Value-Based Health Care Delivery

Professor Michael E. Porter

Harvard Business School
www.isc.hbs.edu
May 2014

This presentation draws on The Strategy That Will Fix Health Care, by Michael E. Porter and Thomas H. Lee published in Harvard Business Review October
2013;Redefining German Health Care (with Clemens Guth), Springer Press, February 2012; Redefining Health Care: Creating Value-Based Competition on Results (with
Elizabeth O. Teisberg), Harvard Business School Press, May 2006; A Strategy for Health Care ReformToward a Value-Based System, New England Journal of
Medicine, June 3, 2009; Value-Based Health Care Delivery, Annals of Surgery 248: 4, October 2008; Defining and Introducing Value in Healthcare, Institute of
Medicine Annual Meeting, 2007. Additional information about these ideas, as well as case studies, can be found the Institute for Strategy & Competitiveness Redefining
Health Care website at http://www.hbs.edu/rhc/index.html. 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 , Elizabeth O.Teisberg, and Clemens Guth.

Copyright Michael Porter 2013

Creating A High Value Delivery Organization

The core issue in health care is the value of health care
delivered
Value: Patient health outcomes per pound spent
Delivering high and improving value is the fundamental purpose
of health care
Value is the only goal that can unite the interests of all system
participants
Improving value is the only real solution to reforming health care
versus cost cutting, per se cost shifting to patients, restricting
services, or reducing provider compensation

Copyright Michael Porter 2013

Why We Have Been Stuck

The Legacy System

6 Siloed IT systems for functions, services, and

departments
3

Copyright Michael Porter 2013

Creating a Value-Based Health Care System

Significant improvement in value will require fundamental
restructuring of health care delivery, not incremental
improvements
Todays delivery approaches reflect a legacy of medical
science, organizational structures, management practices,
patient mobility, and payment models that are obsolete.
Care pathways, process improvements, safety
initiatives, care coordinators, focus on hotspots,
inspections, and other overlays to the current
structure can produce incremental
improvements but are not sufficient.

Copyright Michael Porter 2013

Principles of Value-Based Health Care Delivery

Value =

Health outcomes that matter to patients

Costs of delivering the outcomes

Value is measured for the care of a patients medical

condition over the full cycle of care
Outcomes are the full set of health results for a patients
condition over the care cycle
Costs are the total costs of care for a patients condition
over the care cycle

Copyright Michael Porter 2013

Creating a Value-Based Health Care Delivery System

The Strategic Agenda
1. Organize Care into Integrated Practice Units (IPUs) around
Patient Medical Conditions
For primary and preventive care, organize to serve distinct
patient segments

2. Measure Outcomes and Costs for Every Patient

3. Move to Bundled Payments for Care Cycles
4. Integrate Care Delivery Systems
5. Expand Geographic Reach
6. Build an Enabling Information Technology Platform

Copyright Michael Porter 2013

Getting Unstuck

Copyright Michael Porter 2013

1. Organize Care Around Patient Medical Conditions

Migraine Care in Germany
Existing Model:
Organized by Specialty and
Discrete Service
Imaging
Imaging
Centers
Centers

Outpatient
Outpatient
Physical
Physical
Therapists
Therapists

Outpatient
Outpatient
Neurologists
Neurologists
Primary
PrimaryCare
Care
Physicians
Physicians

Inpatient
Inpatient
Treatment
Treatment
and
andDetox
Detox
Units
Units

Outpatient
Outpatient
Psychologists
Psychologists

Source: Porter, Michael E., Clemens Guth, and Elisa Dannemiller, The West German Headache Center: Integrated Migraine Care, Harvard Business School Case 9-707-559, September 13, 2007

Copyright Michael Porter 2013

1. Organize Care Around Patient Medical Conditions

Migraine Care in Germany
New Model:
Organize into Integrated
Practice Units (IPUs)

Outcome from New Model

reduced pain

Affiliated
Affiliated
Imaging
ImagingUnit
Unit

Primary
Primary
Care
Care
Physicians
Physicians

West
WestGerman
German
Headache
HeadacheCenter
Center
Neurologists
Neurologists
Psychologists
Psychologists
Physical
PhysicalTherapists
Therapists
Day
Hospital
Day Hospital

increased days at work

Essen
Essen
Univ.
Univ.
Hospital
Hospital
Inpatient
Inpatient
Unit
Unit

lowered overall costs of

care because less
treatment was needed!

