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HEALTH REFORM: Thinking Big, But Ignoring Big Obstacles

October 16th, 2006

Michael Porter and Elizabeth Olmsted Teisberg are experts in strategy and innovation, but, for better or for worse, they are relative newcomers to the health care arena. As a result, the language they use in Redefining Health Care often differs from the terms used by health policy analysts, even when their diagnoses and prescriptions are similar.

Porter and Teisberg’s basic theme — that we can cure many of the ills in health care if we encourage value-based competition — is a positive and timely message that is likely to be of widespread interest. This message, which Porter and Teisberg began to develop several years ago, is consistent with what many in the health care world are advocating and will resonate with some of the movements that are currently afoot, such as the drive for results-based payment, a.k.a. pay for performance.

However, I question one of the elements central to the way in which Porter and Teisberg would set up their value-based competition. The authors’ proposed units of competition are individual medical conditions; patients would be quoted a single price by each competing delivery network for the entire cycle of treatment for any given condition. While this would promote integration of care within each condition, it ignores a very important fact: Patients have a nasty habit of having more than one thing wrong with them. In Medicare, for example, patients with multiple chronic conditions account for a disproportionate share of spending, and patients with three chronic conditions see an average of 13 physicians annually. This creates a huge need for care coordination across conditions, which is why the IOM recently recommended not only that someone be designated to coordinate care for each patient, but that he or she be paid for doing so.

In addition, perhaps because they come from outside of health care, Porter and Teisberg gloss over some important issues that have proved to be very difficult in terms of politics, policy, or both. One example: Porter and Teisberg make an argument, which many will agree with, that it is hard to have a functioning competitive health care system if everyone is not involved in some way. The authors envision universal coverage achieved through some mechanism other than a government single-payer program — again, a concept that many in the health care world will find attractive.

Getting from “Here” to “There”

The difficulty arises in the cursory way that Porter and Teisberg discuss getting from “here” to “there.” They assert the need to subsidize low-income people and to somehow transition others into the new system, without very much detail about what that means. In fairness to Porter and Teisberg, they say early on that theirs is a book about delivery systems, not about insurance and financing, but it is unfortunate that they do not at least acknowledge the magnitude of the changes and challenges involved.

Moving to a comprehensive, all-in system is not impossible — indeed, some thoughtful politicians such as former Sen. John Breaux (D-LA) have put forth concrete and well-thought-out ideas for eliminating many of the separate “boxes” in our health care financing system. But anyone who has read Breaux’s work — which he discussed in a 2003 interview I conducted with him for Health Affairs — gets a sense of how difficult, on both political and policy grounds, such a transformation would be.

Similarly, Porter and Teisberg make a passing reference to every economist’s fondest dream — eliminating the tax exclusion for employer-provided health insurance. But they give little attention to the political difficulty of getting rid of the tax exclusion, or to the policy details of what would take its place.

Another area where Porter and Teisberg give short shrift to the complexities involved is their proposal — made by many before them — to establish a minimum coverage benefit. They talk as if one can grade interventions in binary fashion: either 1 for “works” or 0 for “doesn’t work.” But very little in health care is either 0 or 1 — it’s all about getting the information to determine what is likely to work for an individual patient, and it’s why benefit packages are frequently written in unhelpful language like “whatever is medically appropriate.”

Finally, Porter and Teisberg’s competition model requires performance measurements encompassing all of the clinicians and institutions that touch a patient during an episode of illness. These measurements go far beyond the siloed measures we now have for individual providers such as physicians and nursing homes, and the “moment in time” measures we have for discrete events such as physician office visits. Having just finished participating in a two-year IOM study on P4P, I can tell you that the challenges of putting in place such a comprehensive measurement system are more than formidable.

Porter and Teisberg pack a lot of detail into their book of over 400 pages, but on these and other issues — on the really hard stuff — the details are noticeably absent. It’s not that the authors need to solve all of these dilemmas; if they did, the selection committee for the Nobel economics prize could retire early. However, given Porter and Teisberg’s lack of background in health care, which has some advantages, I worry that they might not be aware of the immense barriers that stand in the way of achieving their vision of the health care system’s future.

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  1. Porter/Teisberg JAMA Article: Out-of-the-Box or Out-of Touch? - e-CareManagement - Chronic Disease Management • Technology • Strategy • Issues and Trends
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11 Responses to “HEALTH REFORM: Thinking Big, But Ignoring Big Obstacles”

  1. SteveBeller Says:

    In light of the “knowledge void,” the importance of deploying knowledge-based decision systems, and the potential of knowledge management practices and tools, I concur that scientific KNOWLEDGE & UNDERSTANDING – knowing the specific well-care and sick-care interventions with the highest value (effectiveness divided by cost) for every patient, and understanding how to deliver such quality care in the safest and most cost-effective manner – are necessary steps (probably the most important steps) toward solving our healthcare crisis. This will require focusing our efforts and resources on fostering positive practitioner-researcher and patient-provider collaboration and on creating a healthcare environment where continuous quality and efficiency improvements are fostered and rewarded.

