were major problems, we are sorry that any member may have been inconvenienced or suffered, we had NO idea that these problems existed; and (finally), we don’t acknowledge any responsibility.’ Not surprising, I suppose, given the flood of litigation aimed at KP by dialysis patients and the whistleblower’s wrongful termination suit, which is expected to go to trial early next year.

  12. Charles Weller Says:
    October 10th, 2006 at 10:58 am

    To picture the potential significance of Porter and Teisberg’s book and ideas, and Jim Robinson’s insight that they “just happen to be right (much of the time),” I suggest first remembering the early 1980s and PPOs.

    In the early 1980s, PPOs were just an idea, wonderfully captured by the phrase, “If you’ve seen one PPO, you’ve seen one PPO.”

    Yet, in a very short time, PPOs, a private market idea, became the dominant form of health benefits, particularly after 1990, and remain so today.

    Like PPOs in the past, Porter and Teisberg’s model is a private market solution that can be implemented significantly and quickly — without the states or the Federal government doing a thing. Wise government action, however, could really accelerate this private solution, as well as reap its benefits for government programs and covered populations (better value — patient results and cost savings — and otherwise).

    What’s the basic idea? Porter and Teisberg’s key idea, like Copernicus’ idea that the sun rather than the earth was the center of the universe, is simple, profound and obvious once stated:

    regroup health care thinking and payment to providers by disease system.

    In effect, Porter & Teisberg fix a mistake we made developing PPOs a few decades ago. Rather than including all preferred providers for all diseases, their idea is what I call “PPOs by Disease,” what they call “Integrated Practice Units by Medical Condition,” and what I also call “Science Teams By Disease When Ill.”

    Another part of the profound novelty of their idea is to reverse a decades-old assumption to separate doctor, hospital and other provider payment for treating a patient. Separate payment has dominated thinking at least since Blue Cross and Blue Shield was created in the 1930s. Part A and Part B of Medicare are just one of many possible examples. This is why I suggest their idea is the only new untried idea in over 70 years.

    Further, from a purely legal, practical and economic point of view, there is a great opportunity to implement their idea as quickly as PPOs, to the great benefit of patients, as well as public and private payers, for a number of reasons.

    1. Legally Paying Providers for a Known Disease is Not Insurance. The Porter-Teisberg model profoundly shifts analysis from insurance to patient health care science. As a legal matter, paying a team of providers for treating a patient for a known disease system is not “insurance” subject to 50 state insurance department regulation. Buying a house is not insurance. Buying protection against the chance of a house fire is insurance. By contrast, HMOs, insurance and other capitated systems are subject to state insurance regulation and thus cannot move as quickly and innovatively.

    Only about 50% of health benefits, commonly called “health insurance,” involve state licensed insurance. This legal reality is enormously important and often overlooked. For example, only about 5 million of 40 million Medicare beneficiaries, involve state licensed insurance.

    This means that from a legal and practical point of view, the P-T private model can be implemented broadly, and quickly, by focusing on the 50% of health benefits that are not state licensed insurance — a market of about $1 trillion — a repeat of how PPOs became so common so quickly.

    2. Realigning Incentives Without 52 Insurance Department Regulation. A key part of the Porter-Teisberg model is to re-align now fragmented provider payments to reward the team of providers who obtain excellent patient results. Because these payments are not insurance, they can be re-aligned instantly and continuously, nationally and locally, without insurance department involvement or approval for about $1 trillion of health care. (This is not a critique of insurance departments, it is the lawyer in me explaining the opportunity to get things done).

    3. Many New Players, Providers, HMOs and Insurers. Also because paying providers to treat a known disease is not insurance, many new companies can implement the Porter-Teisberg model in major ways in addition to state licensed HMOs and insurers. IBM, Intel and Microsoft, for example, are keenly interested in entering the health care field but are not state licensed insurers or HMOs. They do not need to be.

    State licensed insurers’ and HMOs can implement the model too, most easily and quickly in their non-insurance health benefits business, and extend them to their insured business as state government regulation permits — much as they did with PPOs decades ago.

