Michael Porter on "Value Based Health Care Delivery"

I'm Rob hukman I'm the faculty co-chair of the healthcare initiative I've had the pleasure of meeting many of you over the last year and last several years and it's great to see all of you out here today I just want a very quickly issue thanks from from the healthcare initiative here we are one of the co-sponsors of the event but we are really next to the students who have organized this event working with them and it's been our pleasure to host Early's co-host this series with you throughout the year on faculty perspectives in healthcare today we have our last session which is with Michael Porter someone who really needs no introduction around here but that's not going to keep us from doing that so we're going to have a quick introduction by Emily and Z and then we're going to move right into Professor Porter's remarks thanks well thank you all for coming today it's a great honor to introduce professor Michael Porter professor Porter is lead leading authority on competitive strategy and is generally recognized as the father of the modern strategy field if you ever taken an mba strategy course you'll most likely associate professor Porter with his five forces in addition to his contributions to the business world professor Porter serves as a university of University professor which is the highest professional recognition that can be awarded to a Harvard faculty member he is author of 18 books and over 20 125 articles we're fortunate that since 2001 Professor Porter has devoted tremendous attention to competition in the healthcare system with a focus on improving the healthcare delivery system and he has influenced thinking and practice not only in the United States but a numerous number of other countries by developing a new framework for understanding just how to deliver how to transform the value delivered by healthcare systems in 2007 professor Porter's book redefining healthcare would receive the James a Hamilton Award for outstanding outstanding healthcare book of the year without further ado professor Michael Porter well it's a thank you for that kind introduction and an Rob thank you for leading our healthcare initiative which we're very proud of and it's really been a tremendous joy for me to see how the school has been able to have a very important impact on the healthcare system now that we've really focused on and I think we have tremendous opportunity and I hope the fact that there's quite a few of you here today suggest that many of us with the kind of training that we get here will understand that we have a perspective and a set of skills that are profoundly important in health care indeed and when I start saying those words then hopefully all of you see that you know what we the kind of perspectives that we have here at HBS bring a lot to those issues but the trouble is that there are high barriers to entry in order to apply management thinking to health care you have to have a deep understanding of healthcare because it really is different it's very complex this is one of the most complex service delivery challenges that I've ever experienced working in you know countless industries so and so the early application of management thinking to health care was really about the margin it was about how to do more sophisticated coding so you could get higher bills you know it was it was and in fact management has a bad name in health care because so much of what managers did was hassle the clinicians or game the system but now I think we're starting to understand that if we actually apply our management thinking in our management insights to health care but we really focus on on the action core of the system which is the delivery of care itself that we actually have quite a bit to contribute so what I'm going to do this afternoon is talk a little bit about a way of thinking about healthcare delivery you are going to recognize a lot of the core ideas here or ideas that for us here at HBS these ideas seem sort of straightforward in a way but they are revolutionary in the healthcare system and they are very exciting because they give clinicians and provider organizations in particular really a whole new way of doing what they do better and as we'll see in a minute that is going to be very important to avoid some very very ugly outcomes that could happen if we really don't rethink really how we do things so let's begin and I have here as usual a slide deck this slide deck is posted it'll be posted on the website my site and at the Institute you can get these slides these slides I will not cover all of them but I wanted to provide sort of a holistic view of this question of healthcare delivery for those of you that are interested I encourage you to dive into this work more deeply and and and and we can have an ongoing dialogue but what's the problem healthcare well the fundamental problem in healthcare I think is only recently become the focus of most of our attention the fundamental problem of healthcare is the value delivered by the delivery system that's the fundamental problem now yes you can argue that prevention of disease is really critical but that's again part of how we think about the delivery of care and if we had a different kind of delivery system prevention would just be part of of how you how you delivered care it would just be one of a whole set of types of services that were provided why is value the problem value is the problem because only by improving the value can we avoid can we actually solve the problem which is that health care systems are are just spinning out of control all over the world I was in the UK last week and I was in Germany last week talking to healthcare leaders every country has the same problem why do they have the problem because demand is going up dramatically as people get older as the developing world you know tries to cope with offering more care technology is getting better there's more things we can do there's more things we can deal with and unless we want to ration services or unless we want every clinician to take a 25% pay cut or unless we want to pay more and more and more ourselves for our health care there's only one way out of that box and that is we have to dramatically improve the value and value which we'll talk about a lot this afternoon is defined as the patient health outcomes achieved relative to the amount of money spent to achieve those outcomes that's a very simple concept for her an HBS student value value matters in health care it's a revolutionary concept it's not been the way people think about delivering care the way we've thought about delivering care is we thought about access as being the critical issue we've thought about having lots of services volume has been really providing a high volume of services has been sort of the way people have thought about the system providing good equity of care so that all groups get get care all those issues are important but they're ultimately secondary issues the core issue is value if we can achieve excellent outcomes if we can improve those outcomes over time if we can learn how to do that more and more efficiently then we can actually solve the problem of health care unless we do we're only going to have an unhappy unhappy alternatives so the