Redefining healthcare12bc


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Porter and Teisberg's landmark book applying value chain thinking to the 2 trillion dollar healthcare system in America.

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Redefining healthcare12bc

  1. 1. WarningThe following PowerPoint presentation is probably unlike anygood presentations you have ever experienced. There are toomany words on each cell. It jumps to conclusions on every click.It presupposes that you are smarter than you think you are. Thepresenter adds nothing and simply presents the cells. It attemptsto concentrate 10 gigabytes of background, context and conceptsinto a puny 300,000 bytes of information. The overload could beharvardous to your health, or at the very least irritating. Absorband respond. Let it flow. 1
  2. 2. Sum total of beliefsFour Concepts Four Words Manageable groupingsUniverse PhilosophyDisaggregation ReasonConceptual Scheme KnowledgeRelative Significance Behavior You! Walking Stick/Valid Information 2
  3. 3. Michael E. Porter Elizabeth Olmsted Teisberg Redefining Health Care Creating Value-Based Competition On Results 3HAR VAR D B U S I N E S S S C H O O L PR E S S
  4. 4. Note: The following cells are excerpted from the book for discussion purposes only. Please refer to the book itself for exact verbiage, references and quotations. Michael E. Porter and Elizabeth Olmsted Teisberg.Redefining Health Care (Boston, MA: Harvard Business School Press, 2006). 4
  5. 5. Reform Efforts Failed Because the Diagnosis was Wrong Past Objective: Present Objective: Reduce Costs, Avoid Costs Enable Choice, Reduce Errors Focus: Costs, bargaining power Focus: Choice of health plan. and rationing. System characterized by: System characterized by: Competition among health plans. Cost shifting among patients, Information on health plans. providers, physicians, payers, Financial incentives for patients. employers, government. Focus: On provider and hospital Limits on access to service. practice. Bargained-down prices for System characterized by: drugs and services. Online order entry. Prices unrelated to the Six Sigma practices. economics of delivering care. Appropriate ICU staffing. Focus: Legal recourse and Volume thresholds for complex regulation. referrals. System characterized by: Mandatory guidelines. Patients’ rights. “Pay for performance” Detailed rules for system participants. when standards of care are used. Increased reliance on the legal system. Source: Porter and Teisberg, “Redefining Competition in Health 5The evolution of reform models Care,” Harvard Business Review, June 2004, 64-77. Copyright HBS Publishing
  6. 6. Address the Absence of Value-Based Competition on Results Future Objective: Increase Value Focus: Should be on the nature of competition. System characterized by: Competition at the level of specific diseases and conditions. Distinctive strategies by payers and providers. Incentives to increase value rather than shift costs. Information on providers’ experiences, outcomes, and prices. Consumer choice. Source: Porter and Teisberg, “Redefining Competition in Health 6The evolution of reform models Care,” Harvard Business Review, June 2004, 64-77. Copyright HBS Publishing
  7. 7. Does the United States Spend Too Much on Health Care? The value perspective makes it clear that the share of U.S. GDP that goes into health care is not the right measure of the success of a health care system. Success can only be measured by the value delivered per dollar spent. Health care is more expensive today than it was in the 1930s, but the average life expectancy has increased from about 60 years to 77 years, and the quality of life for older Americans is far better. Hence it is clear that there have been important advances. It is also clear that the efficiency of the system is far less than it could be, and that quality falls well short of the ideal.Meaningful change will need to focus on value at the medicalcondition level, and redefining competition around value. 7
  8. 8. Deeper penetration (and geographic expansion) In a medical condition Improving reputation Rapidly accumulating experience Better results, adjusted for risk Rising efficiency Faster innovation Better information/ clinical data Greater patient volume to spread More fully IT, measurement, dedicated teams process improvement costs More tailored facilities Wider capabilities Greater leverage in the care cycle in purchasing Rising capability for subspecialization 8The virtuous circle in health care delivery
  9. 9. The Value Chain Firm Infrastructure (Finance, Planning, etc.) Human Resource Management Technology Development M Procurement A R GInbound Outbound After-Sale ILogistics Logistics Service N Operations Marketing (Mfg) & Sales Michael Porter, Competitive Advantage of Nations 9
  10. 10. The Value Chain TechnologiesFirm Infrastructure Finance Planning Budget OfficeHuman Resource Mgmt Training Motivation Research Info SystemsTechnology Dev. Product Tech Software Info Sys Computer-aided design Pilot Plant M Info Sys Technology Commo Sys Technology AProcurement Transportation Sys Technology RTransportation Process Transportation Media Diagnostic &Mtl Handling Machine Tool Mtl Handling Audio &Video Testing GStorage & Mtl Handling Storage & Commo Sys Commo Sys I Preservation Packaging Preservation Info Sys Info SysCommo Sys Maintenance Packaging NTesting Building Commo SysInfo Sys Design & Ops Info SysInbound Operations Outbound Marketing After-SaleLogistics (Mfg) Logistics & Sales Service Michael Porter, Competitive Advantage 10
