Michael Porter on Paving the Way for Value-Based Health Care

Summary

In this insightful discussion, Michael E. Porter and Thomas Lee delve into the complexities of the healthcare system, highlighting the importance of value-based healthcare over cost reduction. They emphasize the need for a systemic approach, integrating various medical interventions for better patient outcomes. The conversation underscores the universality of healthcare delivery issues across different countries and the potential of outcome measurement to drive improvement. They also discuss the challenges of mindset change, data scarcity, and stakeholder misalignment, stressing the urgency of evidence-based progress in healthcare.

Takeaways

• 🏥 The interview discusses the personal journey that led to an interest in healthcare and the dysfunctions within the healthcare delivery system.
• 🤔 The healthcare industry is filled with highly qualified and innovative individuals, yet it struggles to achieve expected outcomes despite their expertise.
• 🔍 The issue in healthcare is not a lack of effort or commitment but rather the system in which medical professionals operate.
• 🧬 Medical professionals are trained narrowly as scientists, focusing on specific procedures and interventions, which reinforces the current system's limitations.
• 🌐 The mindset of viewing healthcare as a whole system is lacking, which is crucial for understanding how to integrate various interventions for success.
• 💸 The concept of value-based healthcare is introduced as a shift from focusing on cost reduction to improving patient outcomes.
• 🌟 Positive change is possible, as seen in a Swedish hospital that improved myocardial infarction outcomes dramatically by focusing on value.
• 📊 Outcome measurement is central to value improvement, and transparency in outcomes leads to significant improvements in healthcare delivery.
• 🌎 Despite differences in insurance systems, the problems in healthcare delivery are universal across different countries.
• 🚀 The potential for progress in healthcare is immense, but it requires a shift in mindset, better data on outcomes and costs, and alignment of stakeholders.

Q & A

What triggered Michael's interest in healthcare?

Michael's interest in healthcare was triggered by discussions with Elizabeth Heberg, a co-author and strategy professor at Harvard Business School, who had children with serious medical issues. These discussions highlighted the dysfunctions of the healthcare delivery system.

How does Michael view competition in healthcare?

Michael is a strong believer in competition as a force for improvement in human endeavors. However, he finds it puzzling that competition does not seem to be working effectively in healthcare.

What does Michael think is the reason for the lack of innovation in healthcare despite many qualified individuals?

Michael suggests that the lack of innovation is due to medical professionals being put in a system that doesn't allow them to be successful and a narrow scientific training that reinforces the current system.

What is Michael's opinion on the mindset of medical professionals?

Michael believes that medical professionals are trained narrowly as scientists, focusing on specific procedures and interventions, which has reinforced the current system rather than fostering innovation.

How does Michael perceive the reaction of physicians to cost pressures?

Michael observes that many physicians feel uncomfortable focusing on cost and have become cynical and disengaged rather than engaging in change.

What is the starting principle of value-based healthcare according to Michael?

The starting principle of value-based healthcare is focusing on value rather than cost. The goal is to improve patient outcomes, which in turn can reduce costs in the long term.

How does Michael think value-based healthcare can change the current healthcare system?

Michael believes value-based healthcare can shift the focus from a zero-sum competition to a positive-sum competition where all parties benefit if value is proven.

What was the outcome of the case study in a Swedish hospital mentioned in the script?

The case study in a Swedish hospital showed that when challenged with poor performance on myocardial infarction, the hospital improved outcomes dramatically by reducing mortality by a significant percentage within a year.

What does Michael think about the universality of healthcare delivery problems?

Michael finds that despite differences in insurance systems, the problems of healthcare delivery are virtually identical across different countries due to similar training and development of medical sciences.

What is Michael's view on the current U.S. healthcare reform in relation to value-based healthcare?

Michael is optimistic that the U.S. healthcare reform has started down the path towards value-based healthcare, with a focus on outcome measurement and a new head of Medicare who is a pioneer in quality improvement.

What are the three most important barriers Michael identifies for the implementation of value-based healthcare?