question that's been engaging me now for shockingly about a decade is how do we think about the kind of health care delivery system that would actually maximize the value for the patient and of course it turns out that the current system and the way it's structured and the way it's organized and the way we measure and the way we actually deliver care is anything but designed to maximize value and so the question then is you know how do we change that and that's what we're going to talk about this afternoon now in order to create a high-value delivery system a system that achieves excellent outcomes more and more efficiently and improves those outcomes over time unfortunately we can't just make incremental improvements on the system that we have today the system that we have today was was designed sort of and designed is too strong a word it kind of emerged out of a legacy out of a history that reflected very different circumstances than those we have today you know the health care system you know right now is designed to be relatively local it most institutions serve you know really only the people living around the hospital or in that in that in that city why was that because you know 30 40 50 years ago you know mobility wasn't as high you would be in the hospital for days and days and days and days and weeks and weeks because the medical the technology available to address problems you know it was very different than we have today so you wanted to be near your relatives because you were to be in that hospital for a long time and you want them to come see you and and there wasn't all that much that the physicians could do a lot of it was just sort of watchful waiting and hoping that you would get better of course that world changed dramatically today we want people to be in the hospital only a few days and even for complex surgery we're not going to be in the hospital that long most of the care is going to be outpatient care but we've got a system that's designed with inpatient as the center of the universe and so you can see the legacy system is really not aligned with values certainly the value that we can deliver today and if we just patch band-aids on to that legacy system we're never going to get there and and we've been trying these incremental improvements now for 10 or 20 or 30 years and they're not working so I think the the hard the hardest question here is how do we make a structural change in the actual delivery system rather than just the easy thing which is to add a safety initiative or introduce care pathways or or or do an overlay of disease management we can't do that that's not going to work we have to actually think much more deeply about what would the ideal structure be we need a vision for where we want to go in terms of the delivery system and then we can't get there overnight but at least we'll be moving in the right direction now that leads to the the kind of third big challenge in designing a healthcare delivery system and that is you know how do we change the role of competition what should it be what should it look like again most of us in this room probably as a matter of principle and certainly our kind of core values we believe in competition we think competition is good we see everyday competition making things better but in healthcare uh that hasn't happened you know value improvement has been very very slow there's a lot of inefficiency there's a lot of waste is a lot of duplication there's a lot of providers that don't produce very good outcomes how could that be competition supposed to fix that problem well the answer to that puzzle which is actually the puzzle that got me into this in the first place because I'm kind of a true believer in conference and this this kind of this kind of violated my core core view and and more deeply we got into it the more we we came to understand that the problem isn't competition the problem is what we're competing on and and competition in health care historically particularly in America has been a not really more of a competition to shift cost and accumulate bargaining power and and kind of create you know control the patient if you will rather than a competition to improve value in health care today you don't get necessarily rewarded for improving value that's not the way you win given the payment system given the lack of measurement and knowledge about you know actually the value that's being created by any given institution so we have to also as we re architect the system over time we have to change the basis of competition and what we want in a healthcare system is we want a healthcare system where to win every actor has to be improving value in a demonstrable way and the question is how do we get that kind of system put in place so so let's dig into this a little bit and start to get create sort of an intellectual architecture for thinking about a high value delivery system and then we can talk a little bit about some of the examples of how how we're moving in this direction in various organizations in various parts of the world every single thing I'm going to talk about this afternoon is not a theory it's happening today but it's not happening enough and enough organizations and and the question is how can we start to accelerate the pace of of restructuring in this industry this industry has never gone through restructuring you know you all study restructuring you know almost every day you know in your cases it's sort of something we believe happens and it's not the end of the world it's never happened in this field and the question is how do we get it to accelerate here and and perhaps we can talk about that a little bit later on now of course the core goal of healthcare then any delivery system has to be value value for the patient maximizing the value for the patient what do we mean by value let's be very clear there's the outcomes that's the numerator and then there's the cost which is denominator now what do we what do we mean by an outcome an outcome is the actual results of the care in terms of how well the patient actually does we're actually doing a lot of so-called quality measurement in healthcare today but we're actually almost never measuring the outcomes the quality movement in healthcare today is primarily about process compliance you know are we going through some evidence-based guideline in order to provide care for such-and-such a problem it's kind of like the Soviet Union you know the from the top down somebody has said these are the evidence-based guidelines in the national quality in a registry system or whatever the acronym is so every provider has to follow those guidelines when they're caring for a heart-attack patient or a you know patient with X Y Z problem measuring processes is good we like to measure processes all of you know that I mean we we understand every organization has to measure its processes but the the problem in this field is we also have to measure the outcomes because there's a huge disconnect and gap between measuring a few processes of thousands of processes and then inferring that that's going to mean that the outcomes are good we have to measure the outcomes directly when we look at any given medical problem there's more than one outcome you know survival is an outcome important outcome but