  2. LFBaltrucki Says:

    To Neil Gardner,

    Considering this context, my comments were intended to be viewed strictly from an economic perspective; I believe that the application of business management principles to health care delivery in general, and knowledge management strategies in particular, will have a beneficial effect on our health care system, and that everyone, ( i.e. patient’s, providers, our nation, etc.) will share in these benefits. At the same time I acknowledge that what anyone posts can be appreciated from various perspectives.

    Your comments and question invite a variety of responses that I think would come down to one’s philosophy on life. If you have been reading my comments on this and other topics, (biotech threads, etc.) you already know how I will answer your question. I feel that more than anything else, we have lost relationships in medicine and looking at health care delivery from the perspective of rebuilding the relationships we have lost, in the new context of the 21st century delivery system, is a useful mental model.

    Although this is overly simplistic, (briefly) in an “idealized” health care system I see patients, health care providers, and the health care organization as “partners” who are working together to create “good health”. In such a system care is indeed patient-centered, efficient, cost-effective, etc. but at the same time members of each group are aware not only of their own needs, but also of the needs of others in their group and the other two groups as well.

    Patients, for example, would be educated about health care utilzation issues. They would realize that resources are indeed limited and make responsible informed health care/lifestyle choices etc. They would also learn enough about the complexity, subtlety, and uncertainties that are related to medicine and health care delivery to know the difference between what reasonable and unreasonable expectations are, and to better understand why there are bad outcomes in some clinical circumstances despite the fact that everything that could be done was done and that no mistakes were made.

    In return, the doctors and the health care organization (i.e. executive leadership, etc.) would both be patient advocates, seeking the best outcomes with the best treaments available, all other considerations being of secondary importance. Treatment decisions concerning health care resources would be made by physicians, not financial officers and based on evidence. In the absence of clear cut evidence, physician experience would be given due consideration. The administration would work together in partnership with physicians to develop a truly collaborative leadership model of governance.

    In such a system, the patient-physician relationship would be strongly supported. The health care would be completely integrated, incorporating preventative care and “risk management” components into acute/episodic care, across the entire continuum of a patient’s life.

    So my answer to your question is that we as a society do indeed “own” health care knowledge and that those who are in a position to expand this pool of knowledge should do so in such a way that the benefits to their fellow human beings are maximized.

  3. Neil Gardner Says:

    LFBaltrucki Says:

    October 27th, 2006 at 1:04 pm

    The health care industry is just now beginning to recognize what other industries have known for well over a decade. Our economy is now a knowledge economy and the key to any organization’s (or any profession’s) success will be the effective management of its collective knowledge or “intellectual capital”.

    This above information/subject line forces me to write the following that I have contemplated on for many, many years. The knowledge that makes healthcare possible is largely built on and derived from the failures, deaths and successes of our related family lineage suffering going back over time. The suffering and guinea pig aspects of all our ancestors has paved the way for this knowledge that some profession now controls for some reason. My obvious question then is does that make healthcare knowledge a product of value that we all own indirectly and should all benefit from directly because of where and how it came from??

  4. LFBaltrucki Says:


    The health care industry is just now beginning to recognize what other industries have known for well over a decade. Our economy is now a knowledge economy and the key to any organization’s (or any profession’s) success will be the effective management of its collective knowledge or “intellectual capital”.

    A Disease Management program, like many other health care enterprises, is fundamentally about knowledge and “connectivity”; the knowledge and expertise of the people involved in delivering the care and the particular manner in which they are connected to patients and to one another.

    In the era of the knowledge economy, the highly successful health care organizations will be those that develop an overarching strategy for their knowledge management, such that value to patients, other stakeholders, and the system as a whole, is maximized.

    Concerning the relationship between DM and the Integrated Delivery System:

    Where does a “disease management” organization end and integrated health care delivery system begin? The answer to this question may be fairly obvious now, but this may not be the case five to ten years from now. The more comprehensive the services offered by a DM enterprise the closer it comes (in theory) to an integrated health care delivery system that has areas of exceptional care.

  5. Jaan Sidorov Says:

    Re: Gail’s comment about patients having a nasty habit of seeing 13 physicians annually.