The barriers include changing the mindset to focus on value improvement, a lack of outcome data and cost understanding, and misalignment of stakeholders due to the current incentive structure.

What does Michael predict will happen to the U.S. healthcare system if value thinking is not integrated into the reform?

Michael predicts that without value thinking, the U.S. healthcare system will face exploding costs, leading to random reimbursement cuts, rationing of care, and other negative outcomes.

Outlines

00:00

🏥 Healthcare's Personal Impact and Systemic Challenges

The speaker, Michael, discusses his introduction to healthcare through a personal connection with Elizabeth Heberg, a co-author and former strategy professor at Harvard Business School. Elizabeth's children faced serious medical issues, which led to discussions about the dysfunctions in the healthcare system. Michael, a competition professor, finds it intriguing that despite the presence of highly qualified and innovative individuals in healthcare, competition doesn't seem to improve the system. He suggests that medical professionals are trained narrowly as scientists, focusing on specific procedures and interventions, which may reinforce the current system's issues. He also notes that in countries like Sweden, cost pressures have led to physician disengagement rather than driving positive change.

05:01

🌟 The Power of Value-Based Healthcare

Michael and the interviewer discuss the concept of value-based healthcare, which focuses on patient outcomes rather than just cost reduction. They agree that the goal should be to improve patient health and functionality to save money in the long term. The speaker shares a case study of a Swedish hospital that improved its performance on myocardial infarction by focusing on value, leading to a significant reduction in mortality. He emphasizes the importance of outcome measurement as a driver for improvement and notes that while the U.S. has made strides in this area for organ transplants and in vitro fertilization, there's room for broader application. The speaker believes that value-based healthcare can create positive competition where all stakeholders benefit from proven value.

10:03

🚀 Overcoming Barriers to Value-Based Healthcare

The conversation turns to the barriers preventing the adoption of value-based healthcare. The first barrier is the mindset shift required to view healthcare from a value perspective rather than just cost reduction. There's also a lack of outcome data and cost understanding that's relevant to delivering better care. The speaker points out misalignment among stakeholders due to the current incentive structure, which pits them against each other. He predicts that without value thinking, the U.S. healthcare system will face exploding costs, leading to ineffective measures like random reimbursement cuts and potential care rationing. The speaker calls for more evidence and data on outcomes and costs to accelerate progress and suggests that consolidating global knowledge on medical conditions could be a significant step forward.

Keywords

💡Healthcare

Healthcare refers to the organized provision of medical services to individuals or communities through various health professionals and allied health fields. In the video, healthcare is discussed as a system with significant room for improvement, particularly in terms of value-based care and efficiency. The speakers discuss the challenges faced within the healthcare system, such as the misalignment of incentives and the need for better outcomes measurement.

💡Value-Based Healthcare

Value-Based Healthcare is a model that focuses on improving patient outcomes while reducing costs. It is highlighted in the script as a promising approach to reforming healthcare systems. The speakers discuss how value-based healthcare emphasizes the importance of outcomes over cost reduction, aiming to improve patient health and functionality, which in turn can lead to cost savings.

💡Competition

Competition in this context refers to the rivalry among healthcare providers or systems to offer better services or outcomes. The script mentions that competition is a force that can drive improvement, but it has not been effectively utilized in healthcare. The speakers suggest that a shift towards positive-sum competition, where all parties benefit from improved value, is necessary.

💡Outcome Measurement

Outcome Measurement is the process of assessing the results or consequences of healthcare interventions. It is a central theme in the video, where the speakers argue that measuring outcomes is crucial for driving improvements in healthcare. They give examples of areas like organ transplants and in vitro fertilization where outcome measurement has led to significant progress.

💡Cost Pressure

Cost Pressure refers to the financial strain on healthcare systems due to the need to provide services within budget constraints. The script mentions how cost pressure has led some physicians to focus more on costs, which can sometimes conflict with providing the best patient care. The speakers suggest that value-based healthcare can help address this issue by aligning cost management with improved patient outcomes.

