A Book Report: Redefining Healthcare, Creating Value Based Competition on Results

"Redefining Health Care, Creating Value-Based Competition on Results" by Michael E. Porter and Elizabeth Olmsted Teisberg is the best book on health care reform yet written. They provide a look at health care by two business school faculty, one from Harvard and one from Virginia, who have experienced the health care system personally and find it an expensive mess. They are concerned that even at these high prices, quality is as big an issue in health care delivery as is cost, that the nature of health care delivery is essentially non-competitive, and that the way to control the problems of a too frequently excessive and too commonly inadequate care is to use value and not fee-fro-service or process as the reimbursement standard.

Porter and Teisberg understand that “unless the value of heath care delivered can be increased substantially, Americans will face an ever-increasing coat escalation and pressure to ration care”. The rationing methods they’re talking about are implicit- such as shifting costs to the patient, increasing the waiting times for treatment and refusing to pay for certain procedures and explicit- certain procedures not covered. Unfortunately the authors’ hypothesis is treated like a mantra throughout the book, so it’s hard reading, but the book is so full of good ideas that its worth the struggle.

The authors suggest paying providers for value, by which they mean the long-range outcome to the patient of the diagnosis and treatment. Value is defined as affecting a long-term cure when a cure is possible or a palliation of a chronic condition, at the lowest cost. Those who deliver value get paid well; those who don’t are paid less. Porter and Teisberg feel that administrative micromanagement, such as an emphasis on process, diminishes value by interfering with expert judgment in too many instances. Since government control can’t help but impose such rules, they think government should stay out of it and let open competition effect the necessary changes. They point out that current insurers and employers are not competing on value, but only on cost shifting and what they will pay for, and that to reform health care one “has to reform the competition itself.” Since some patients conditions will not respond to protocols or process, value will be best achieved if we allow value-based reimbursements to weed out of the system the inadequate, low value producing practitioners and organizations, culling out inefficient systems and poor medical judgment.

Kitzhaber, when he was in the Oregon legislature, did some of this for his state’s Medicaid patients some years ago. What he did was to get a blue-ribbon non-medical panel, backed up by expert medical advice, to rank the value of the entire current standard for treatments of all the conditions Medicaid was covering. He then calculated the annual collective cost of each treatment and limited payment to as low down the ranked order list the State could afford. It was an explicit and rational rationing based on value, i.e., the cost and effectiveness of the treatment and expected quality of life successful treatment was likely to accomplish. It is a grand idea that never spread. I was surprised the authors did not allude to it, as it is a system in which payment is based on value. To my knowledge Oregon is still using it.

The book is a startling revelation. It makes ultimate sense and these business school folk have been kind enough to supply detailed strategies as to how we might establish a competitive system that rewards value and should lower cost by being efficient. I recommend it to all who care.

Eric L. Radin, MD