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HEALTH REFORM: Redefining Health Care



March 23rd, 2007

We want to thank those who contributed to a lively debate about our book, Redefining Health Care. James Robinson sums up our argument succinctly: “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.”

Today, twenty-first-century medical technology is often delivered with nineteenth-century organizational structures and management practices. Siloed specialties, fragmented care, fragmented provider entities, little or no results measurement, primitive cost accounting, and outdated information technology — no wonder quality is uneven and costs are high and rising.

Access and cost containment have been such intractable problems that they dominate the policy debate. Universal access is essential for both equity and efficiency, but the deeper problem is value. If reform fixes access but leaves the delivery system unchanged, universal insurance combined with an aging population will mean that costs skyrocket. Only by truly restructuring the organization and delivery of care will dramatic improvements in value be achieved. Incremental improvements in processes, or rewards, or waste reduction in current structures will not be enough.

But how can the nation fix anything as complicated as health care delivery? Gail Wilensky and Uwe Reinhardt have certainly earned the right to remind readers that “getting from here to there” is really hard work. Indeed, expecting a governmental “big bang” to fix the problems would be naïve. Fortunately, that is not needed. Markets can deliver stunning improvements in quality and efficiency when competition operates on the right things. The focus must be to enable competition to achieve excellent health results. The nation can no longer afford a system where the financial success of the players in the system is disconnected from success for patients.

Value for patients is created by improving results over the full cycle of care for their medical conditions, where a medical condition means a set of interrelated medical circumstances that are best treated in an integrated way (e.g., pages 44, 105, 419). This suggests a radical change of organization from traditional medical specialties to a patient-centric model. Impossible? Organizations in the vanguard are already beginning these strategic changes, which is how industry restructuring usually occurs.

The nation will achieve dramatic improvements in health care faster if there is widespread agreement that the primary goal is to improve value for patients. Such agreement would encourage widespread measurement of results (risk-adjusted outcomes and prices) at the medical condition level.

There will be different approaches to pursue value improvements, and that is fine. Alain Enthoven, for example, believes that integration of health plans and delivery systems can ultimately be more effective than our proposal for multispecialty practices organized around the patient for each medical condition. (For our deep concerns about integrating payers with providers, see our 14 March 2007 JAMA article [subscription required] and pages 165-167 of Redefining Health Care.) However, competition on results at the medical condition level will leave room for many types of practice models to prove their value.

The restructuring we envision will be both evolutionary and revolutionary. Well-chosen policies can accelerate change, but value-based competition cannot be mandated from the top down. The “hard stuff” that Wilensky looks for — the details of restructuring — will come from health care professionals themselves, from the bottom up. This vision is not government-led, consumer-driven, or payer-centric. Value-based competition is physician-led, results-driven, and patient-centric.

Already, the pace of innovation is accelerating. While the barriers to restructuring delivery structures, reimbursement, and information are formidable, achieving only 50 percent of the goal will still leave all parties far better off. There is no reason to throw up our collective hands, as Reinhardt suggests. The opportunity for reform is far greater today, with health care in crisis, than a decade ago. Today, no one is defending the status quo.

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18 Responses to “HEALTH REFORM: Redefining Health Care

  1. Vince Kuraitis Says:

    Drs. P & T,

    In my eyes you are guilty of drive-by blogging.

    The point of a blog is to have a dialogue, to learn from others’ POV, to advance our collective knowledge and wisdom.

    Dropping off a posting and then disappearing from the conversation does not fit the spirit of blogging.

  2. John Haughton Says:

    Do incentives change behavior? At least 2 great examples exist out there…

    1) Changes in the Skilled Nursing Facility and Home Care use / Public company stocks after the Balanced Budget Act in the mid 1990′s (1997?) — Act comes out. Payment changes. Industry responds within a year or so.

    2) Changes in rates of hospital reporting for less than 1% in medical fee difference in the last few years — Incentive in place, Reporting rates skyrocket…

    Bottom line — Healthcare is really really smart when it comes to seeing incentives that matter and responding to them. For now, it may be (and likely is) completely rational for a Physician, especially a small practice physician, to consider holding off on purchasing an electronic health system / record…Why? a) Lots of friends who bought systems in the last 5 or 10 years have had to replace them (tech changes, didn’t work well, etc) – “Spend $20K and not solve my problem issue”. b) Lots of friends bought systems and lost productivity – handwritten notes for primary care docs who were not doing transcription anyway cost less than any extra documentation time with the electronic tools. – The “I might cut my revenue issue” c) Systems are getting cheaper – Who bought their first calculator in the 70′s for $500? $200? $20? $2?… d) Low revenue and pressure on primary care due to current reimbursement policies – the “Send my kid to college or get an EMR issue” – the kid goes to school and the system I buy next year or the year after is cheaper, more patient centric and will meet the emerging policy PAYMENT changes coming downstream… Medicare 1/2% (75 cents a visit +/-) coming to primary care in July may be just the beginning…