it's not the only outcome you know a lot of patients most patients survive so then we have a lot of other outcomes like you know how what's the functional status of the patient how soon could they get back to work you know what kind of hell did we put the patient through treating them all of those things are part of the set of outcomes that matters and that set of outcomes is going to depend on the particular medical problem that an individual has a diabetics outcomes the relevant outcomes for a diabetic are different then the relevant outcomes for a head and neck cancer patient so we're going to have to learn how to measure those outcomes now as we'll see later there is some outcome measurement in the u.s. system we're way behind other countries and it's a fundamental challenge if one if I could cause one thing to happen in America and only one in health care delivery you know it would be this it would be we have to systematically comprehensively measure outcomes for everything and everybody has to do it if we did this many of the other things I'll talk about this afternoon would start to happen naturally the denominator of the value equation is of course cost and cost is the actual cost of providing the care the actual cost of the resources involved in delivering the care providing whatever kind of care it is and that could be preventive care by the way what we care about is not the cost of an individual service that's not what's really important what's important is the total cost of all the services required to deal with mrs. Jones's breast cancer the office visit cost is interesting but not what's really relevant it's that total cost and the relevant cost is is is is the cost of dealing with a particular medical problem and if you can compare that cost with the outcomes then you are in the position to start to judge value right now as we'll see later there is not a single provider organization that can measure cost that way and we'll talk a lot about that one of the fundamental problems that's causing our value issue in healthcare delivery is caustic counting cost accounting and of course that's something that we all think is kind of fun you know we like cost accounting here not a lot of people in health care system are that interested in cost accounting and certainly the clinicians aren't so I always have fun when we have our courses for doctors teaching doctors about cost accounting and they actually like it because it's ours to help them understand how they can actually think about the fundamental purpose that most people want into medicine you know to achieve which is delivering great outcomes but doing it efficiently enough that we can afford it so we can help more people so we so that the kind of central goal has to be value and we need to learn how to think about value in this broader way than we most mostly think about it in the field now in order to drive value improvement you kind of we can either improve the numerator or we can improve the denominator but kind of one of the central concepts in value-based healthcare is that if we have to choose which one is more important the appropriate and correct choice is the numerator if you really want to reduce health care costs you've got to drive improving outcomes it's only by improving outcomes by by by getting the patient healthy quickly by getting the diagnosis right by leading to higher functional status it's only by improving outcomes that you actually reduce cost in the long run now of course we can do things more efficiently and and we'll talk about that later but ultimately we can't be afraid of excellence and outcomes we can't think that it's more expensive to deliver excellent care guess what it's actually less expensive to deliver excellent care the best organizations actually have the lowest cost in this field because they're the ones that minimize the the burden of hell they get the patient healthy more quickly and more healthy and they sustain that health more over time with fewer errors and complications and delays and discomfort and and and relapses and other problems so again in this healthcare field there's a fear of Technology there's a fear of innovation because some people have got it into their heads that this is too expensive we can't afford it and of course we can understand intuitively that quality doesn't necessarily come at the cost at a higher cost in some cases for some periods of time it does but often it doesn't now then the question is how do we design a delivery system in order to kind of drive this value equation and here what we've come to understand is that there's a number of basic strategic agendas in the delivery system and for every delivery organization whether it be a hospital or clinic or or whatever it is that are kind of the the way in which we actually achieve high value and they are kind of listed on this slide number one we actually have to reorganize the way we deliver care itself who's on the team how they work together where they work and and and the kind of basic concept there is that the current system is organized around the services provided it's organized around the doctors it's organized around the tools that we have the radiology tools and the imaging tools and the and the chemotherapy tools and the psychological counseling tools and what we've got to do is we've got to change the organization we got to organize around the patient and the patient's problem the patient's needs now again at Harvard Business School does that sound you know doesn't sound shocking does it but in healthcare again for legacy reasons we've ended up with this structure of organizing really around the tools not the patient that's number one and and and the same kind of concepts can be applied to primary and preventive care in almost of that brief number two if we're going to have high value we have to learn to measure outcomes and cost for every patient in the line of care that is not in retrospective studies not as interesting archaeological exercises looking back but we've got to do this measurement literally continuously the best provider organizations are now starting to do that so that they kind of know what the costs are all the time as patients go through the system they they're tracking the outcomes as patient goes through the system and they're kind of constantly looking at the value equation and that gives them sort of critical information not only to understand how well they did at the end of the day but also how well they're doing in the process so number two is measurement and we'll talk a little bit about measurement later on number three we have to pay differently for the care and this I think almost all observers would agree on there is however still a major disagreement about how to pay but we don't believe there's any real disagreement there shouldn't be any because there really only is one way to pay that makes sense from a value perspective and that is we have to pay for the whole bundle of services required to deal with the patient's medical problem if in the case of a diabetic that's a chronic condition so a diabetic should we should get a certain amount of money to care for a diabetic with a certain risk profile for a year if we have a you know totally somebody with severe arthritis that needs a total