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Redefining Health Care: Creating Value-Based Competition ...

Professor Michael E. PorterHarvard business SchoolNational Association of Chain Drug StoresAnnual MeetingMay 2, 2006 This presentation draws on a forthcoming book with Elizabeth Olmsted Teisberg ( Redefining Health Care: Creating Value-Based Competition on Results, harvard business school Press). Earlier publications about the work include the harvard business Reviewarticle Redefining Competition in Health Care and the associated harvard business Review Research Report Fixing Competition in Health Care (June 2004). No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of Michael E. Porter and Elizabeth Olmsted Health Care: Creating Value-Based Competition on Results2 Copyright 2006 Michael E.

May 02, 2006 · Professor Michael E. Porter Harvard Business School National Association of Chain Drug Stores Annual Meeting May 2, 2006 This presentation draws on a forthcoming book with Elizabeth Olmsted Teisberg (Redefining Health Care: …

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Transcription of Redefining Health Care: Creating Value-Based Competition ...

1 Professor Michael E. PorterHarvard business SchoolNational Association of Chain Drug StoresAnnual MeetingMay 2, 2006 This presentation draws on a forthcoming book with Elizabeth Olmsted Teisberg ( Redefining Health Care: Creating Value-Based Competition on Results, harvard business school Press). Earlier publications about the work include the harvard business Reviewarticle Redefining Competition in Health Care and the associated harvard business Review Research Report Fixing Competition in Health Care (June 2004). No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of Michael E. Porter and Elizabeth Olmsted Health Care: Creating Value-Based Competition on Results2 Copyright 2006 Michael E.

2 Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final in Health Care Reform Structure of Health Care DeliveryStandards for CoverageHealth Insurance and Access3 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Paradox of Health Care Costs are highand rising Services are restricted and fall well short of recommended care In other services, there is overuse of care Standards of care often lag and fail to follow accepted benchmarks Diagnosis errorsare common Preventable treatment errors are common Hugequalityand cost differencespersist across providers Hugequalityand cost differencespersist across geographic areas Best practices are slowto spread Innovation is resisted Competition is notworking How is this state of affairs possible?

3 4 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Competition in Health Care Competition to shift costs Competition to increase bargaining power Competition to capture patientsand restrict choice Competition to restrict servicesin order to reduce costs None of these forms of Competition increases value for patients5 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Causes Competition in the Health care system takes place at the wrong levels on the wrong thingsToo Broad Between broad line hospitals, networks,and Health plansToo Narrow Performing discrete services or interventionsToo Local Focused on serving the local community6 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final of Value-Based Competition1.

4 The focus should be on value for patients, not just lowering There must be unrestricted Competition based on Competition should center on medical conditionsover thefull cycle of 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Transplant Care CycleEvaluationEvaluationEvaluationWaiti ng for a DonorWaiting for a Waiting for a DonorDonorTransplant SurgeryTransplant Transplant SurgerySurgeryImmediate ConvalescenceImmediate Immediate ConvalescenceConvalescenceLong Term ConvalescenceLong Term Long Term ConvalescenceConvalescenceAddressing Addressing organ rejectionorgan rejectionFineFine--tuning the tuning the drug regimendrug regimenAdjustment and Adjustment and monitoringmonitoring8 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final of Value-Based Competition1.

5 The focus should be on value for patients, not just lowering There must be unrestricted Competition based on Competition should center on medical conditionsover thefull cycle of High quality care should be Value is driven by provider experience,scale, andlearning at the medical condition 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Virtuous Circle in a Medical ConditionBetter Results, Adjusted for RiskDeeper Penetration (and Geographic Expansion) in a Medical ConditionImproving ReputationRapidly AccumulatingExperienceRising EfficiencyBetter Information/Clinical DataMore Tailored FacilitiesGreater Leverage in PurchasingRising Capacity for Sub-SpecializationMore Fully Dedicated TeamsFaster InnovationSpread IT, Measure-ment, and ProcessImprovement Costs over More PatientsWider Capabilities in the Care Cycle10 Copyright 2006 Michael E.