  11. 11. The Value System Diversified Firm Firm Value ChainBusiness Unit Value Chain Supplier Supplier Business Unit Channel Channel Buyer BuyerValue Chains Value Chains Value Chain Value Chains Value Chains Value Chains Value Chains Business Unit Value Chain Michael Porter, Competitive Advantage 11
  12. 12. Value Chain Linkages Firm Value Chain Buyer Value Chain FI FIHRM HRM TD TD P P IL O OL MS S IL O OL MS S “A company lowers buyer cost or raises buyer performance through the impact of its value chain on the buyer’s value chain.” Michael Porter, Competitive Advantage 12
  13. 13. organized at the medical condition level Patient Value (health results Knowledge Results measurement & tracking, staff physician P per unit of development training, technology development, process improvement R costs) Patient education, patient counseling, pre-intervention education Informing programs, patient compliance counseling O V Tests, imaging, patient records management Measuring I D Office visits, lab visits, hospital sites of care, patient transport, visiting nurses, Accessing remote consultation E R Monitoring/ Diagnosing Preparing Intervening Recovering/ Monitoring/ managing preventing •Medical history •Medical N •Ordering & Rehab •The patient’s •Specifying administrating •Inpatient I •Medical history condition history & organizing •Screening drug therapy recovery •Therapy G •Screening tests •Identifying •Performing •Inpatient/ compliance outpatient R •Identifying •Interpreting risk factors procedures •Lifestyle risk factors data •Prevention •Performing rehab modifications A •Prevention •Consultation programs counseling •Therapy programs w/ experts therapy fine tuning M enablers •Determining •Developing a treatment plan discharge plan 1.CDVC 2.IT 3.PKD* Feedback loops *process for knowledge development 13The care delivery value chain for an integrated practice unit
  14. 14. Overcoming Barriers to Value-Based Competition Health Plan Practices – have worked against value-based competition… have focused on the size of discounts rather than patient value...have sought contracts with broad-line providers and fostered unproductive duplication of services. They have attempted to micromanage providers rather than rewarding excellent results with more patients. Integrated health plan and provider networks have mitigated many of these dysfunctional practices, but value-based competition will work better if health plans are separate from providers. 14 (see chapter six)
  15. 15. Overcoming Barriers to Value-Based Competition Medicare Reimbursement – strong influence on reimbursement throughout the system…has worked against value-based competition (e.g. Medicare reimbursement levels are not tied to cost or value, leading to cross subsidies and excess capacity). Reimbursement has been biased toward treatment procedures, rather than improving value over the care cycle. The reimbursement structure is also unintentionally biased against cost-reducing innovations in treatment methods. 15 (see chapter eight)
  16. 16. Overcoming Barriers to Value-Based Competition Regulation – regulatory and legal impediments work against value-enhancing strategies and structures. “Certificate of Need” regulation tends to protect established institutions rather than encourage new, high-value competitors…“Stark” law and corporate practice of medicine laws inadvertently work against care-cycle integration. State-level licensing works against cross- geographic integration of care delivery. 16 (see chapter eight)
  17. 17. Overcoming Barriers to Value-Based Competition Governance – Provider governance structures inadvertently work against value-based strategies. A local orientation and a full-service bias are reinforced by local boards and community service obligations… resistance to closing any service, and closing an entire hospital is almost unthinkable even if there are other nearby institutions of better quality. The mind-set that “closer is better” is deeply ingrained. Boards must embrace patient value as the central goal. A hospital will create more value for more patients if it provides only services where its results are excellent. 17 (see chapter eight)
  18. 18. Overcoming Barriers to Value-Based Competition Attitudes & Mind-sets – Old assumptions, attitudes, and mind- sets are pervasive in health care. The bias toward breadth of services is deeply ingrained. Some physicians bristle at the idea of being held accountable for results. Another pervasive mind- set is that it is wrong to compete, since medicine is collaborative and competition will only result in price cutting. These attitudes will begin to change as the system realigns its focus around patient value. 18 (see chapter eight)