    Also, providers that excel in treating a disease system can expand regionally and nationally, by contract or otherwise, and be paid and rewarded for their excellent value. That is, under the Porter-Teisberg model, the traditional assumption that health care is local is no longer valid.

    4. Consumer Choice Advances from Insurance to Health Care. Porter & Teisberg’s model also advances consumer choice and control from insurance ideas, like high deductibles (an idea that failed in the late ’80s principally because over 90% of health care costs are above stop-loss limits) and annual choice of insurance, to health care choice of the team of providers when the patient is ill. Indeed, this is the market choice and competition Porter and Teisberg’s redefinition of health care is all about.

    5. Stunning 80/20/100 Cost Savings, Results, No Takeaways and GASB 45. Porter and Teisberg claim their private model can produce “stunning gains in quality and efficiency,” and, as a result, there need be no takeaways. They are right, for two basic reasons.

    One, Dr. Wennberg has identified savings on the order of 25% and improved patient results are possible for decades. In May, e.g., his team estimated that Medicare could save about $36 billion if chronic care patients received Cleveland Clinic-Mayo Clinic-style care. Similarly, the in the early 1990s CBO reported that private market innovations such as PPOs caused “the slowest rate of growth in [national health care spending] in over 30 years.”

    Two, private markets are the only way to obtain these stunning gains in value. No elected official or government agency could fairly be expected to produce results like this given the dollars involved and lobbyists. Private markets do all the time, once they see the opportunity. Remember PPOs in the 1980s-1990s, the iPod, Google, the horse and buggy, and automobiles, in 1890, etc. All of this in my opinion will come together as state and local governments start reporting huge unfunded retiree medical liabilities under GASB 45, current cost containment ideas we old timers have seen before under different names fail as they did before, and the Porter-Teisberg model is the only new idea left standing — like PPOs before.

    Finally, in the interest of full disclosure, I was privileged to help Mike and Elizabeth over the last six years develop their 2004 Harvard Business Review article and May 2006 book, was so taken by their idea I wrote and published a book chapter “Science Teams By Disease When Ill” in a Unique Value (2004), and started a company that is implementing their idea called Next Generation Healthcare, LLC.

  13. Jim Scott Says:
    October 10th, 2006 at 12:28 am

    I think Robinson’s title is exactly right - except I’d say that Porter and Teisberg are usually right. Patients do in fact experience care as episodes, and expect that we provide care in an integrated fashion across disiplines, facilities, and time. But we almost never do. There’s certainly a challenge in applying their paradigm to chronic care, where most patients have multiple chronic diseases, along with intermittent acute problems. That being said, the imperative to document value - actual outcomes, cost, and integration - is what patients want and deserve. We’re so far from measuring or reporting this kind of information that it leaves the consumer essentially flying blind, or basing decisions on reputation at an institutional level (which may have no relevance to their particular situation).
    I’m a sophisticated consumer - a primary care physician with over 30 years in the system, and a sophisticated understanding of evidence based care. About 18 months ago, I moved to a new community where I have only superficial knowledge of the system, and needed to find care for my two mothers in law - both nearing 90, and myself and my spouse. I could have done as well blindfolded with a dart as I did making decisions based on the limited information available to me. After this experience, I have a much better understanding of the challenge our patients face. Until we’re able to document for patients our compliance with evidence based best practice (clinical and operational) and outcomes, they’ll be shooting in the dark and frequently making poor decisions based on faulty assumptions.

  14. acpollack2 Says:
    October 9th, 2006 at 1:13 pm

    Episodes of care are clearly the next big thing. The IOM’s new report advocating Pay for Performance stresses them. So too do the proposed new CMS mortality measures. And episodes of care are the centerpiece of the PROMETHEUS proposal (if you haven’t seen it, it’s basically P4P on steroids).
    But for how long?
    If implemented as a means of further marketizing healthcare, not for long.
    The beauty of an episode of care from a clinical perspective is the recognition that care — and therefore responsibility — crosses institutional boundaries. But our healthcare system draws those boundaries in a very artificial way, based on a perverse mixture of social, economic and political legacies, decisions and interests.
    A real system, like the VA, can handle episodes of care — including estimating the cost of provision — because the entire episode is usually within system boundaries. So too sometimes can big private networks (within the limits of their need to maximize profits or surplus).
    If the episode of care concept inspires us to start financing health care according to need rather than profit, then we’ll be getting somewhere.