6 Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final of Value-Based Competition1. The focus should be on value for patients, not just lowering There must be unrestricted Competition based on Competition should center on medical conditionsover thefull cycle of High quality care should be Value is driven by provider experience,scale, andlearning at the medical condition Competition should be regional andnational, not just results and prices needed for Value-Based Competition must be widely 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Information HierarchyPatient Results(Outcomes, costs and prices)Patient AttributesMethods12 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Spine Group Clinical and Outcome Information Collected and AnalyzedPatient Outcomes(before and after treatment, multiple times)Visual Analog Scale (pain)Owestry Disability Index, 10 questions (functional ability)SF-36 Questionnaire, 36 questions (burden of disease)Length of hospital stayTime to return to work or normal activityService Satisfaction(periodic)Office visit satisfaction metrics (10 questions)Overall medical satisfaction ( Would you have surgery again for the same problem?)

7 Medical ComplicationsCardiacMyocardial infarctionArrhythmiasCongestive heart failureVascular deep venous thrombosisUrinary infectionsPneumoniaPost-operative deliriumDrug interactionsSurgery ComplicationsPatient returns to the operating roomInfectionNerve injurySentinel events (wrong site surgeries)Hardware failureSurgery Process MetricsOperative timeBlood lossDevices or products usedOUTCOMESMETHODS13 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final of Value-Based increase value must be strongly The focus should be on value for patients, not just lowering There must be unrestricted Competition based on Competition should center on medical conditionsover thefull cycle of High quality care should be Value is driven by provider experience,scale, andlearning at the medical condition Competition should be regional andnational, not just results and prices needed for Value-Based Competition must be widely 2006 Michael E.

8 Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final to Value-Based CompetitionProvidersStrategic and Organizational Imperatives Redefine the business around medical conditionsDefining the Right Goals Superior patient value15 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Businesses Are We In?Nephrology practice Chronic Kidney Disease End-Stage Renal Disease Kidney Transplants Hypertension Management16 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final to Value-Based CompetitionProvidersStrategic and Organizational Imperatives Redefine the business around medical conditions Choose the range and types of services provided Organize around medically integrated practice units Create a distinctive strategyin each practice unit Measure results, experience,methods, and patient attributesby practice unit Move to single billsand new approaches to pricing Marketservices based on excellence, uniqueness, and results Grow locally and geographically in areas of strengthDefining the Right Goals Superior patient valueEnabling Conditions Analyzing the care delivery value chain Harnessing the power of Information Technology Systematizing knowledge development17 Copyright 2006 Michael E.

9 Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final Enable informed patient and physicianchoice and patientmanagement of their Health Measure and reward providers based on results Maximize the value of care over the full care cycle Minimizethe need for administrative transactions and simplify billing Compete on subscriber Health resultsTransforming the Roles of Health Plans Old Role: culture of denialOld Role: culture of denialNew Role: enable Value-Based Competition on resultsNew Role: enable Value-Based Competition on results Restrict patient choice of providers and treatment Micromanage provider processes and choices Minimize the cost of each service or treatment Engage in complex paperwork and administrative transactions with providers and subscribers to control costs and settle bills Compete on minimizing premium increases 18 Copyright 2006 Michael E.

10 Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final to Value-Based CompetitionSuppliers Compete on delivering unique value over the full care cycle Demonstrate valuebased on careful study of long term costs and results versus alternative therapies Ensure that the products are used by the right patients Ensure that drugs/devices are embedded in the right care delivery processes Market based on value,information, and customer support Offer support services that contribute to valuerather than reinforce cost shifting19 Copyright 2006 Michael E. Porter and Elizabeth Olmsted Teisberg20060502 NACDS 05012006 Final to Value-Based CompetitionConsumers Participate actively in managing personal Health Expect relevant informationand seek advice Make treatment and provider choicesbased on excellent resultsand personal values, not convenience or amenities Choose a Health plan based on value added Build a long-term relationshipwith an excellent Health plan Act responsibly20 Copyright 2006 Michael E.


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