    This may be a good time to bring up the solutions offered by “disease management,” which I define as a system of care that increases quality to manage insurance risk for populations defined by a chronic condition. Assuming for a moment that increases in some quality domains can reduce insurers’ claims expense within a fiscal year (admittedly debatable, but the data suggests it’s true), the DM industry discovered years ago that their chronically ill enrollees had multiple co-morbid conditions and developed tools to address them. They had to: focusing only on a single condition meant not meeting their performance guarantees.

    Long gone are the days in which DM “vendors” balkanized health care; they are now grown-up DM “organizations” with an integrated interlocking approach that can coordinate care across multiple co-morbidities. In the case of heart failure, the data has been compelling enough to warrant the AHA/ACC to include DM in their latest guideline for the management of heart failure – the number one cost DRG among Medicare beneficiaries. Look close at any DM organization that manages diabetes, and you’ll find programs that co-manage hypertension, hyperlipidemia, tobacco abuse, obesity and coronary artery disease. You’ll also find a growing alliance with primary care physicians (who need all the help they can get) who, like Gail, think there is a better approach to care than the 13 physicians, 12 of whom get home earlier and have a better take home pay than the “lucky” 13th.

    I am still digesting P&T’s book, but it seems to me that the condition “episode” care and financing approach for the chronically ill is already in place and being relied on by the majority of commerical insurers. These are the ones who are already buying longitudinal team-based services based on value.

  6. LFBaltrucki Says:

    Not wanting to diminish in any way Adam Smith’s contribution to modern economic theory and practice; allow me to suggest that health care cannot be compared in every respect to other industries.

    Physicians as Commodities: (sad but true)

    I am a physician. I am a pathologist. I am a Federal (VA) employee. In many respects I am being viewed as a commodity. A component of my salary is even called “market pay”. The unfortunate reality for me is that the people who are determining what I get paid (both at the national and local/regional levels) understand little or nothing about what I do or the value that I actually bring to Veterans, their clinical providers, and to the system as a whole. (Even worse, they don’t care). In fact, the criteria that they are using are almost completely disconnected from my contribution to patient care.

    The Clinical Laboratory: (Something I actually know a bit about)

    While the health care industry has been striving to develop an “evidence-base” to support the practice of medicine, the evidence that various agencies have been using to determine the value
    that pathologists and medical technologists bring to health care has been meager at best and is becoming increasingly irrelevant as we move towards more collaborative models of health care delivery.

    As I mentioned in a previous post on another thread; with the advent of the electronic record the input of every provider in every specialty (and everything that results from it) can now be documented and the value that we each bring patient care can now be determined objectively (and jointly) based on hard data. This function of the EMR would be somewhat analogous to abstracting patient records for coding/billing purposes, and there is absolutely no reason why we should not be moving towards this model of “data-driven” valuation.

    Let’s consider patients customers, but at the same time let’s get real.

    Have you ever been a patient? What about someone close to you?
    Have you ever been really sick? Have you ever had a life-threatening illness?
    Did you, a friend, or a family member ever need to go the hospital “right away”?

    The point of asking these questions of course is to underscore the reality that the circumstances under which we make our decisions concerning utilization of health care services may be a matter of some urgency, and they do not lend themselves to the value model proposed by PT. An elective colonoscopy is another matter, but do we really want to further fragment the patient health care record?

    So what do we all value in health care? We desire high quality relationships!

    I think it is fair to say that we all want to deal with doctors that we can trust, with someone who know not only about medicine but someone who also knows us, and who cares for us; a doctor who is looking out for us, helping us, guiding us, keeping us from harm, and if possible making us better.

    More than anything else we (patients and their doctors) have lost relationship. Patients have lost physicians serving as their advocates. I am not suggesting that it is desirable or practical to return to a “paternalistic” model of medical practice, but if we consider the entire spectrum of patient-consumers, I think it is important for us to acknowledge that their will always be some patients who need more (or desire more) help than others in navigating the health care system.

    Allow me to suggest that an important component of the value proposition in health care delivery can be expressed in terms of the quality of the relationship that exists between a patient and his or her doctors, as well as the relationship that exists between the patient and the health care organization.

    In terms of health care economics / health policy; are there any practical means of supporting or building better relationships (as a measure of value? or of quality?)

  7. Charles Weller Says:

    Several thoughts on Gail’s important comments.

    1. Multiple Conditions. On Gail’s central point about Porter & Teisberg’s “value based competition” being based on patient medical conditions not being limited to one condition but including all patient co-morbidities, Gail, Mike and Elizabeth are actually in total agreement. All conditions affecting a patient are the focus of P&T’s idea, not one. Indeed, that is a key reason Mike and Elizabeth spent so much time with Dr. Toby Cosgrove, other doctors and others at the Cleveland Clinic in preparing their book. The Cleveland Clinic of course specializes in treating patients with multiple conditions.