  19. 19. Overcoming Barriers to Value-Based Competition Management Capabilities – Management expertise within health care providers is limited, especially among individuals with medical training. These resources will be sorely tested by the kinds of organizational structures and delivery methods and processes described here. Improving managerial capability will be a challenge for nearly every provider, especially since the culture of medicine has not viewed “management” as important or prestigious. Providers will need to mount a conscious strategy to equip management staff with training as their roles expand. 19 (see chapter eight)
  20. 20. Overcoming Barriers to Value-Based Competition Medical Education – does not equip young physicians for their role in a value-driven health care system, nor does it serve the needs of experienced physicians. Medical education fails to address such crucial agendas as the role of teams, integrated care, care cycles, results measurement, knowledge development processes, information technology, and practice unit management. 20 (see page 221-225)
  21. 21. Overcoming Barriers to Value-Based Competition The Structure of Physician Practice – Improving care is difficult to accomplish when physicians see process improvement as a chore, which is the current norm. What we are talking about is a far cry from typical rounds in which senior doctors grill residents as part of medical education. Physician organization is enshrined in medical boards and societies involved in certification and in medical training. Another barrier to strategy is the free agent model so common in medicine. Most broadly, the free agent model means that health care delivery is physician centric, rather than patient and value centric. 21 (see chapter eight)
  22. 22. Transforming the Roles of Health PlansOld Role: New Role: Value-BasedCulture of denial Competition on ResultsRestrict patient choice of Enable informed patient andproviders and treatment. physician choice and patient management of health.Micromanage provider Measure and reward providersprocesses and choices. based on results.Minimize cost of each Maximize the value of careservice or treatment. over the full care cycle.Complex paperwork and Minimize the need foradministrative transactions administrative transactions.with providers and subscribers Simplify control costs and settle bills.Compete on minimizing Compete on subscriber healthpremium increases. results. 22
  23. 23. Imperatives for Health PlansProvide health information and support to patients andphysicians Organize around medical conditions, not geography or administrative functions. Develop measures/assemble results on providers and treatments. Support provider and treatment choice with information and unbiased counseling. Organize information and patient support around full cycle of care. Provide disease management and prevention services to all members, even healthy ones.Restructure the “health plan – provider” relationship Shift the nature of information sharing with providers. Reward provider excellence and value-enhancing innovation for patients. Move to single bills/single prices for episodes and cycles of care. Simplify, standardize, and eliminate paperwork and transactions. (Page I of II) 23
  24. 24. Imperatives for Health PlansRedefine the “health plan – subscriber” relationship Move to multiyear subscriber contracts and shift the nature of plan contracting. End cost shifting practices, such as re-underwriting, that erode trust in health plans and breed cynicism. Assist in managing members’ medical records. (Page II of II) 24
  25. 25. Electronic Medical Record (EMR)An (EMR) is central and indispensable from a health valuestandpoint to: Reduce the cost of transactions and eliminate paperwork. Lower the cost of maintaining records of all actions taken and facilities used. This will also support decisions and enable detailed understanding of cost at the activity level. Make patient information easily and instantly available to physicians. Allow the sharing of information in real time across doctors and institutions to improve decision making and eliminate redundant tests and effort. Facilitate aggregation of patient information across episodes of care and time. Integrate decision support tools to reduce errors and bring learning about diagnosis and treatment “best practices” to providers. Create an information platform from which provider results, process metrics, and experience metrics can be extracted at a very low cost. 25
  26. 26. The BenefitsImagine if health plans were seen as experts on healthand the member’s greatest advocates. Imagine if a healthplan informed and advised members and reduced the anxietyof illness. Imagine if members knew that their health plan wasdedicated to their getting the best provider for their condition,and receiving the most effective and up-to-date treatment.Imagine if health plans took responsibility for helping a patientnavigate the system. Imagine if members and health plansworked jointly to keep the member healthy. Imagine if theinterests of health plans, patients, providers, and plan sponsorswere all fundamentally aligned. If health plans were trulydedicated to health, the consequences in terms of creativity,innovation, and health care value would be enormous. 26
  27. 27. Part Two 27