joint replacement we should get a price to provide that joint replacement you know starting with the initial visits and the evaluation and going all the way to the end of rehabilitation we got to pay one price what does that do that aligns really the payment with how you deliver value you don't deliver value the surgeon doesn't deliver value alone you can have a great operation for that hip replacement but you know if you don't do the recovery well and if you don't do the rehab well you can completely nullify everything the surgeon did we can't pay for the surgery anymore the only way we can deliver values we've got to pay for the whole the whole psyche what we call the cycle of care and we right now don't have the information partly because we have no clue of what the real costs are we don't have the information to do that but it's happening it's happening very rapidly this is spreading around the world very rapidly it's going to come and we'll talk a little bit later about what some of the competing ideas are and why I certainly don't believe they they make the same amount of sense so number three is reimbursement number four is tying the parts of delivery systems together today in healthcare most hospitals sort of see themselves as standalone organizations serving their community and and even if hospitals are part of the same hospital system they still think that way here in Boston we have this colossus called partners and partners has Mass General and the Brigham and the Faulkner and newton-wellesley and others that I'm forgetting each of those organizations sees itself as a standalone full-service organization you can go to Brigham and Women's Hospital and get primary care you can go to Brigham Women's Hospital and get kind of routine outpatient rehabilitation and and and that simply doesn't make any sense from a value perspective we need to get the right care in the right facility for the right problem we can't have we can't duplicate services in every facility we've got to learn how to integrate these delivery systems even if they're owned by different people even if the rehab is separate from the hospital we need to start getting the rehab people in the hospital people connected and starting to think jointly about value because value is not about any one service values about the whole set of services that you provide and by and large the system is is completely flubbing this when you can go to a world-class Cordon Airy hospital and get routine services you can tell right away we're not organized to maximize value we're and by the way the amount of resources that are being wasted in the healthcare system not by fraud and you know and stuff like that but by stuff like this which everyone thinks is routine and normal is epic and we can talk about that a little bit later on number five we've got to break down the local nature of healthcare delivery we can no longer have every you know region have its own different hospitals each trying to reinvent the wheel it's a very mom-and-pop industry you know even the biggest health care delivery organization in America is you know probably less than 1% or even 0.5% or 0.1% you know of the industry we've got to get our excellent providers that are really great at doing cancer care or orthopedic care we've got to get them spreading their footprint across geography so that people living you know in rural Arkansas can get Cleveland Clinic quality cardiology care rather than whatever the little local hospital was able to figure out you know mom and pop you know reinventing the wheel without the right technology without the right expertise without the right services you know we've got to break down that localization we want care to be provided near where we are in general other things being equal we'd like to have the care closeby but we don't necessarily want that closeby care managed by a little local organization that only operates this one Community Hospital we would like to have our local hospital managed by a world-class entity that is really really high value in terms of dealing with whatever medical problems they're there trying to deal with and the system by and large is not set up that way the final agenda is around the information technology there's been a lot said about IT and health care it is a really big deal to do all of these other things that I've been talking about we need to have the right IT platform because if we're going to integrate care across the care cycle if we're going to you know kind of maximally get teams working together in different ways if we're going to better connect the patient to the process a lot of the things we have to do we're going to need the right kind of IT platform where we're moving now quite rapidly in that direction the best providers I think are probably 70% of the way towards the right kind of IT platforms most or not but we're moving but but this is going to ultimately be crucial but what we're not doing what we don't want to do is we don't want to just automate the way we deliver here today that would not be good and and and that that of course is the risk that if you start something too early before you actually change the basic structure and processes that you want to use you end up your IT investment turns out to be counterproductive in some cases these six kind of fundamental steps are really the key to transforming healthcare and dramatically improving the value not a little not a little but a huge amount the problem of healthcare delivery is absolutely solvable it requires no nobel prize it requires no act of God it requires no you know incredible rocket science it's getting these six things done and the problem in getting these things done is this is really different than the way things are done today and people in healthcare delivery and clinicians in particular are conservative and we want them to be conservative we don't want them to just you know kind of jump off and try the latest fad I believe that the health care delivery system can only change bottoms up as individual organizations kind of embrace and understand these concepts top-down it will be very helpful certain things are very helpful and we can talk about those briefly a little bit later and the other thing that's helpful is pressure and what's good right now in the health care system in America is there's a lot of pressure on the system people are really nervous about what's going to happen whether they'll have a role you know people are starting to do budgets now for 25 percent cost cuts in in major hospitals and and and we what we can experience and feel right now is an unfreezing which hopefully that will allow us to kind of get a many of these things done and get them done relatively quickly this is the agenda so let me just take a minute and go through some of the highlights of a few of these areas just to kind of lock in to what your your thinking here what I'm talking about and then and then we can talk a little bit about what government could do and perhaps other actors could do to make this all happen the really the core question in the core issue is the organizational model for delivery of care this is an example of migraine care migraine is a you know relatively it's not a rare condition quite a few people have migraines otherwise