Network
Network
Affiliated
Network
Neurologists
Affiliated
Network
Neurologists
Neurologists
Neurologists
Source: Porter, Michael E., Clemens Guth, and Elisa Dannemiller, The West German Headache Center: Integrated Migraine Care, Harvard Business School Case 9-707-559, September 13, 2007

Copyright Michael Porter 2013

How we organize today for Diabetes

Outpatient
Endocrinologist

Social Worker

Podiatry

Nutritionist

Psychiatrist/
Psychologist
Visit

Primary
Care Physician

Diabetes
Nurse
Education
Visit

Laboratory

Outpatient
Neurologist

Outpatient
Cardiology
Vascular
Surgeon

Outpatient
Nephrologist

Inpatient
Cardiology

Ophthalmologist

Kidney Dialysis

Laser Eye
Surgery

Inpatient
Endocrinology

10

Inpatient
Vascular
Surgery
Copyright Michael Porter 2013

Organizing for Patient Care at the Joslin Diabetes

Center (Boston)

1. Check-in

3
2

2. Endocrinologist

3. Nurse Coordinator

4. Eye Exam
1

6
9

5. Laboratory Blood,
urine
6. Diabetes Education
7. Mental Health
8. Nephrologist

9. Check-out

11

Copyright Michael Porter 2013

Attributes of an Integrated Practice Unit (IPU)

1.

Organized around a medical condition or set of closely related

conditions (or around defined patient segments for primary care)
2. Care is delivered by a dedicated, multidisciplinary team who devote a
significant portion of their time to the medical condition
3. Providers on the team see themselves as part of a common organizational unit
4. The team takes responsibility for the full cycle of care for the condition
Encompassing outpatient, inpatient, and rehabilitative care, as well as
supporting services (such as nutrition, social work, and behavioral health)
5. Patient education, engagement, follow-up, and secondary prevention are
Integrated into care
6. The IPU has a single administrative and scheduling structure
7. Much of care is co-located in one or more dedicated sites
8. A physician team captain or a clinical care manager (or both)
oversees each patients care process
9. The team measures outcomes, costs, and processes for each patient
using a common measurement platform
10. The providers on the team meet formally and informally on a regular
basis to discuss patients, processes, and results
11. Joint accountability is accepted for outcomes and costs

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Copyright Michael Porter 2013

What is a Medical Condition?

Specialty Care
A medical condition is an interrelated set of patient medical
circumstances best addressed in an integrated way
Defined from the patients perspective
Involving multiple specialties and services
Including common co-occurring conditions and complications
Examples: diabetes, breast cancer, knee osteoarthritis

Primary/PreventiveCare
The corresponding unit of value creation is defined patient
segments with similar preventive, diagnostic, and primary
treatment needs (e.g. healthy adults, patients with complex
chronic conditions, frail elderly)

The medical condition / patient segment is the proper unit of

value creation and value measurement in health care
delivery

Source: Porter, Michael E. with Thomas H. Lee and Erika A. Pabo. Redesigning Primary Care: A Strategic Vision to Improve Value by Organizing Around Patients Needs, Health Affairs, Mar, 2013

13

Copyright Michael Porter 2013

Value-Based Primary Care

Organize primary care around patient segments with similar health
circumstances and primary care needs:
Illustrative Segments
Healthy adults
Mothers and young children
Adults at risk of developing chronic or acute disease
- e.g., family history, environmental exposures, lifestyle

Chronically ill adults with one or more complex chronic conditions

- e.g., diabetes, COPD, heart failure

Adults with rare conditions

Frail elderly or disabled

Primary Care Integrated Practice Units:

Care Delivery Team: The set of physicians, nurses, educators, and other
staff best equipped to meet the medical and non-medical needs of the segment
Facilities: Care delivered in facilities and locations reflecting patient
circumstances
Porter, M.E., et al. (2013). Redesigning primary care: A strategic vision to improve
value by organizing around patients needs. HealthCopyright
Affairs.
14
Michael Porter 2013

Role of Volume in Value Creation

Fragmentation of Hospital Services in Sweden
DRG

Number of
admitting
providers

Knee Procedure
Diabetes age > 35
Kidney failure
Multiple sclerosis and
cerebellar ataxia

68
80
80
78

Inflammatory bowel
disease

73

Implantation of cardiac
pacemaker

51

Splenectomy age > 17

Cleft lip & palate repair
Heart transplant

37
7
6

Average
Average
percent of total admissions/
provider/ year
national
admissions
1.5%
1.3%
1.3%
1.3%

55
96
97
28

Average
admissions/
provider/
week
1
2
2
1

1.4%

66
1

2.0%
2.6%
14.2%
16.6%

124
3
83
12

2
<1
2
<1

Source: Compiled from The National Board of Health and Welfare Statistical Databases DRG Statistics, Accessed April 2, 2009.
2012.3.1_Book Launch_Redefining German Health Care_Porter_Guth