  28. 28. New Opportunities for SuppliersCompete on delivering unique value over the fullcycle of care. Creating unique value for patients. Focus on cycles of care rather than narrow product usage. Sell not just products, but provider and patient support.Demonstrate value based on careful study of long-termresults and costs versus alternative therapies. Use evidence of long-term clinical outcomes and cost to demonstrate value compared to alternative therapies. Conduct new types of long-term comparative studies in collaboration with providers and patients.Ensure that products are used by the right patients. Increase the success rate instead of maximizing usage. Target marketing and sales to minimize unnecessary or ineffective therapies. (Page I of II) 28
  29. 29. New Opportunities for SuppliersEnsure that products are embedded in the right care deliveryprocesses. Help providers utilize products better and minimize errors.Build marketing campaigns based on value, information andcustomer support. Concentrate marketing efforts on value, not volume and discounts.Offer support services that add value rather than reinforcecost shifting. Support provider efforts to measure and improve results at the medical condition level. (Page II of II) 29
  30. 30. New Responsibilities for ConsumersParticipate actively in managing personal health. Take responsibility for health and health care. Manage health through lifestyle choices, obtaining routine care and testing, complying with treatments, and active participation in disease management and prevention.Expect relevant information and seek advice. Gather information on provider results and experience in medical conditions. Seek help and advice in interpreting information from physicians and the health plan. Utilize independent medical information companies when needed.Make treatment and provider choices based on excellentresults and personal values, not convenience or amenities. Choose excellent providers, not the closest provider or the past provider of unrelated care. (Page I of II) 30
  31. 31. New Responsibilities for ConsumersChoose a health plan based on value added. Expect the health plan to be the overall health adviser. Choose cost-effective health plan structures involving deductibles together with health savings accounts (HSAs) to save for future health care needs.Build a long-term relationship with an excellent health careplan. Seek a long-term relationship instead of plan churning.Act responsibly. Accept responsibility for health and health care. Communicate personal intentions regarding organ donorship and end-of-life care. Designate a health care proxy and prepare a living will. (Page II of II) 31
  32. 32. New Roles for Employers Goal of increasing health value, not minimizing health benefit costs.Set new expectations for health plans, including self-insuredplans. Choose plans that demonstrate excellence in the roles of “Imperatives for Health Plans” (cells 19-20). Select plans and plan administrators based on health results, not administrative convenience.Provide for health plan continuity for employees, rather thanplan churning. Align interests by encouraging long-term relationships between the plan and subscribers. (Page I of III) 32
  33. 33. New Roles for Employers Goal of increasing health value, not minimizing health benefit costs.Enhance provider competition on results. Expect demonstrated excellence from all providers involved in employee care. Collaborate with other employers in advancing value-based competition.Support and motivate employees in making good healthchoices and in managing their own health. Offer encouragement, incentives and support to employees in managing their health. Provide independent information and advising services to employees to supplement other sources. Offer health plan structures that provide good value and encourage saving for long-term health needs. (Page II of III) 33
  34. 34. New Roles for Employers Goal of increasing health value, not minimizing health benefit costs.Find ways to expand insurance coverage and advocatereform of the insurance system. Create collaborative vehicles with other employers to offer group insurance coverage to employees or affiliated individuals not currently part of the employer’s health plan. Support insurance reform that levels the playing field among employers.Measure and hold employee benefit staff accountable forthe company’s health value. Health benefits must ultimately be a senior management responsibility, with staff responsible for results. (Page III of III) 34
  35. 35. Changes in Employer Health Benefits 2003 to 2004 Premium increases $4,000.00 Total $3,695 Total $3,383 $3,500.00 9.2% $558 $3,000.00 $508 9.8% $2,500.00 $2,000.00 $1,500.00 $3,137 $2,875 9.1% $1,000.00 $500.00 $0.00 2003 2004 Employer contribution Worker contributionSource: Data from Kaiser Family Foundation and Health Research and Education 35Trust (2004), based on 1,925 randomly selected firms with three or more employees
  36. 36. % of Workers Covered by their Employer Health Benefits 66% 65% 64% 63% 62% 61% 60% 59% 2001 2002 2003 2004Source: Data from Kaiser Family Foundation and Health Research and Education 36Trust (2004), based on 1,925 randomly selected firms with three or more employees
  37. 37. Level of Benefits for Covered Workers Compared to Previous Year 15% 6% 79% Less More SameSource: Data from Kaiser Family Foundation and Health Research and Education 37Trust (2004), based on 1,925 randomly selected firms with three or more employees