healthy people you know have migraines but it's a very debilitating medical condition it can you know knock people completely out you know they have to miss work for days and days they have to go to the emergency room there the if their disease is not controlled they have a tendency to want to go back to the doctor and help me help me help me so migraine is is is a case that you know I think it's not a hugely complex in terms of to understand a medical problem but I think it's a great illustration of the or fundamental organizational challenge that we have we have a case study that we teach in our value-based healthcare workshops on migraine care in Germany and I show this example today because what we found is that although the insurance system is very different in various parts of the world the delivery issues are very similar the German delivery system the way German hospitals work the way clinicians you know organize themselves is very similar to the way we do it here even though Germany has Nirvana from an insurance point of view have a wonderful insurance system everybody's covered you know premiums are based on your income you know there's no adjustment for pre-existing conditions if you happen to be have been sick that does doesn't mean you have to pay more you know etc etc etc you have free choice you can go anywhere you want you don't have to get a referral you know it's a great insurance system but they have some severe value problems just like we do and that's because of the of the kind of organization of care delivery itself the traditional model is organized around services and specialties a typical German would enter the system in in and a primary care physician that person he or she would do their best you know to help them provide you know perhaps a medication you know some advice if that worked is terrific if it didn't though that patient would start a journey you know through this process of care what is the nature of the existing process number one it's a sequential process you do basically one thing at a time punctuated by weights delays in contrast you know to a parallel process were you're doing multiple things together number two this process involves multiple separate administrative interactions to each trip to each bubble and by the way a patient might go here here here here here here here here here here here over the course of you know a year or two years each interaction with a bubble requires a separate phone call a separate scheduling process a separate trip to a separate waiting room a separate clipboard that you have to fill out so there's a lot of administrative complexity here the administrative complexity in healthcare is not the fault of the insurance companies the administrative complexity in healthcare is a function of this way we've organized care where each bubble is separate and today sends a separate bill where each interaction is separate even if it's in the same literally the same hospital building it's separate you go to a different place even if everybody is owned by the same organization it's it's it's all separate today the third thing about this process is it involves a lot of coordination that's very hard to do because these people are not working together if they want to coordinate they have to go through a lot of effort now of course in medicine we write you write notes you know clinical notes and notes get passed around but those notes are you know very very you know inadequate in terms of kind of getting that holy sixth sense or what this patients overall situation is from different points of view and very hard for the people involved in this system to actually coordinate and come up with any shared insight into what the problem is and what needs to be done now and the final thing I would say about this structure here is that to the extent that this is a team at all and it's not a real team because people are not working together but to the extent that it's a team at all it's what you might call a pickup team the the particular people here that you interact with are shall we say almost random they have no particular necessary connection with your problem you know you could go to a PCP and that PCP may actually be interested in migrant and I've had a bunch of migraine patients and really have a fair amount of expertise in migraine and know that there's like eight kinds of trip tans which are the the kind of drug that's that usually the drug of choice and up to date on you know which of those tripped hands you know works for which kind of case but the chances are the PCP won't be particularly interested in migraine or particularly up-to-date and the PCP you get to won't be the one that's up-to-date necessarily it might be have one chance out of you know X but only a chance out of X then you might get sent to a neurologist if the PCP doesn't isn't successful in controlling the disease or helping the patient do that they might refer the patient to an outpatient neurologist but that neurologist is also seeing stroke patients MS patients all neurology is very complex field there lots of different diseases and conditions involved and the neurologist tends to think that his job or her job is to handle all those conditions so who so they'll have a stroke patient in one visit and then the next patient will be a headache patient the next patient will be assisting fibrosis or something like that and and and and that's that's the way the system is organized does that neurologist is that neurologists have a deep interest in migraine you know have they really studied this disease have they cared for a lot of patients over time it may be but not necessarily so this this system is actually strangely bad at getting the patient to the providers that really if it's can their problem their problem now let me say something I want to I want to be absolutely clear on the problem is not that physicians are not hard-working or are nurses and other collisions the people here work really really hard it's not that the people are not smart and skilled and well-trained it's remarkable and thank God for all of us that the people in health care delivery pretty much in all around the world are very smart and very dedicated and very well trained that's not the problem the problem is we've put our clinicians in a structure in which they can't deliver value no matter how hard they work no matter how many hours they're on call it's impossible so we got to change the structure what's the change we have to organize not around the tools or the services we have to organize around the patient's problem if a primary care physician can't address a migraine what the Germans created was something called the West Room and headache center there there now Western headache centers all over Germany and you would then be sent to this place and inside this place where's all the expertise that you likely needed to deal with this medical problem so you have your neurologists there but you'd also have the you know your physical therapists because that has a can help control and manage the disease you psychological counseling and the what would happen is you would go to this organization you deal with one scheduling problem and then basically you'd parallel process so you go for a day or two days you go through a