  3. Nate Kaufman Says:

    I agree with my old friend Vince K. — first assume you have a row boat — then assume you have someone who knows how to row — then assume you have someplace to row — then you cure cancer

  4. RobertBurney Says:

    P&T are on the right track, but there’s no locomotive. Heatlhcare is not in crisis–the rise in costs is moderating. No one is interested in price competition at the individual service level. (see discussion at http://www4.asq.org/blogs/healthcare ) We need to start small with value transparency for patients (money and time). Technical “quality” must be assumed, since patients depend on auditors for that (accreditation, state licensing, etc.). As patients become responsible for more of the cost, they will be more interested in prices. As patients select higher value providers, competition will increase and costs will come down.
    Start with a few high volume/cost procedures (total hip, total knee, inguinal hernia, etc.) and expand the list annually. The only thing missing now is a requirement that providers publish prices for their services and some incentive for payers to select high value (low cost) providers.

  5. andrewhorning Says:

    I don’t understand why we make this so complicated. The Free Market works better than anything else yet devised precisely because it doesn’t depend upon any precognition of innovation, competition or politics. Our healthcare system hasn’t been a free market system since the AMA became a powerful union to eliminate all the phrenologists, snake-oil salesmen and other charlatans.
    The charlatans remain, and our system, without competition and with absurd collusion from politicians, has become a USSR-style mess of Central Planning.
    I’ve worked in the healthcare industry since 1979 (research, clinical and industry roles), and have seen innovations that should have made healthcare cheaper, more available and higher quality turn into a tortured soup of taxation, regulation and litigation that makes everybody sick.
    Look at the relatively unregulated computer/software industry and you’ll see that technology is supposed to make things better and cheaper.
    This is simple.
    Kick politicians out of the operating room and let engineers, doctors and entrepreneurs supply the needs that patients determine are needs.

  6. Matthew Holt Says:

    Jose. OK You admit it.

    We are nowhere close to getting those incentive changes. Mediare collecting a few quality indicators, Leapfrog involving 2% of big employers in minor P4P in small parts of their networks, and a few medical groups in California and Boston being paid 10% more for stuff they were already doing, does not a sea-change in payment systems makes.

    Meanwhile the great mass of doctors, hospitals, pharmaceutical companies and suppliers who are responsible for basically all health care spending as you say are rewarded for concentrating on the “acutely sick on a FFS scheme, resulting in episodic, disconnected care” with the “damaging consequence is the homogeneity of provision models and their inertia to change.” And worse they have a discincentive to change because if they move to these other models they will get picked apart and go bankrupt given our current “zero-sum competition” model.

    Yet P/T, you et al give no indication of how a global change to the incentive system will come about, and worse they dismiss it as being unimportant. Particularly as the consumers on whom most of the money is spent are the last people to become as you say “equipped to make informed decisions (considering cost and quality) and ha(s)ve the incentives to shop around”.

    But of course if most providers change in the way P&T suggest, they’ll go under. P & T dismiss this problem out of hand

    That’s why their work is intellectually shallow.

  7. Nate Kaufman Says:

    I would agree with my old friend Vince — First Assume a row boat then assume you can figure out how to row then assume that there is someplace to row to and then cure cancer –

  8. ruthgiven Says:

    Having read the P/T book and JAMA article, I have to agree with most other respondents that financial incentives for MDs are not taken seriously enough and as a result, predictions about the prospect for a system redefined based on “value based competition” seems vastly overstated.

    I say this from the perspective of an economist who used to work for physicians. A few years ago, I was the director of public policy research at the California Medical Association. From this experience I learned that most MDs, as small business-owners, are very financially conservative and even risk averse. Moreover, most MDs are extremely distrustful (to the point of hostility) of their largest payers – health plans and Medicare. Yet P/T believe that MDs will embrace this new approach to patient care, with the expectation that after high “sunk cost” practice changes have been made, the major payers will quickly and cheerfully revamp their financial reward systems to make it all worthwhile for the MDs.