15

Copyright Michael Porter 2012

Low Volume Undermines Value

Mortality of Low-birth Weight Infants in Baden-Wrtemberg, Germany

Five large centers

8.9%

15.0%

All other hospitals

11.4%

33.3%

< 26 weeks

26-27 weeks

gestational age

gestational age

Minimum volume standards are an interim step to drive value and

service consolidation in the absence of rigorous outcome information
Source: Hummer et al, Zeitschrift fr Geburtshilfe und Neonatologie, 2006; Results duplicated in AOK study: Heller G, Gibt et al.
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Copyright Michael Porter 2013

Volume in a Medical Condition Enables Value

The Virtuous Circle of Value
Improving
Reputation

Greater Patient
Volume in a
Medical
Condition
Rapidly Accumulating
Experience

Better Results,
Adjusted for Risk

Faster Innovation

Better Information/
Clinical Data

Costs of IT, Measurement, and Process

Improvement Spread
over More Patients

More Fully
Dedicated Teams

More Tailored Facilities

Greater Leverage in
Purchasing

Rising Process
Efficiency

Wider Capabilities in
the Care Cycle,
Including Patient
Engagement

Better utilization of
capacity

Rising
Capacity for
Sub-Specialization

Volume and experience will have an even greater impact on value in

an IPU structure than in the current system
17

Copyright Michael Porter 2013

2. Measure Outcomes and Costs for Every Patient

The Measurement Landscape

Patient
Experience/
Engagement

Patient
PatientInitial
Initial
Conditions
Conditions

Processes

Indicators

Protocols/
Guidelines

E.g. Staff certification,

facilities standards

2012.03.07 Value-Based Health Care Delivery

(Health)
Outcomes

E.g. PSA,
Gleason score,
surgical margin

Structure
Structure

18

Copyright Michael Porter 2011

Measuring the Cost of Care Delivery: Principles

Cost is the actual expense of patient care, not the tariff billed or
collected
Cost should be measured around the patient, not just the department
or provider organization
Cost should be aggregated over the full cycle of care for the
patients medical condition
Cost depends on the actual use of resources involved in a patients
care process (personnel, facilities, supplies)

Source: Kaplan, Robert and Michael E. Porter, The Big Idea: How to Solve the Cost Crisis in Health Care, Harvard Business Review, September 1. 2011

19

Copyright Michael Porter 2013

3. Move to Bundled Payments for Care Cycles

Global
budget

Fee for
service

Bundled
reimbursement
for medical
conditions

Global
capitation

Bundled Price
A single price covering the full care cycle for an acute
medical condition
Time-based reimbursement for overall care of a chronic
condition
Time-based reimbursement for primary/preventive care for a
defined patient segment
20

Copyright Michael Porter 2013

4. Integrate Care Delivery Systems

Childrens Hospital of Philadelphia Care Network

Grand View
Hospital

Saint Peters
University Hospital
(Cardiac Center)
Indian
Valley

PENNSYLVANIA
King of
Prussia

Phoenixville Hospital
Exton
Chester Co.
Coatesville
Hospital
West Chester
North Hills
Kennett Square
West Grove

Paoli

Chestnut
Hill

Roxborough
Haverford

Broomall
Springfield
Springfield
Media
Chadds
Ford

Doylestown
Hospital
Central Bucks
Bucks County

Princeton
University
Medical Center
at Princeton

High Point
Flourtown
Abington
Hospital

Newtown
Holy Redeemer Hospital
Salem Road

Pennsylvania Hospital
University City
Market Street

Cobbs
Creek South Philadelphia

Drexel
Hill

Mt. Laurel

Voorhees

NEW JERSEY

The Childrens Hospital

of Philadelphia

DELAWARE
Harborview/Smithville

Network Hospitals:

Atlantic County

CHOP Newborn Care

Harborview/Somers Point
Shore Memorial Hospital

CHOP Pediatric Care

CHOP Newborn & Pediatric Care

Wholly-Owned Outpatient Units:

Pediatric & Adolescent Primary Care
Pediatric & Adolescent Specialty Care Center
Pediatric & Adolescent Specialty Care Center & Surgery Center
Pediatric & Adolescent Specialty Care Center & Home Care

Harborview/Cape May Co.