structured process of evaluation and diagnosis and group therapy and and and counseling from educators about what you could do and you know what strategy is to abuse to control your disease does that seem obvious that that would work better if you actually had a migraine than the system we have today we'll of course it's obvious but again we've this in this field we have the fundamental flaw that we is something in business that we that we just think as take as a given and that is you organize around the customer and their needs if we do that we have dramatic improvements in value to the extent that this organization which is an outpatient organization really needs other help like an image head scan or inpatient stay to detoxify today said that they need other other other support they build affiliations so you just don't get sent to the random place to have your your MRI you get sent to an affiliated place that is a real kind of high volume MRI for head scans you know place where there's a professional relationship between the headache center and the imaging center and they interact back and forth and they share information very well and there's a very rapid cycle time in terms of that kind of care and so on what happened in Germany when this change was made the outcomes just went off the chart the the proportion of patients with their disease control the lost days of work the trips to the doctor the trips of the emergency room just essentially went to zero why because you had a group of experts working as a multidisciplinary team to actually deal with that problem in the most sophisticated way and these people spent you know you know five years a week you know 10 hours a day working on migraine patients the cost initially went up because this model stretches out the cost you know you pay for your PCP visit and then you wait for a month or six weeks and see if things get better and you're suffering but you don't want to go back to the doctor too soon and you're hoping things will get better eventually you you you know say oh my god I'm not getting better so then you end up going back to this person and this person and and the costs are kind of stretched out over time what this model does is pulls cost upfront but because the they are able to achieve such better outcomes after not very long the lines cross you this initially was more expensive but eight months after this started the average cost of a patient was lower than it was before for the conventional therapy and at this moment they're running about twenty five percent lower so we have much better outcomes we have twenty five percent lower costs in the healthcare system plus we don't have those days off of work in all those other costs for society this is the fundamental organizational change that has to happen we've got to organize around patient problems now in the case of a defined disease that's pretty clear a diabetic breast cancer patient a you know arthritic patient that needs a you know replacement of their their hip or their knee what about primary care what we found in primary care is it's essentially the same problem the current primary care structure we have today is what I like to call mission impossible the typical primary care practice physician will have a panel of like 1500 patients with every conceivable medical problem there'll be some people that are completely healthy adults they'll be other people who are dying there'll be some people with chronic conditions there'll be other people that are disabled this primary care practice with this one structure this one office this one nurse and administrative assistant will try to provide primary care needs for that incredible heterogeneity of patients can't do it can't do it while delivering value so what we're coming to understand is the way to think about primary care is not going to give it as a monolithic service in fact primary care is the wrong way of thinking about it they're really different segments of patients with very different primary and preventive care needs and if you have a healthy adult you want to staff up and have your team and your process look very different than if you had elderly disabled with multiple chronic conditions and we're now starting to see a bit of a revolution in primary care where the best primary practices are starting to think this way and they're starting to have teams within their practice and this also implies that primary care practices need to get bigger the single physician in the single office with a single nurse and you know a single support staff is never going to deliver high-value primary care because not because they don't work hard not because they're not good people not because they're well-trained but because they won't be staffed up and they won't have the right way a actual way of delivering that care or the appropriate expertise on their team we've got to change the basic structure we've got to change it around what we call medical conditions now a common you know pushback that we get on this idea of organizing around the patient's problem is what if the patient has lots of different problems what do we do then and and the answer to that is that you know a diabetic usually has lots of different problems it's not just the endocrinology problem it's also the renal problem it's also the vascular problem it's also the issue with the eyes and whatever that's called retinopathy or something when we define the patient's needs we have to think not just about one narrow definition of the problem we have to think about all the things that tend to be associated so if you're going to have an integrated practice unit for diabetics you're going to have renal and vascular and I expertise on the team as well as diabetes educators to kind of help coach the patient in how to do the self-care so when we think about defining medical conditions for purposes of organising care we have to think about it wrongly we can't think about it narrowly and if virtually if many many patients with XYZ disease also have another disease then we have to organize around both together and and that problem of matching or the kind of deciding what the right unit is is is one that's now just starting to to happen in healthcare delivery and and will ultimately figure it out there are some patients that are highly complex you know they have they have cancer they have chronic conditions they have you know they have dementia and they may actually have to be cared for by more than one of these units but that's going to be a lot better than having each service a separate bubble on the chart in terms of coordination the organizational problem is is the really the core problem we have to solve we've got to change the basic way in which we have organized care we've in health care the organization structure is partly around the way doctors are trained but it's also partly a structure that sort of views every case as different every patient is a unique case therefore we have to let that unique process evolve the cold hard truth is that you know if you have breast cancer the the nature of what you need is relatively similar so rather than organizing around the exception we have to organize around the rule we have to put together the team that is capable of dealing this dealing and providing the