💡Innovation

Innovation in healthcare refers to the introduction of new ideas, devices, or methods aimed at improving healthcare delivery and patient outcomes. The script notes that despite a high level of innovation in biomedical research, the healthcare system has not seen corresponding improvements in outcomes, suggesting a need to better integrate and apply these innovations.

💡Stakeholder Alignment

Stakeholder Alignment refers to the process of ensuring that the interests of all parties involved in healthcare are aligned towards a common goal. The script discusses the misalignment of stakeholders as a barrier to healthcare improvement, where the incentive structures often pit one party against another, rather than working together towards better patient outcomes.

💡Mindset Change

Mindset Change is the process of shifting perspectives or attitudes, which is necessary for adopting new approaches or models in healthcare. The speakers in the script emphasize the need for a change in mindset from focusing on cost reduction to value improvement, which is critical for the successful implementation of value-based healthcare.

💡Quality Improvement

Quality Improvement in healthcare involves systematic efforts to make changes that lead to better services and outcomes for patients. The script mentions Don Berwick, who is known for his work in quality improvement, suggesting that his leadership could help drive progress in this area.

💡Accountable Care Organizations

Accountable Care Organizations (ACOs) are groups of healthcare providers who come together voluntarily to give coordinated high-quality care to their Medicare patients. The script suggests that ACOs could be a vehicle for integrated practice and improving healthcare value by aligning financial incentives with quality of care.

💡Evidence-Based Medicine

Evidence-Based Medicine is an approach to medical practice intended to optimize patient care by using the best available research evidence, often through systematic reviews and meta-analyses. The script highlights the need for more evidence and data on outcomes and costs to support the progress of value-based healthcare.

Highlights

Michael's interest in healthcare was triggered by personal stories of medical issues.

Healthcare delivery system dysfunctions were discussed extensively.

Competition in healthcare is not working as it should.

Healthcare is an industry with highly qualified and innovative individuals.

The focus should be on value, not just cost in healthcare.

Efficiency for its own sake is not the solution.

Value-based healthcare is gaining traction among providers.

Zero-sum competition in healthcare is not productive.

Positive competition can be created by proving value.

A Swedish hospital improved myocardial infarction outcomes significantly.

Outcome measurement is central to value improvement.

Organ transplants and in vitro fertilization have comprehensive outcome measurements.

Healthcare delivery problems are virtually identical worldwide.

Healthcare reform efforts are laying the foundation for value-based healthcare.

The new head of Medicare, Don Berwick, is a pioneer in quality improvement.

Three barriers to value-based healthcare are mindset change, lack of data, and misaligned stakeholders.

Without value thinking, healthcare costs will explode.

More evidence and data on outcomes and costs are desperately needed.

Reinventing the wheel in healthcare needs to stop for progress.

Transcripts

[Music]

Michael thank you very much for taking

your time my pleasure me to what was

that triggered your interest in

healthcare that has not been your your

field historically no it hasn't uh you

know it's it's a very personal story I

think which almost everybody has one of

those stories in my case Elizabeth

heberg who was the co-author that I've

written much of my work with uh used to

be a strategy Professor here at Harvard

Business business school and Elizabeth

had not one but two children that had

some serious medical issues and uh um a

as as her supervisor I we talked for

many many hours about what she was going

through and uh and and and the

dysfunctions of the healthcare delivery

system and it was out of those

discussions and her personal uh Journey

that we we got fascinated with what was

really going on here and uh you know of

course I'm a a compet ition Professor

you know at the core and and I'm a True

Believer in competition I think

competition is good I think it's one of

those forces that that allows human

endeavor to be better but in healthcare

it seemed to not be working and and so

for me it was a great puzzle what

fascinates me is it's an industry with

an extraordinary amount of you know

highly qualified individuals very smart

people right who you know have been

trained educated and have lived their

lives in the system and who are known to

be Innovative I mean innovation of biom

medicine is you know it's fantastic how

come we haven't you know gotten further

in spite of all these qualified

individuals working that system well I

would add to a few things you said i'