21

Copyright Michael Porter 2013

Four Levels of Provider System Integration

22

Copyright Michael Porter 2013

5. Expand Geographic Reach

The Cleveland Clinic Affiliate Programs
Rochester
RochesterGeneral
GeneralHospital,
Hospital,NY
NY
Cardiac
Surgery
Cardiac Surgery
Chester
ChesterCounty
CountyHospital,
Hospital,PA
PA
Cardiac
Surgery
Cardiac Surgery

CLEVELAND
CLEVELANDCLINIC
CLINIC
Central
CentralDuPage
DuPageHospital,
Hospital,ILIL
Cardiac
CardiacSurgery
Surgery
St. Vincent Indianapolis, IN
Kidney Transplant

Charleston, WV
Kidney Transplant

Pikeville
PikevilleMedical
MedicalCenter,
Center,KY
KY
Cardiac
Surgery
Cardiac Surgery
Cape
CapeFear
FearValley
ValleyMedical
MedicalCenter,
Center,NC
NC
Cardiac
Surgery
Cardiac Surgery
McLeod
McLeodHeart
Heart&&Vascular
VascularInstitute,
Institute,SC
SC
Cardiac
Surgery
Cardiac Surgery
Cleveland
ClevelandClinic
ClinicFlorida
FloridaWeston,
Weston,FL
FL
Cardiac
Surgery
Cardiac Surgery
23

Copyright Michael Porter 2013

6. Build an Enabling Integrated IT Platform

Utilize information technology to enable restructuring of care delivery
and measuring results, rather than treating it as a solution itself
Combine all types of data (e.g. notes, images) for each patient
Common data definitions
Data encompasses the full care cycle, including care by referring entities
Allow access and communication among all involved parties, including
with patients
Templates for medical conditions to enhance the user interface
Structured data vs. free text
Architecture that allows easy extraction of outcome measures, process
measures, and activity-based cost measures for each patient and
medical condition
Interoperability standards enabling communication among different
provider (and payor) organizations

24

Copyright Michael Porter 2013

A Mutually Reinforcing Strategic Agenda

Build an Integrated Information

Technology Platform
25

Copyright Michael Porter 2013

Creating a Value-Based Health Care Delivery System

Implications for Physician Leaders
1. Integrated
Practice Units
(IPUs)

Lead multidisciplinary teams, not specialty silos

2. Measure Cost
and Outcomes

Become an expert in measurement and process

improvement

3. Move to
Bundled Prices

Proactively develop new bundled reimbursement options

and care guarantees

4. Integrate
Across Separate
Facilities

Champion value enhancing rationalization, relocation, and

integration with sister hospitals, as well as between
inpatient and outpatient units, instead of protecting turf

5. Expand
Excellence
Across
Geography

Create networks and affiliations to expand high-value care

across geography

6. Enabling IT
Platform

Become a champion for the right EMR systems, not an

obstacle to their adoption and use
26

Copyright Michael Porter 2013

Creating a Value-Based Health Care Delivery System

1. Integrated
Practice Units
(IPUs)
2. Measure Cost
and Outcomes

3. Move to
Bundled Prices

4. Integrate
Across Separate
Facilities

Implications for Payors

Encourage and reward integrated practice unit models by

providers

Encourage or mandate provider outcome reporting

through registries by medical condition

Create standards for meaningful provider cost

measurement and reporting

Design new bundled reimbursement structures for care

cycles instead of fees for discrete services

Share information with providers to enable improved

outcomes and cost measurement

Assist in coordinating patient care across the care cycle

and across medical conditions

Direct care to appropriate facilities within provider

systems

5. Expand
Excellence
Across
Geography

Provide advice to patients (and referring physicians) in

selecting excellent providers

6. Enabling IT
Platform

Create relationships to increase the volume of care

delivered by or affiliated with centers of excellence

Assemble, analyze, manage members total medical

records
27
Copyright Michael Porter 2013

Creating a Value-Based Health Care Delivery System

Implications for Government
1. Integrated
Practice Units
(IPUs)

Reduce regulatory obstacles to care integration across the

care cycle

Create a national framework of medical condition outcome

registries and a path to universal measurement

Tie reimbursement to outcome reporting

Set accounting standards for meaningful cost reporting

3. Move to
Bundled Prices

Create a bundled pricing framework and rollout schedule

4. Integrate
Across Separate
Facilities

Introduce minimum volume standards by medical

condition

5. Expand
Excellence
Across
Geography

Encourage rural providers and providers who fall below

minimum volume standards to affiliate with qualifying
centers of excellence for more complex care

6. Enabling IT
Platform

Set standards for common data definitions,

interoperability, and the ability to easily extract outcome,
process, and costing measures for qualifying HIT systems

2. Measure Cost
and Outcomes

28

Copyright Michael Porter 2013