services that most patients need and then the exceptions can be traded you know separately rather than the system we have today which is organized like every patient is different we've lost the the power of volume and dedicated teams and defined processes and and kind of rigorous measurement because we've organized the way we have that's number one now there's lots of other things we could talk about you know how to think about the cycle of care how to define the characteristics of the kind of integrated practice unit that we that we want to build you know how do we integrate mental and physical health together which i think is another huge opportunity we have in the field there are many many issues but any but all of these is and the more we could talk the more I think you would see this require a different distribution of volume in the system right now the system is massively fragmented in terms of the services provided by each organization every organization is providing almost everything therefore the volume of patients that any organization has in a particular problem tends to be small but in order to have a dedicated team in order to have dedicated facilities in order to be good at measuring in order to be efficient you need volume so volume of patients with a given problem enables value it doesn't guarantee value if you're if you screw up in terms of how you do it you know you want the over value but the volume gives you the capacity to create a high value structure but as we see on this slide and many other slides that I could show you the typical provider only sees a few patients with any given problem therefore they're forced to sort of organize in in the way they are today and that's one of the constraints and one of the things that needs to happen in healthcare delivery is the consolidation of volume of patients with a given problem into fewer locations and fewer centers that's starting to happen but but all around the world is a problem you see here in the case of Sweden the typical Swedish hospital sees one case a week for total knee replacement you know one case a week or two cases a week for kidney failure if you're seeing two cases a week you'll never deliver about you because you'll never be able to have the right team and the right expertise to really provide excellent care and do it efficiently you'll have massive underutilized capacity massive duplication of assets and equipment which is what we have today in the healthcare delivery system ok measurement we've already talked about the fundamental change in measurement on the outcome side which is to move from processes to actual outcomes in order to measure outcomes we have to understand that there's a hierarchy of outcomes for any given medical problem or for any segment for primary preventive care and again I won't go through this concept but basically we've really not had a systematic way of thinking about the set of outcomes that need to be measured for any any given problem and and now we're starting to understand that this is an example of what you'd want to measure if you were treating head and neck cancer patients you want to measure whether the patient's survived and for how long and that's by and large all that's been measured in cancer care because it was sort of part of the seer system but you also want to measure you know things like you know did the patient you know was the patient able to speak in head and neck cancer there's a lot of risk that you'll lose your voice given the kind of surgery and care that's necessary you know was the patient able to eat normally there's a lot of risk of swallowing issues that mean you have to have a feeding tube maintenance of facial appearance it's tremendous risk of disfigurement for a variety of reasons with this disease you you want to measure how long it takes to achieve remission and and to get back into the into normal life you time time is an outcome for the patient the shorter of the pattern you want to measure you know the complications and the fatigue and the depression and the anxiety that are required in the care process and so on and so on and so on and obviously when we're measuring outcomes we have to adjust for risk but we're learning how to do that we're learning how to do that the primary purpose of measuring outcomes is really to inform clinicians on how to improve but and we're losing the power of that in health care by and large today where we measure outcomes remarkable things happen this is one of the few areas in America where we measure outcomes everywhere every day everywhere every patient and that's in organ transplantation this example is actually kidney transplantation there's part of there's mandatory measurement as part of the national organ system if you get an organ or you want to get an organ you have to measure every patient that's transplanted and what you see here is one of the measures things that are measuring one year graft survival if you got a new kidney did it was it still functioning after a year in a highly important outcome they measure a bunch of other outcomes as well and this is the first data set that became available from looking at the from from that reporting system and you can see there are 219 kidney transplant programs in this period of time in the United States and this is how they did on this particular measure there's a risk adjustment algorithm that allows some providers to be you know deemed as better than expected in terms of their outcomes those are the red dots there's some and some providers are deemed to be worse than expected given their patient mix you know those are the yellow dots but most patients you don't have enough statistical degrees of freedom to actually be able to demonstrably prove that they're better than you would expect adjusting for the patient mix the a age and you know how sick they were and so forth now some people believe that since you can't statistically prove that that that this dot is different than that dot shouldn't be measuring but of course we all know in business we measure lots of things where we can't do statistical tests and prove that you know this is better than that we measure because we want to learn we measure because we want to know where we stand we measure because we want to compare how we did this year to how we did the year before and in healthcare wherever we measure outcomes that happens what I'm going to show you now is the most recent data set on the same medical condition and that looks like that look what happened everybody got better look what happened between the cap between the the weaker providers and the stronger providers why did this happen it happened because a lot of these people improved very rapidly why did they improve because they knew where they stood and they knew who was doing well and the diffusion of Technology was rapidly rapidly undertaken the single most powerful lever we have in healthcare delivery is to actually systematically measure outcomes but we also have to measure cost the basic problem in healthcare is that costs are confused with charges when people in health care say costs what they usually mean is how much the bill was and of course we all know that price is not equal to cost and the costing systems in healthcare were set up around billing not