    P/T’s proposal relies on a number of problematic assumptions. The one I find most troubling is the force they identify driving health system redefinition, which they seem to have reached by the process of elimination. After deciding that the government and/or consumers alone are not up to the task (probably rightfully so), they conclude that MDs are the solution. If so, MDs must clearly see the benefits (to patients and to themselves) of “value based competition.” While not always be the case, it’s been my experience that many MDs are prone to viewing the status quo (if currently financially rewarding to themselves) as the best of all possible worlds. Of course, everyone agrees that improvement is possible, but nobody wants to admit he/she is currently practicing shoddy medicine.

    But even if current problems are recognized by many MDs, the cure (esp. if cost is likely to be high and efficacy is uncertain) may be considered worse than the disease. This is not, I think, because MDs will shirk the responsibility to uphold the standards of their profession. It is mainly a problem of “collective action,” where the private costs relative to private benefits deter individual action even in cases where society (including these individuals) as a whole would be better off.

    With respect to “value based competition,” MDs will only benefit if a critical mass of their colleagues switch to this approach, forcing payers to change their reimbursement mechanisms. The big question is how to convince rationally skeptical MDs that this is likely to happen. I think a reasonable but not perfect analogy would be a country’s decision to switch vehicle traffic from one side of the road to the other. You might not need detailed “top-down” rules and regulations or a public subsidy, but you do need a strong form of coordination to convince drivers that this was going to happen and when. Note that in this case, there are no benefits (and serious costs) to being a “first mover” if everyone else is still operating under the old system.

    P/T provide a number of cases of provider practices which appear to be moving in the direction of “value based competition.” Based on my comments above re collective action, I would have to question whether these are truly “vanguard” players setting a revolutionary example to inspire the remaining providers. I think they are more likely specialized niche players who can survive or even be successful on their own but represent an evolutionary dead-end, since most other providers don’t see their model as generally financially sustainable, without major changes to the reimbursement system.

    I’m glad to see that P/T are presenting their model and argument for its superiority directly to the medical profession. Based on the title of their JAMA article, “How Physicians Can [not Will] Change the Future of Health Care,” P/T seem to realize that MDs will not automatically buy in. It will be interesting to see the response of JAMA readers.

    In any event, P/T’s current research could benefit from a little “casual empiricism.” I recommend they ask their own personal MDs (non-random sample of 2, but better than nothing) what these MDs think of their proposal and the likelihood (based on expected risks, costs and benefits) of changing their own medical practices to conform to “value based competition” anytime in the near future. But that’s only a small sample, subject to self-reporting bias. For the system as a whole, ultimately time will have to tell. Monitoring the medical profession’s adoption of “value based competition” over the next 5-10 years would make an interesting natural experiment and perhaps be a good dissertation topic for one of P/T’s doctoral students.

  9. Jose Martin Says:

    Matthew, I agree that for the value-based competition proposed by P&T to flourish, a major change in incentives is needed. However, even within the current system, with providers maximizing against the often perverse incentives, change is possible and perhaps already underway.

    The current reimbursement methods are skewed towards the attention of the acutely sick on a FFS scheme, resulting in episodic, disconnected care. But their most damaging consequence is the homogeneity of provision models and their inertia to change.

    The emergence of new delivery models (focused providers, concierge medicine, retail clinics, disease management) is a promising development. Their impact is still negligible, but we are probably just seeing the tip of the iceberg: a latent rebellion against a system that forces uniformity in provider business models against the diversity of preferences of both physicians and patients.

    In the end, however, only when the consumer is equipped to make informed decisions (considering cost and quality) and has the incentives to shop around, will these new models (and more sophisticated ones) become mainstream. And, yes, we are not there yet.

  10. Matthew Holt Says:

    BRogers. I indeed read the book cover to cover & took lots of notes because I was lined up for an interview with Elizabeth Teisberg by her PR company. However,–doubtless because of scheduling conflicts or something– the interview never happened. My offer to Elizabeth to explain to me why I’m wrong about them is still out there.

    As Vince alleges P & T don’t deal with the main problem. I totally agree that it would be great is providers would reform themselves. However as Michael Millenson showed in Demanding Medical Excellence ten years ago, if those who improve quality and performance for the sake of it end up going bankrupt in the process, then not many others are likely to follow that path.

    To be fair to P&T they make some suggestions about everyone being offered FEBHP, but they’re clearly not really interested in overall insurance/financing reform which every other nation has shown is the key to reducing costs. Can we do better than other nations in getting better value out of our system? Maybe, but not the way P&T are showing us, unless the incentives change first.