first of all agree with everything you

said and I I would also add that that

these people work hard uh it's not lack

of effort uh it's it's not lack of

commitment even and and so all the

normal reasons why something fails uh or

something isn't what you hope it is I

don't those don't apply here um uh I I

think it it it comes from ultimately put

in our medical professionals in a in a

system which uh doesn't allow them uh

ultimately to be successful um and the

other thing I've come to see uh is that

uh people in medicine uh really are

scientists they they they are trained as

scientists um and they're trained in a

sense uh very narrowly they're they're

trained to look very specifically at at

particular procedures of particular

interventions of particular drugs the

whole notion of the clinical trial you

do a very tightly controlled study you

have one end point you you you really

carefully design your your experiment to

make it a really great experiment um

that mindset I think uh has simply

reinforced the system the way it is

today um what what people like me are

used to doing is we're we're used to

stepping back and looking at the system

as a whole uh we're we're we we're we're

used to understanding that that there's

this complexity of how you integrate all

of these interventions that ultimately

determine success uh but that kind of

training that kind of expertise

uh that kind of background has really

not been uh present in this field one of

the observations I I've made when I've

looked at this in in Sweden is that with

the cost pressure that we have many

Physicians are asked to focus a lot more

on cost than they feel you know very

comfortable with yeah and my sense is

that people have become you know cynical

disengaged rather than engaging in

change they've they've moved away from

it and feel it's a force that they

simply you know it's others who are

forcing this on they're not being

engaged at all do you see that the value

based Healthcare would will address that

in in a different way I I think it does

I mean I think the one of the the

probably the starting principle of of

value based Healthcare is that the right

goal is value not cost that it doesn't

make any sense to uh save money by

moving reducing outcomes because we know

that the most powerful driver of cost in

the long term actually is good outcomes

that is if we get patients healthy if we

get them healthy faster if we provide

them with better functionality that's

the way to save money not to uh have an

office visit in 13 minutes instead of uh

15 minutes so we can do more patients

per day that's the wrong way of looking

at the problem I think most Physicians

that I talk to are you know perfectly

aware that we have to be efficient you

know and we don't have infinite

resources and we can't you know we can't

we can't support uh you know we can't

have 50% of the national Budget on

Healthcare uh so it's not they're

against efficiency but what they are

against is sort of efficiency for its

own sake uh and I so I think the value

framework has been uh is getting a lot

of traction I think among the provider

Community because it really puts the

focus where it really should be so I I

think U we've had sort of a zero sum

competition in healthcare uh people have

been trying to get more money from from

the other guy get higher reimbursement

push down reimbursement pass cost of the

patients uh you know pass cost to the

government uh that's not been anywhere

near uh the way forward uh now I think

we're trying to create a positive some

competition where if we can prove value

everybody benefits no we did a case

study in in one of the Swedish hospitals

that were ranked very poorly on on

myocardial infarction so we interviewed

the Physicians the nurses and and and

asked them what happened when you were

ranked as poorly as you were and in fact

the response was you know this brought

us together MH you know we were

challenged with the delivery to patients

uh and we got together and we improved

it within a year this Hospital reduced

mortal by % that's a very dramatic

change but it was not a negative change

it was a positive and they felt it was

positive teaming together with something

they cared about right so I think it's

very very powerful right and and the and

the literally the the central driver of

value Improvement is outcome measurement

um and I would say not only is this

apparent in this wonderful work that

you've done which I think is really

breaking new ground but all the other

work that we have available is is shows

the same thing uh uh for example in the

United States we have stumbled into

outcome measurement in only two areas

that are really comprehensively one is U

uh transplants uh organ transplants

where we have Universal measurement

because in order to get an organ uh to

transplant you have to guarantee that

you will report your outcome the second

area is more of a of an odd case it's

invitro fertilization once again there's

a federal law every Clinic has to report

every case uh to the centers for control

and if you look at what's happened I

mean the minute they started reporting

the outcomes and those outcomes started

getting transparent uh the improvement

process took off and uh it just happens