around the actual resource use involved in care so as many of you some of you may know pressor kaplan and i wrote a paper on applying a kind of applying modern cost accounting thinking to health care and the answer is it's not hard to do and it's transformational in terms of seeing the world differently and again I won't go through these slides because we don't have the time but basically what you have to do is use time driven activity-based costing which is classically relevant to healthcare because most of the resources involved in healthcare delivery are shared resources so you've got to figure out how much of the resource of this clinician was actually consumed by this patient how much space how much equipment was actually consumed by that patient and and TD ABC kind of gives you the methodology to do that we're now starting to apply that in maybe a dozen different healthcare delivery organizations it's going to spread very rapidly and there's lots of things that you can do better if you do that let me just cover one more topic and then then we have to stop and that's the question of pricing how do we pay again as I said before the fundamental shift that has to happen is we can't pay for individual services anymore that doesn't work that's actually a disincentive for value it's a disincentive for innovation we also we believe we shouldn't pay global capitation as well the idea that we would pay a delivery organization one amount of money and that would require them to take care of any conceivable problem that you might have we think completely decouples the payment from the value that the delivery organization can actually control what we need to do is we need to align the payment with value in the ways that the delivery organization can actually control and that's to pay the delivery organization around the care of the problem the patient actually has but not the individual services the really total package of services and that's the what we call the the bundled reimbursement now a bundle reimbursement looks something like this this is the County of Stockholm everybody that gets a hip or knee replacement in the county of Stockholm today and for the last few years has been paid all those people's providers have been paid a bundle price a single price covering all the things in the yellow box there's not separate fees for all these services there you get one amount of money and then the provider can decide where do I spend this money you know what should I do that would help me deliver the best outcomes the most efficiently and the number that usually gets the attention of all my friends you know that in the in the clinical space is the actual price of the bundle eight thousand US dollars now you all are too young most of you to have had a hip or knee replacement so you would have no way of knowing but here in the United States it would be thirty to thirty five thousand dollars and these organizations are making money now we've started now to get at the underlying reasons for these huge differences part of it is in the United States we choose to pay more for drugs and implants and anyplace else in the world I don't quite know why we Americans should be subsidizing everybody else in the world and paying more for these things but we do so that's part of it nurses and doctors actually get paid a little bit better here in America than they do in Sweden or Germany and you know that's neither here nor there I mean people should get paid as much as they can I guess and and earn but and we have no way of allocating deciding whether their value is there so we've just paid based on historical algorithms you know you know certain specialties get paid more than others you know who knows whether that makes any sense but what we found is that the real reason we have thirty thousand in the US and eight thousand in Sweden is the use of the resources in providing the care and and in Sweden they're just a lot better and more efficient in using the resources and not doing things that they don't need to do and doing the things they do better so that they have fewer complications and problems and delays and and and and so I think a case like this tells you that we can solve this problem of healthcare it's not an insurmountable problem if people in Sweden which is not a cheap place to do anything can do a total joint replacement for eight thousand dollars and the provider can make money and all the people in the system can get paid you know fairly you know that's telling us that there's a lot of opportunity here to dramatically improve value and by the way they get just as good outcomes as we do here in America and our best hospitals so basically I think the message I want to leave you with is you know the core issue in health care is actually the way we organise the delivery of care the central guiding principle that has to be true North in every choice we make about that needs to be value for the patient if we think about value for the patient that leads us to a set of other choices and implications having to do with our organization our measurement our pricing the way we connect across and he's in the system and the way we mobilize IT that I think are all doable they're all actionable and they're all happening in one organization or another the challenge is how do we accelerate this transformation and that's a that's an issue that Rob Buckman and I and many of my colleagues here you know think about every day I personally believe that government right now isn't being very helpful so therefore I've chosen to focus primarily on Bottoms Up change by engaging with the provider communities and hospital systems around the world but health policy can have a big impact as well for example we need mandatory outcome measurement we need new cost accounting standards you know we need various changes in the payment system so government can help but but the good news here is that every provider organization without anything else having to happen will benefit in doing its job if it can start to embrace these principles and so I'm very hopeful about this probability to solve this problem I'm very optimistic about the potential but it's going to take a lot of change in organization and things that all of us in this room understand well we know that there's always resistance to that and discomfort with that but I think slowly but surely that's going to change so that's a point of view again we our time is over I'll be happy to take a few questions afterwards here because I don't want to hold this cold group but I'm so pleased that you came I it's a great honor that you all came hopefully this gives you a way of thinking that will allow you to sleep better tonight I hope and I hope a lot of you go into health care delivery system because there's rampant opportunities in doing all these things to to create enormous positive impact on society and and also make make a lot of money if you're providing some of the technology and services involved okay so thank you very much you

Channel: Harvard Business School

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Keywords: Healthcare, Michael Porter, HBS, Harvard Business School, Harvard

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Length: 68min 47sec (4127 seconds)

Published: Tue Mar 20 2012