    2. Implementation. On the lack of detail in getting from “here” to “there,” Mike and Elizabeth I suggest provide an extraordinarily important, very unconventional and undoubtedly controversial solution to how to get many things done quickly and broadly and with great benefit to patients and many others.

    Don’t make the make the “totally innocent” or “naive” mistake Uwe Reinhardt colorfully but importantly makes in his comment, and propose government solutions that PACs and other political actors will certainly affect. As I detail in my blogs on Uwe’s and Jamie Robinson’s comments and in my book chapter on P & T’s model “Science Teams By Disease When Ill,” Mike and Elizabeth’s breakthrough private market solution does not require government action at any of the 53 levels of government normally involved (Federal, state, DC and Puerto Rico, plus local governments some times too).

    No government legislation or action required.

    Further, because P & T’s central focus is patient’s with know n disease systems, as a legal matter payments to providers is not insurance subject to state insurance department regulation for at least 50% of health care spending. Thus implementing their model is greatly simplified in many contexts.

    For those unfamiliar with private solutions, I suggest Charles Schultze’s classis The Public Use of Private Interest (Brookings 1977) in general. On how quickly and broadly they can take affect, I suggest first reviewing how PPO benefits and networks grew from an idea to dominance in the 1980s-90s (my point is not whether PPOs are good or bad, but as a legal and practical how private solutions can work). As to the potential impact of private solutions, I suggest the CBO’s report that private market innovations including PPOs in the early 1990s caused “the slowest rate of growth in [national health care spending] in over 30 years.”

    (In the interest of full disclosure, I was privileged to help Mike and Elizabeth over the last six years. I was so smitten by their idea I wrote a book chapter “Science Teams By Disease When Ill” on practical aspects of their idea in Unique Value published in 2004, and now run a company implementing their model called Next Generation Healthcare, LLC.)

  8. Nainil Chheda Says:

    The concept of applying Game Theory into Healthcare is always fascinating. The rational choice for firms is to stick with the fundamentals. Focus on patient centric approach. Good quality, low cost, acceptability, security and interoperability are the main traits of a successful healthcare system.

    An unexamined patient is not worth treating. Thus the same way an unexamined problem in healthcare is not worth solving.

    Technology is commoditized in healthcare and thus leading it into some dominant platform that no one can access. We need to make healthcare services commoditized so that it instantly becomes available to everyone which is to everyone’s benefit, except of course to the dominant platform owners.

    For a proper Win-Win situation we need a total of two thing: competition + co-operation. This is many a times also termed as co-opetition.

    Nothing is more useful than water; but it will purchase scarce anything; scarce anything
    can be had in exchange for it. A diamond, on the contrary, has scarce any value in use;
    but a very great quantity of other goods may frequently be had in exchange for it.
    — Adam Smith, Wealth of Nations, 1776

    Two hundred years ago, Adam Smith presented a paradox concerning water and diamonds: Water is essential to life, while diamonds are not. Yet water is essentially free, while diamonds, alas, are not.

    We are all iterating the same point in this case. We all are mentioning that value based approach towards patient health is the future of healthcare. At the end our goal is to improvise the current healthcare system by defining proper processes and approach mechanisms.

  9. JayBrebner Says:

    I keep hearing the same dismissive opinion of PT’s work and it is not encouraging. As a health services administration student I was hoping that this dialogue would be more welcoming of the idea of creating value at the medical condition level as best as we can given what there is to work with in the current system. PT give numerous, already existing specific examples of where the system is working better and what the possibilities are for improvement. And they do discuss the issue of chronic conditions and incentivising primary care providers to track the coordination of care maybe not as thoroughly as some would like but it is in the book. I think it is a straw man to argue that PT advocate or would expect a single upo front price for an entire episode of care (they may be naive but but come on) What they say is that value is derived from volume and experience and the efficiencies that can be created in such a system – and that good outcomes and not simply processes should be rewarded with a greater volume of patients.
    Granted health care is difficult and will always be so regardless of the system nbut we have made a complete mess of things and time is running out for a private market solution. I think this book demands imagination – maybe even suspension of disbelief – but I don’t think it should be disregarded so easily.

  10. SteveBeller Says:

    Yes … The obstacles to meaningful transformation are formidable and the complexity of our healthcare system is mind-boggling.

    Needed, for example, are changes to policies, clinical and economic process models, mind-sets and perceptions, motivations and incentives, how information systems are use, approaches to knowledge dissemination, methods of competition.

