Michael Porter continues advocating his ideas on healthcare reform this morning at the World Innovation Forum 2010 in NYC this morning. I have not hard him speak for a long time and last time I was in his class 20 years ago. Him and many HBS profs are putting a lot of thinking around healthcare issues. He firmly believes that it is not and should not be a zero sum game.
The system currently delivers high cost and low quality and as a result nobody wins. He suggests that we should reframe the problem and rethink the whole delivery structure.
The idea is how do we use the power of quality and outcome to be the cost control mechanism? As we all know, the economics and politics of healthcare is so complicated. What do we need to do to transform healthcare? He suggested 6 fundamental strategic imperatives. And the first one is organize care delivery around the patient. Sounds familiar for readers here? Another example of how businesses are not organized around customers and their strategies are not aligned with creating value.
In a book published earlier with Elizabeth Teisber, Redifining Healthcare, the authors diagnose the problem of competition in the modern healthcare system applying the theories of industrial economics and come up with a broad set of strategies which providers, payers, employers and the government can use to improve value.
The core of Porter and Teisberg's argument is that the structure of health care delivery in the United States (and the rest of the world for that matter) is broken, and that it is broken because the nature of competition in the industry is broken.
Porter further adds that "In a normal market, competition drives relentless improvement in quality and cost. Rapid innovation leads to rapid diffusion of new technologies … Excellent competitors prosper and grow while weaker rivals are restructures or go out of business. Quality adjusted prices fall, value improves and the market expends to meet the needs of more consumers." Clearly this is not the case in the current health care environment.
Porter’s central thesis is that the delivery of health care should focus on maximizing value, which is to define as health outcomes/total costs, and that this metric should then form the basis of competition in the industry. Providers that can maximize value, i.e. deliver more effective, higher quality care at lower quality adjusted prices should be rewarded with more patients. Providers that can't keep deliver on these promises should either adapt and innovate, or go out of business. He believes reframing what value is, allowing competition and reorganizing delivery is one big way (if there’s another) to solve the US healthcare problem.
The big question remains how come we are spending ever more on health care and is that normal? Today Americans spend more on healthcare than on food. Part of that there are increasing use of new medical technology and not all of them are runaway spending. The increase in costs over the last 20 years, large proportion is caused by growth rare in private health insurance premiums. Having said that, introducing competition and reducing fragmentation is a sure way to get the system back on track.