  38. 38. Measurements – Health Value ReceivedEmployee health outcomes and results Extent of illness, number of health care interventions (e.g. office visits, treatments) sick days and lost time, absences, extent of disability, and progression of chronic conditions. Employee health results per dollar of spending, controlling for employee demographics, health status and location. Measures of health results for family members.Health plan performance for each health plan Overall employee and family health results per dollar expended. Employee and family health results by medical condition. Results measures compared to external benchmarks.Provider performance by condition Comparative results of providers serving employees and their families, by medical condition. 38
  39. 39. Health Insurance Standards and Access for Coverage Structure of Health Care Delivery 39Issues in health care reform
  40. 40. Imperatives for Policy Makers: Improving health insurance and access Enact mandatory health coverage. Provide subsidies or vouchers for low-income individuals and families. Create risk pools for high-risk individuals. Enable affordable insurance plans. Minimize distortions from uneven employer contributions. Eliminate unproductive insurance rules and billing practices: Ban re-underwriting. Clarify legal responsibility for medical bills. Eliminate balance billing.Health Insurance and Access 40 Issues in health care reform
  41. 41. Imperatives for Policy Makers: Setting standards for coverage Establish a national standard for minimum required coverage: Include primary care, preventive care, and essential coverage. Review minimum coverage standards periodically to update. Use Federal Employee Health Benefits as an initial standard. Consider medical outcomes and patient preferences in covering end-of-life care: Require a medical power of attorney and living will as a condition of health coverage. Introduce individual accountability for participation in health care. Standardsfor Coverage 41 Issues in health care reform
  42. 42. Imperatives for Policy Makers: Improving the structure of health care delivery Enable universal results information: Establish a process for defining outcome measures. Enact mandatory results reporting. Establish information collection and dissemination infrastructure. Improve pricing practices: Establish episode and care cycle pricing. Set limits on price discrimination.Structure of (Page I of III)Health Care Delivery Issues in health care reform 42
  43. 43. Imperatives for Policy Makers: Improving the structure of health care delivery Open up competition at the right level: Reduce artificial barriers to practice area integration. Require value justification for captive referrals or treatment involving an economic interest. Eliminate artificial restrictions to new entry. Institute results-based license renewal. Strictly enforce anti-trust policies. Curtail anticompetitive buying group practices. Eliminate barriers to competition across geography. Establish standards and rules that enable information technology and information sharing: Develop standards for medical data (and hardware and software). Enhance identification and security procedures. Provide incentives for adoption of information technology.Structure of (Page II of III)Health Care Delivery Issues in health care reform 43
  44. 44. Imperatives for Policy Makers: Improving the structure of health care delivery Reform the malpractice system. Redesign Medicare policies and practices: Make Medicare a health plan, not a payer or regulator. Modify counterproductive pricing practices. Improve Medicare pay for performance. Lead the move to bundled pricing models. Require results-based referrals. Allow providers to set prices. Align Medicaid with Medicare. Invest in medical and clinical research.Structure of (Page III of III)Health Care Delivery Issues in health care reform 44
  45. 45. ConclusionValue-based competition on results is a positive-sum competitionin which all participants can win, so long as they are dedicated andcapable. However, those participants that will enjoy the greatestrewards will be those that move early. For anyone in the health caresystem, the time to act is now.The coming transformation will unleash the talent and energy of themany extraordinary individuals working in the health care system ona positive agenda of dramatic value improvements. Costs will bebrought under control, and the health of citizens will advancesignificantly. As this happens, the benefits will accrue to every care consumer & will spread to other countries as well. Andall of this could happen sooner than now seems imaginable. Michael E. Porter Elizabeth Olmsted Teisberg 45
  46. 46. Redefining Health Care  The focus should be on value for patients, not just lowering costs.  Competition must be based on results.  Competition should center on medical conditions over the full cycle of care.  High-quality care should be less costly.  Value must be driven by provider experience, scale, and learning at the medical condition level.  Competition should be regional and national, not just local.  Results information to support value-based competition must be widely available.  Innovations that increase value must be strongly rewarded. Porter & Teisberg 46Principles of value-based competition p.98 RHC
  47. 47. Veritasjgillis767@aol.comFirst Light L.L.C. 47