    Enabling such changes requires thought-leaders, wide-spread cooperation among practitioners of different disciplines across entire care cycles to deliver coordinated care, collaboration between clinicians and researchers to develop and evolve evidence-based guidelines, integration of sick-care with well-care, incorporation of genetic/genomic information and patient preferences and characteristics into the diagnostic and treatment prescription processes supporting personalized care, adequate patient-provider communications, consumer empowerment through transparency and self-care knowledge, sensible incentives for providers and patients that are tied to results, universal coverage, next generation clinical decision systems, interoperable information sharing system, antidotes to fear and greed, overcoming the knowledge void and self-deception, and a high fidelity healthcare environment enabling and supporting all this.

    One useful way forward would involves understanding and analyzing the current healthcare system with its many parts and interactions (building an “As Is” model); collaborating to develop hypotheses about what changes are desirable and how things would be better with them (building a “What If” model); sharing and comparing multiple What If models and using them to perform and analyze what-if scenarios; constructing critical success factors and key performance indicators based on the results of the what-if analyses; collaborating to develop strategies and tactics for transforming current processes to achieve the desired results (building a “To Be” model); collaborating to develop justification for making the transformation; executing the transformational to-be model; and evaluating the results, which are used to refine the model over time.

    Conversations like we’re having here and around the country tend to focus on analyzing the As-Is and conceptualizing What-Ifs. It would probably be helpful if started to focus more attention on systematically performing and evaluating different What-If scenarios and using that knowledge to emerge To-Be transformational models worth deploying.

  11. LFBaltrucki Says:

    Re: Getting from “Here” to “There”:

    Isn’t this one of the most significant aspects of the situation; the fact that it really is a chasm as opposed to a fissure?

    It might be useful to take the “Idealized Design” approach championed by Ackhoff (assuming that we can agree on what is ideal) and work backwards towards where we are right now, but at the same time shouldn’t we break the delivery system and the process of health care delivery down into areas that have already been defined as problematic and approach these systematically in a rational manner with the guidance that has already been provided by the IOM (rather than attempting to create the ultimate delivery system from where we stand today)?

    Re: Fragmented Uncoordinated Care / Hugh need in care coordination

    Our health care is fragmented! It is uncoordinated. Patients have become disconnected from providers and providers have become disconnected from one another, (to the detriment of their patients). We all agree that this is a problem. We all agree that this is a “quality” issue and that it also relates to the value of the health care that we are paying for. I think that most of us would also agree that the current system of reimbursement does not adequately address this problem.
    The process of transforming our nation’s health care system has begun. We have the guidance from IOM. How can we justify failing to act on their advice?

    Part of the answer to this question is that we have information and experiences that are potentially valuable, but for a variety of reasons, they are difficult to share. As an example; working in the VA for the past 10 years, I have learned how the EMR can have both beneficial and adverse effects on the coordination of care, but up until now, there hasn’t been an opportunity for me to share what I have learned with anyone who might be in a position to do anything about it. (Such is the nature of a Federal bureaucracy). On the other hand, I believe that the VA is a “national resource” and that it might provide us with information that could be incredibly valuable in helping us to design “our nation’s” helath care system.

    Just in the context of doing my job (mostly focused/limited/unstructured chart review) whenever I open a patient’s electronic record, I have an opportunity to learn something new; something about clinical medicine, about health care delivery processes, about patient-flow, multi-disciplinary care models, integrated care, systems failure, etc.

    For our nation to derive the maximum benefit from the VA’s database it is time for us to consider changing the way we think about its mission, (i.e. not just like an entitlement program) but also a learning laboratory that can inform us (in both the public and private sectors) about health care delivery. We should consider thinking in terms of the VA being a resource (rather than merely something that we must pay for).

    Health care professionals, (like economists, policy makers, etc.) are all extremely busy. Physicians move quickly and efficiently from task to task, continuously generating new data and information, in the context of patient care. But what about the information that already exists in the EMR’s data repository? Is anyone taking the time to analyze the data? If so, who are they and why are they doing it? What are they using the data for?

    The reality is that very few health care professionals who are actively engaged in patient care are actually taking any time to analyze the patient data, but this could very easily become part of their job description. Allow me to suggest that systematic review of the electronic patient records by multidisciplinary teams, (including clinical providers) will provide us with some of the information that we we need to transform our health system, (i.e. it will help us to get from “Here” to “There”) .

    If we think in terms of how the health care dollars we spend are translated into information that can actually be used to redesign our health care system, then allocating additional resources to the VA (with an expanded mission that includes more extensive delivery system research), becomes one of the best investments we can possibly make.

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