    You say “Changing the incentives has been tried time and time again, and led to different unintended consequences each time”. That is just false. The US system has and has always been a FFS, and Fee per episode system. Which is why we’re so good at doing so much and so poor at figuring out how to do it better for less

  11. Vince Kuraitis Says:

    I spent $15 to purchase your recent JAMA article, hoping you would add substance to your commentary. The article is disappointing, unrealistic and dangerous.

    1. Disappointing: Please Answer the Challenges About Why Your Theory isn’t Workable
    2. Unrealistic: Money Does Matter a Lot
    3. Dangerous: Measuring Process in Health Care Does Add Value

    Please read more at the eCareManagement blog:

    http://e-caremanagement.com/porterteisberg-jama-article-out-of-the-box-or-out-of-touch/#more-54

  12. Bob Doherty Says:

    I agree that value-based competition must be physician-led, results-driven and patient-cenric. The American College of Physicians (my employer) has proposed comprehensive reforms to restructure payment and delivery systems to support a patient-centered medical home. Key elements of this model include: a personal physician who accepts responsibility for a patient’s whole health, application of systems at the practice level to support care coordination and information sharing and integration among teams of health care professionals, the patient, and other caregivers, and accountability and transparency including reporting on evidence-based quality measures. We propose a reimbursement model that would include: bundled and risk adjusted and prospective care coordination fees, a fee-for-service component for face-to-face visits, and a performance-based component. This model has also been endorsed in a statement of joint principles by ACP and the three membership organizations representing primary carse physicians–the American Academy of Family Physicians, American Academy of Pediatrics, and American Osteopathic Association. Collectively, these four organizations that represent over 330,000 physicians and medical students. Large employers also support the model: on March 12, ACP and AAFP co-hosted a meeting with the ERISA Industry Committee, the National Business Group on Health, consumer organizations, the NCQA, and other participants to discuss patient-centered primary care and the medical home model. The agenda and hand-outs from this meeting can be found at:

    http://www.eric.org/forms/documents/DocumentFormPublic/viewDoc?id=9E4300000023

    Information can also be found on the ACP website: http://www.acponline.org/advocacy

  13. BRogers Says:

    Lots of people who actually have worked or work in the delivery part of the health care system (not the payer part, or the pundit part, or any other part of the system) need to read this book. I agree, their proposal may not work as delineated, but commenters are missing their most important point – merely changing the incentives will not change the system. Changing the incentives has been tried time and time again, and led to different unintended consequences each time. The entire delivery system itself must be changed – from within. Perhaps outsiders need to provide the pressure to change, but only all the players together can change it. Matthew – did you actually read this book cover to cover?

  14. annecarroll Says:

    “The restructuring we envision will be both evolutionary and revolutionary. Well-chosen policies can accelerate change, but value-based competition cannot be mandated from the top down… the details of restructuring — will come from health care professionals themselves, from the bottom up. This vision is not government-led, consumer-driven, or payer-centric. Value-based competition is physician-led, results-driven, and patient-centric. ”

    Anyone who is familiar with the patient safety “movement”: the myriad organizations and individuals in the US (in the public, private, and independent sectors) and at the WHO, all of whom are devoted to improving the quality and safety of health care delivery, and theorizing upon and designing interventions for how to make health care services more “patient-centric;” and the many years of effort and the many dollars of value that have been expended with these goals in mind —would understand how intractable the above proposition is in real life. This statement by Porter and Teisberg can only be characterized as cavalier.

    Aside from the misplaced economic incentives for providers that define the current “system”, and the piecemeal attempts at “reform” (pay-for-performance, adopting a “disease management” paradigm, etc.), one would want to believe that the greatest “incentive” for providers would be to stop killing and maiming their patients (this would go a long way toward “customer satisfaction” and might even be a “competitive advantage”). Yet, there is ample evidence that progress in this area is slow and uncoordinated in the eight years since the IOM report, “To Err is Human”
    (http://www.kff.org/kaiserpolls/pomr111704nr.cfm, http://jama.ama-assn.org/cgi/content/short/293/19/2384, http://content.healthaffairs.org/cgi/content/full/hlthaff.w4.534/DC1 and many more). Indeed, most of the suggestions of the “experts” are calls for government policies and interventions to improve the quality and safety of the delivery system, because they recognize that a piecemeal approach “from the bottom up” would only have piecemeal results in making the system more “patient-centric” (i.e., safer and more efficient and effective). If it’s so patently obvious that if providers only understood that being “patient-centric”, “results-driven”, and improving their quality and efficiency in a “bottom-up” manner, would result in their being “competitive” and the entire national health care system would benefit as a result–what has been stopping them?