  15. lgelb Says:
    October 9th, 2006 at 12:21 pm

    An Alternative Take on Redefining Health Care:

    Redefining Health Care by Michael Porter and Elizabeth Teisburg purports to offer bold new solutions to fix the problems of American healthcare. However, in all too many cases, Porter et. al. simply rehash insights that fellow Harvard Business School Professor Regina Herzlinger set forth in her 1999 book, Market-Driven Health Care and elaborated on in 2004 in Consumer-Driven Health Care.

    Porter’s focus on purchasing health care based on the value rather than costs, his call to bring competitive market forces to bear, his mantra that repetition and volume drive medical quality and lead to lower costs, his focus on bringing performance data into healthcare and his endorsement of universal health coverage —- all these themes are vintage Herzlinger, disguised under the new buzz words of “value-based competition.”

    However, there is a big difference in perspectives between Porter et. al. and Herzlinger. This difference lies in the emphasis they give to consumers in driving systematic changes. Porter seems to prematurely dismiss the role of activist consumers in driving change (“ …whole books [have been] written about consumer-driven health care. But despite the fact that consumers have been more informed, the system has not been transformed”). Herzlinger, on the other hand, has always placed consumers at the center of her proscriptions and sees the U.S. healthcare as at the very beginning of this journey. Along these lines, Porter devotes eighty pages to “Strategic Implications for Health Care Providers,” fifty-four to “Strategic Implications for Health Plans,” fifty-eight to “Health Care Policy and Value-Based Competition” and only nine pages to “Implications for Consumers as Subscribers and Patients.” Content analysis reflects the esteem he accords to this particular cog in the wheel.

    Porter’s approach seems to rely on the same product-driven model of providers, health plans and government technocrats driving change that has led us into the current state of affairs. He also outlines a new step of paternalistic “responsibilities” for consumers: these six commandments are “participate actively in managing personal health,” “expect relevant information and seek advice,” “make treatment and provider choices based on excellent results and personal values, not convenience or amenities,” “choose a health plan based on value added,” “build a long-term relationship with an excellent health plan,” and “ACT RESPONSIBLY!” [emphasis my own].

    Herzlinger has eloquently expounded on all of these issues. However, she believes that consumers will naturally embrace managing their own health, use data (when it exists) to get the best care, choose providers based on what’s personally meaningful (for most busy Americans, convenience can certainly play a role) and build long-term relationships with a health plan (especially if the health plan is willing to offer them a long-term policy with guaranteed renewal and discounted rates in return for making a long term financial commitment). And, unlike Porter et. al., Herzlinger honestly believes that consumers can spearhead and accelerate transformations in the system, just as they have in other industry sectors like financial services and retailing.

  16. LFBaltrucki Says:
    October 8th, 2006 at 7:04 pm

    To Jay Brebner

    Re: Who is responsible for outcomes?

    (Again from the perspective of Integrated Health Care Delivery); In addition to the relationship between the doctor and his/her patient (which is at the very core of health care delivery), there is also a separate and distinct relationship between the patient/consumer and the health care organization. Like the health care system itself, this relationship is being redefined.

    Among other things, the “contract” between the organization and the patient should include oversight of professional standards/staff members and oversight of outcomes data.

    So my response to your question would be that each of the distinct groups of health care professionals together with administrative staff members of the health care organization should bear the responsibility for patient outcomes. Individual practitioners or even groups of professionals alone (without IT/administrative support) would not have the expertise or capability to effectively track outcomes, (and besides they should spend most of their time practicing medicine).

    Re: Reimbursement for “Integrated Health Care Delivery”

    This is a topic of great interest to me because I have been working with a comprehensive electronic medical record system for over ten years.