every time uh it's a law of nature it's

the force of gravity when Sweden is a

small and quite homogeneous Market uh

but do you think the how relevant are

some of these analyses for you know for

the US and and other larger countries do

I think these analysis are Universal I

I've now had the opportunity to work at

some level of depth on Healthcare

delivery in uh uh yeah I'm not going to

remember all the countries but certainly

the US certainly the UK certainly Sweden

Denmark uh Finland uh Japan uh

Taiwan U and and dot dot dot and and

what I find is although

insurance is very different in different

parts of the world the problems of

delivery are virtually identical I mean

you if you literally had a blindfold and

they you you know you didn't know where

you were and they took you into a

hospital and it could be Germany it

could be Japan it would look the same uh

and because uh the organization of care

and many of these issues are a function

of the same fundamental level of

training the same way that medical

Sciences develop the same way that

Physicians are are trained in in in

medical school and residency programs so

um these issues are Universal when you

look at us Healthcare reform to which

extent are the efforts made now laying

the foundation do you think for Valu is

Healthcare uh the bill itself doesn't

specify very much uh it it has some

Concepts uh uh I myself with our team

here at the Institute was able to get a

section of the bill on outcome

measurement uh and uh so there's a

placeholder in there which is

essentially directs the Secretary of HHS

to to do something um there is some

interesting stuff there on these

accountable Health Care organizations

that could actually be a vehicle for

getting integrated practice um so I

think I think I think we've started down

the path um uh we have a a new head of

uh Medicare Don Berwick who has been one

of the Pioneers in in in quality

improvement in health care so the

mindset is there so I I'm optimistic um

uh that uh uh as we get into the details

and we now get below the political radar

and uh that that we we can make Headway

what would you say are the three most

important barriers for this to happen

the first barrier is is is really to

kind of change the mindset and and

really understand how to look at the

problem from this different

perspective um and and and uh you know

for example I still uh see a lot of

people making the mistake of thinking

that the problem is C cost reduction and

not value Improvement we have a critical

lack of both outcome data uh still and

and also a critical lack of really cost

understanding one of the fascinating

things that that uh in the work I've

been doing recently is that you know in

a field that's been preoccupied with

cost for 30 years we actually know very

little about cost in in a way that's

relevant to actually delivering better

care because of the way we measure cost

because like so much in healthc care it

all fits together we organize around

interventions we measure around

interventions we accumulate cost around

interventions but that's not relevant

for understanding value for the patient

so I think a lack of some of the uh you

know fundamental data uh and knowledge

about the value equation is a barrier

and then U I think that we still have a

lot of misalignment of the stakeholders

uh because the incentive structure is

still uh tending to pit one party

against another so on the US Healthcare

System now if the value the value

component isn't brought into the reform

the way you you're hoping it will be I

think we do how how would the US

Healthcare what would it look like 10

years from now uh we will simply have

exploding cost of of dealing with uh all

of the people that are going to have to

be addressed both the older people that

are going to have more needs and the new

people that are going to have access um

and uh if we don't have value thinking

we are going to deal with that excessive

cost in a brutally ineffective way it

we'll we'll we'll do just random

reimbursement cuts and we'll start

having to ration care and uh all the

awful things will start to happen What

We Now desperately need is more evidence

more data on the outcome side and and

and and more evidence and data on on the

cost side and more evidence about the

impact of outcome measurement on

progress uh and we got to kind of

accelerate the development of that and

and as as as as you and I have actually

talked before there's a lot of reinvent

of the wheel going on particularly as we

look across the world so I think the

ability to pull together what's known

about outcomes in in in in 10 or 12 or

15 or 20 of the most important medical

conditions will be an enormous uh

accelerator for Progress particular

because people I think once they've seen

that oh these are the 10 measures that

most people use then all of a sudden

they don't have to go through some

agonizing process and they can just get

on with it yeah it's very exciting

Michael thank you very much for taking

taking time I've enjoyed this inspiring

discussion with you my pleasure and it's

just been a pleasure to work with you

and uh congratulations on the enormous

progress you're making both in Sweden

and elsewhere thank you