  15. Matthew Holt Says:

    I invite all and sundry (and Profs Porter and Teisberg too if they actually read these comments) over to THCB where in the last week a debate has been raging over whether the gaggle of HBS professors who’ve been getting into health care really understand what they’re talking about or add much to the debate. My main contribution about Porter/Teisberg in which (in I hope affectionate terms) I conclude “no” to both sides of that question, and have several commenters mostly but not all agreeing with me, is here

    It is though very clear that their book has captured the imagination of many (especially in technology companies and consulting houses) who are looking to remake the system and make a packet out of doing so. And has got many health system CEOs very excited, and ready to shell out huge consulting dollars. And good luck to all of them.

    However, the problem is that almost all the innovations Porter/Teisberg suggest do not increase profits of the actors under the current incentive system. One only has to look at the InterMountain example, where improving post-surgery infection rates led to red ink, or the recent losses from Virginia Mason’s kaizen activities to see that’s the case. Whereas those actors who pursue what Porter/Teisberg call zero-sum or dysfunctional competition are laughing all the way to the bank. (Have you seen Wellpoint’s stock price lately? Not much harmed by the $1m fine this morning).

    So what’s needed is a radical reform of our incentive structures. That for example is Alain Enthoven’s main “innovation”–the integration of payers and providers he advocates would only be the result of that incentive change. Currently the incentives are aligned in completely the opposite direction with predictable outcomes, as evidenced in the excellent chapter 1 of the Porter/Teisberg book (which demonstrates at least that Harvard/Virgina faculty have great research assistants).

    However, physicians and everyone else follow incentives–a basic fact of micro-economics unchanged since identified by Adam Smith quite some time ago. If the end payers got together and changed the incentive structure in health care–something they find very hard to do for a bunch of political and cultural reasons, but something that is possible–then all the innovations that Porter/Teisberg talk about will start to become common. And if the incentives don’t change, then we cannot expect any change in the system.

    So what do we hear from Porter/Teisberg about incentives? ” The only real solution to the national health care problem is to dramatically increase the value of the care delivered for all the money being spent. That will never be achieved from the outside, by tinkering with payment
    schemes and incentives.”
    (from the JAMA article), and “Most proposals to overhaul US healthcare systems — including extending insurance to all Americans — address the “margins” of the problem, Porter said.” (from the Boston Globe article).

    That to me is why the acclaim their work has received is so discouraging.

  16. Neil Gardner Says:

    “Well-chosen policies can accelerate change, but value-based competition cannot be mandated from the top down. ”
    ————-
    I want to know if the non-accountable, piece meal, fee for service system we have now and that is failing so badly in many respects was mandated from the top down? If not, as I do not believe it was, then just what incentive for a value-based, whole patient welfare change exists if not from the top down??

    If whole patient welfare and benefit was supposedly the major driving force for providers all along, then just how did we get where we are now??

  17. dneunabe Says:

    “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.”–Summary by James Robinson.

    Nothing truer has been said. However, the devil is in the details, and a number of important details need to be addressed in order to achieve this:
    1. Physicians need an incentive to change the current system. One possible place to start is to change payment systems so that siloed (I’d call it “atomized”) care is not rewarded. If I am an orthopedic surgeon, I get paid to do a hip replacement, not to maximize the patient’s qualilty of life. We need to pay doctors more for good care, not simply for doing procedures.
    2. Physicians need incentives to provide comprehensive care. My 80yr old mother in law has complex medical problems, and requires more than a 15 minute appointment. Her internist probably loses money providing her care. Some doctors stop providing the more comprehensive care because they cannot afford it. In my clinic, some of these more thorough doctors have left because of these perverse financial incentives.
    3. There is no built in ‘case management” structure to help manage complex cases. Hence, people fall through the cracks, get repeat procedures information fails to reach those who need it, etc. Electronic medical records will help with this only if properly designed to delivery information easily and in a timely manner.
    4. We do not choose or trian physicians to value total patient care, or quality.

    These are just a few thoughts off the top of my head, and I’m sure I could come up with more. These can be fixed. Do we have the stomach for it?

  18. Vince Kuraitis Says:

    You state:

    “This vision is not government-led, consumer-driven, or payer-centric. Value-based competition is physician-led, results-driven, and patient-centric. ”

    I’m reminded of the joke of the economist stuck on a desert island. When asked how to get off the island, he replies “assume a rowboat”.

    I’ve read your book. I’ve read the debates. The theory is great, the reality is totally missing.

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