    Electronic patient records give us the means to move towards informed, “data-driven” valuation of professional activities. Now the entire sequence of events in the process/pathway of care can be “captured” for every patient in the system, in virtually every clinical setting, across the entire continuum of care. Every provider’s input, (and everything that results from it) can now be documented and its value can be evaluated objectively, based on “hard-data”. This is absolutely essential for health care professionals to explain and promote the value they bring to patients, their colleagues, and the system as a whole.

  17. Neil Gardner Says:
    October 7th, 2006 at 9:47 am

    drogersmd Says:

    October 6th, 2006 at 1:45 pm
    In response to Neil Gardner’s question:

    No, that’s not at all what I said.

    ————-
    I am getting at standards of care for both Diagnosis and Treatment, and repeatability for what is Dx and Tx in the medical encounter. It has to do with predictable quality, hopefully repeatable results and system accountability. The original post you made implies to me that only the individual physician’s intuition can make good results and every physician has to be left alone to follow his/her instincts. That behavior is self serving for the profession especially in a FFS environment, IMO, and is a major reason we are in the death spiral for the current system. I made my reply to you as an attempt to show you this need for repeatable actions within multiple potential encoutnters for the same complaints within the medical profession. In the interest of discussion, please explain your original answer in terms of guidelines, standards of care and repeatability and accountbility among providers for the same presenting complaints?

  18. JayBrebner Says:
    October 6th, 2006 at 5:40 pm

    LFBaltrucki,
    I think that paradigm of the more integrated care the better is exactly right and I think Porter would agree with you. So how should reimbursement be designed with this in mind? Porter and Teisberg have offered a way, although not perfect, that this can be done and still maintain competition. They “break it down” along the lines of the medical condition - cardiovascular disease, diabetes, cancer, etc - aknowledging that it must be broken down in some way in order for evaluation of results and comparisons to take place.

  19. LFBaltrucki Says:
    October 6th, 2006 at 3:55 pm

    To Jay Brebner,

    Re: (which physicians in your episode of care should be responsible for the overall outcome).

    In practice, there is (and there must be) shared responsibility. In the scenario that I mentioned the ER physician would be responsible for the initial evaluation/stabilization of the patient and making the correct decision (for admission rather than discharge to home). The hospitalist needed to recognize that the patient was “becoming critical” before he/she actually was critical. Each of the four intensivists were responsible for managing the patient pre- and post-operatively. The surgeons were responsible for their decision to perform surgery, the timing of surgery, their surgical technique/expertise and the post-operative surgical management. The infectious disease consultant was called in to help with the post-operative infection, etc.

    This is precisely the crux of the issue. As we move towards more collaborative models of care, any attempt to divide health care delivery into “segments” further perpetuates the thinking that health care in the 21st century can continue to be adequately described in the same terms that we have been using for the past twenty years. Health care is being redefined. We are moving away from episodic care and “crisis management” towards “risk management” and the delivery of care across the entire continuum of a patient’s life. We all (patients, providers, professors, policy-makers) need to change how we think about value, such that it conforms to this new paradigm and this new reality.

    Historically, (for care that has been fragmented), it has been relatively easy for us to think about (and devise a payment system for) “discrete episodes” of care. When care is truly integrated, however, and delivered from a “systems” standpoint, it becomes increasingly difficult for us to think about responsibility and specify reimbursment.

    This might actually represent a useful way for us to evaluate the health care that is delivered by any given system/organization. The more difficulty we have in “breaking it down” for various purposes, (assigning responsibilty, reimbusement, etc.) the more highly integrated and the higher the quality the care that is actually delivered.

  20. mkjgrima Says:
    October 6th, 2006 at 1:55 pm

    Competiton without mandated universal coverage just makes things worse, more money directed to fewer people, with diminishing marginal health returns, and in many cases, perversely, expanding marginal financial returns. It’s right in front of our noses, but we are ideologically incapable of seeing it. We will not compete ourselves out of this mess. To suggest we will is pretty near irresponsible.

