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Michael Porter is generally recognized as the father of the modern strategy field and has been identified in a variety of rankings and surveys as the world’s most influential thinker[…]

Insurance companies are rewarded for excluding sick people, says Harvard Business School professor Michael Porter.

Topic: Healthcare: Problems and Solutions

Porter: The fundamental problem with healthcare in the US and many other countries as well by the way is that the system is not really organized and structured around delivering value for the patient. 

Michael Porter,  Professor, Harvard Business School.

Question: Where did the healthcare industry go wrong?

Porter:    We have a system where in America particularly we don’t have everybody covered by an insurance system and the insurance system that we do have is again not structured around value.  Insurance companies have been rewarded for actually excluding sick people and their modus operandi is to bargain down prices with providers rather than actually improve the health of their subscribers.  We don’t even know if insurance companies do a good job of actually assisting their members or their subscribers in improving their health conditions and so the insurance market has been really not rewarding value but really rewarding cost shifting, pushing cost from one entity to the another, passing more cost on to the consumers.  So the insurance system is really a key part of a problem. But what we, I think understand now is the real fundamental problem is that we’re not delivering healthcare in a way that creates value or the maximum value for the customer and that’s fundamentally because the organization of healthcare is misaligned with really the needs of the patient.  Healthcare is organized around specialties and interventions.  You go to the radiologist, you go to the internal medicine person, you go to rehab, these are all separate departments, separate people, separate interventions with separate administrative structures, but that’s not what creates value.  What creates value is really to integrate all the expertise and specialties and interventions necessary to address the patients' medical condition—whether it’s diabetes or heart problem or an arthritic hip—over the full cycle of care of that patient, and fundamentally then the organization of the delivery of care is really not organized around the patient and the value for the patient but it’s really organized around the traditional divisions and specialties in the field. And what makes it worst is that we don’t actually measure the value delivered, we don’t even measure health outcomes at all except in very rare cases.  So it’s very hard to drive value in a system where value really isn’t measured and where pricing actually reinforces the fragmentation and lack of coordination in the system.  Today, we pay for services basically, we pay the doctor separate from the hospital, we pay the radiologist separately from the surgeon, we pay the surgeon separately from the anesthesiologist, we pay the office visit separately from rehab and essentially the payment system then simply encourages people to do more services, rather than to optimize the overall value that is delivered in terms of the patient outcomes per dollar spent.  So we’ve got a real mess in our hands because the structure of the system is really fundamentally disconnected to value.

Question: What can we do to improve the system?

Porter:    Electronic medical records are a very important technology that has to be deeply embedded in healthcare delivery because it enables what we fundamentally know we have to do to deliver value.  Electronic medical records enable integrated care where all the experts and specialties and folks working with a given patient can actually be on the same page in terms of sharing information and having the full information about the patient whole medical condition, rather than have each office, each specialty have their own records and really not know what anybody else did.  We also know that electronic medical records are a platform for measuring results that is measuring the outcomes carefully over the whole cycle of care and also being able to carefully measure the total cost.  See we don’t really care about the cost of anyone intervention, what we care about is the cost of the whole cycle of care and we need to be optimizing the total cost not trying to minimize the cost of individual interventions, in fact what we know in healthcare is that we may actually want to spend more on some things like say, screening in order to save money later on in the care cycle by minimizing complications or emergency room visits or whatever, but without electronic medical records that really cut across all the specialties and services, we can’t really even start to think about those issues. 

Question: How can we promote innovation?

Porter:    Medical science is a very rapidly changing and improving set of technologies and so when we create a healthcare delivery system we need to have a system that is actually engineered for continuous innovation to rapidly embrace the newest protocols, the newest drugs, the newest devices, the newest services that can actually enable the patient to do better, to get well more quickly, to do it more efficiently.  So ironically healthcare delivery should be really structured around innovation.  The problem we have today is that because of this kind of siloed model and because everybody looks at their little piece of the patient care cycle separately, we actually don’t deploy innovation very well and often innovation is perceived as the enemy because we come up with a new imaging technique or we come up with a new medical device and then the incentives are for the people involved in that to just do as much as they can and crank up as much revenue as they can rather than think about how can that image or that device actually change the entire care cycle, how can we optimize the overall process of care. So you know, we believe that you know, that a lot of the concerns about the use of technology and the cost of technology in healthcare are not inherent in the technology itself but they are really reflected in the nature of the way technologies actually deploy in the delivery system and how we pay. 

Question: How can we effectively measure healthcare outcomes?

Porter:    Measurement in healthcare is happily something that is now gathering some steam but unfortunately the approach to measurement in healthcare has been to measure processes of care not outcomes.  Processes of care are things like did the doctor prescribe the given drug at the right time? Was there an appropriate test given, you know, so basically the process approach to measurement says, let’s kind of second guess how doctors practice medicine or how teams practice medicine and let’s take guidelines that we’ve learned from clinical studies and let’s make sure that the doctor is doing the right thing.  The problem with process measurement is that it never fundamentally captures even a small part of the complexity of actual caring for a patient.  Even for a relatively simple disease there’s a lot of judgmental factors that are necessary, guidelines don’t cover everything.  The trouble with guidelines is they also freeze the status quo, they are really anti-innovation, and guidelines are always several years behind the best practices and so if you forced doctors to follow the guidelines rather than figure out how to do it even better, you kind of slow down innovation.  So what we need to move from is the process approach which is the approach that we’re using now to really the outcome measurement approach.  Processes still need to be measured but that can be left to the providers, that can be left to the organizations themselves like we leave that to businesses.  You know, we don’t compare process measures across companies in public rankings you know, we compare outcome measures of companies and now outcome measurement is the health outcomes—how well the patient did: did they survive, how close to recovery did they get?  How fast did that recovery occur?  How much complexity and complications where there in the treatment process.  Were there relapses, how often, how soon, how serious, those are the kind of things we need to be measuring but by and large this process is just beginning to take hold in America and this is in my view the single biggest leverage point to drive health improvement in the healthcare system is to measure outcomes and they measure it for every provider, for every medical condition. We know we can do this, we have proven it works, we’ve proven that when we measure outcomes we can get dramatic improvements and value but we simply have lacked the will and the conviction that this is really on the top of the list for really driving improvement in healthcare.