  21. drogersmd Says:
    October 6th, 2006 at 1:45 pm

    In response to Neil Gardner’s question:

    No, that’s not at all what I said.

  22. JayBrebner Says:
    October 6th, 2006 at 1:30 pm

    In response to LFBaltrucki I would ask which of the physicians (or group) in your episode of care scenario should be responsible for the overall outcome? This I, believe, is the crux of the issue for Porter and Teisberg - who is responsible for outcomes? or “results at the medical condition level over the full cycle of care” as they put it. It may be an impossible task the way health care is delivered now by free agent MDs or large networks of physicians who are not properly incentivized (monetarily) to track outcomes. Porter and Teisberg suggest that physicians form Clinical Practice Units (CPU) that deal with a narrow condition and treat patients over the full cycle of care. It would be the job of the CPU to keep the patient out of the hospital in the first place or coordinate care once in the hospital to the best of their ability. The CPU would be rewarded with more or less volume of patients based on overall results/costs. Of course this may be impossible to implement regardless, but its worth a try at some level. Could you see yourself practicing under this arrangement?

  23. LFBaltrucki Says:
    October 6th, 2006 at 12:00 pm

    To Prof Robinson:

    I quite agree that health care organizations (and their leadership) have the “central role” in health care delivery. The fact that various observers can identify Intermountain, Kaiser Permanente, Mayo, etc. as leading organizations in health care delivery is highly significant.

    I also agree that the application of business management strategies to health care is long overdue. Since we are now in a knowledge economy, and health care is so knowledge intensive, the most important of these will be knowledge management. More specifically, when integrated delivery systems fully understand and begin to implement knowledge sharing into their daily practice and their strategic development plans, it will be difficult for other types of health care organizations to compete with them.

    Regarding “episodes of care”: Our lives, our health status and our diseases are dynamic and in many cases this leads to complexity. This is particularly true once we reach the age 55-60. In practice, it can be quite difficult to define an “episode of care”. The following care-path is quite typical where I practice;

    Urgent Care Clinic / ER > Hospital, Acute Care (2-3 days) > ICU (5 days) > OR > ICU (15 days) > Acute Care (5 days) > Discharge

    The patient had surgery, several procedures in the ICU, and due to complications and comorbidity he was seen by four consultants, in addition to the hospitalists and admitting physician.

    I also agree with other contributors that the CDHC-model has its limitations. Consumers are customers but patients are people!

    I also agree that we need to define a new paradigm and indeed this is aleady happening. One way to view the integrated health care delivery system is as a social innovation. It has the potential to radically restructure our nation’s health care environment. Among other possibilities it can help us to regain the relationships that we have lost in medicine, reconfigure the social networks that actually do the work in health care organizations and reestablish physicians as leaders that will ultimately be qualified to participate in every aspect of the health care delivery enterprise.

  24. Neil Gardner Says:
    October 6th, 2006 at 11:36 am

    Imagine a production line where every single piece of the product is different from the last or the next. That’s what taking care of patients is really like. It takes a caring, thinking physician to understand that. All the MBAs in the world can’t find a solution to healthcare reform unless they understand the true nature of the physician patient relationship and it’s constant idiosyncrasies.

    Are you saying that if the same patient goes to 20 different physicians, it is okay for 20 different things to be diagnosed and treated given the same reason for going?? If that is true, then indeed this in not science, and we cannot possibly group pay for healthcare.

  25. drogersmd Says:
    October 6th, 2006 at 10:41 am

    Re: Production Line Healthcare Reform:

    Imagine a production line where every single piece of the product is different from the last or the next. That’s what taking care of patients is really like. It takes a caring, thinking physician to understand that. All the MBAs in the world can’t find a solution to healthcare reform unless they understand the true nature of the physician patient relationship and it’s constant idiosyncrasies.

  26. Neil Gardner Says:
    October 6th, 2006 at 9:44 am

    sbolles Says: The question I have for the industry as a whole is this: can the system even survive without a legitimate focus on consumers as customers?

    So many issues come to mind reading this above