| Notes |
2012.03.26 VBHCD Core Concepts 1 Copyright © Michael Porter 2013
Value-Based Health Care Delivery
Professor Michael E. Porter
Harvard Business School
Institute for Strategy and Competitiveness
www.isc.hbs.edu
Brigham and Women’s Hospital Grand Rounds
March 14, 2013
This presentation draws on Redefining Health Care: Creating Value-Based Competition on Results (with Elizabeth O. Teisberg), Harvard Business
School Press, May 2006; “A Strategy for Health Care Reform—Toward 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
and Elizabeth O.Teisberg.
2012.03.26 VBHCD Core Concepts 2 Copyright © Michael Porter 2013
• 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
• How to design a health care delivery system that dramatically
improves patient value
• How to construct a dynamic system that keeps rapidly improving
Redefining Health Care Delivery
• The core issue in health care is the value of health care
delivered
Value: Patient health outcomes per dollar spent
2012.03.26 VBHCD Core Concepts 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
• Today’s delivery approaches reflect legacy organizational
structures, management practices, and payment models
that are inconsistent with modern learning practices and
today’s medical science.
Care pathways, process improvements, safety
initiatives, case managers, disease
management and other overlays to the current
structure are beneficial, but not sufficient
2012.03.26 VBHCD Core Concepts 4 Copyright © Michael Porter 2013
Creating The Right Kind of Competition
• Patient choice and competition for patients are powerful forces
to encourage continuous improvement in value and restructuring
of care
• But today’s competition in health care is not aligned with value
Financial success of Patient
system participants success
• Creating positive-sum competition on value for patients is
fundamental to health care reform in every country
2012.03.26 VBHCD Core Concepts 5 Copyright © Michael Porter 2013
Principles of Value-Based Health Care Delivery
• The overarching goal in health care must be value for patients,
not access, cost containment, convenience, or customer service
Value =
Health outcomes
Costs of delivering the outcomes
– Outcomes are the full set of health results for a patient’s
condition over the care cycle
– Costs are the total costs of care for a patient’s condition
over the care cycle
2012.02.29 UK Plenary Session 6 Copyright © Michael Porter 2011
Creating a Value-Based Health Care Delivery System
The Strategic Agenda
1. Organize Care into Integrated Practice Units (IPUs) around
Patient Medical Conditions
− Organize primary and preventive care to serve distinct patient
segments
2. Measure Outcomes and Cost for Every Patient
3. Reimburse through Bundled Prices for Care Cycles
4. Integrate Care Delivery Across Separate Facilities
5. Expand Geographic Coverage by Excellent Providers
6. Build an Enabling Information Technology Platform
2012.03.26 VBHCD Core Concepts 7 Copyright © Michael Porter 2013
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
Primary Care
Physicians Inpatient
Treatment
and Detox
Units
Outpatient
Psychologists
Outpatient
Physical
Therapists
Outpatient
Neurologists
Imaging
Centers
Existing Model:
Organize by Specialty and
Discrete Services
1. Organizing Care Around Patient Medical Conditions
Migraine Care in Germany
2012.03.26 VBHCD Core Concepts 8 Copyright © Michael Porter 2013
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
Affiliated
Imaging Unit
West German
Headache Center
Neurologists
Psychologists
Physical Therapists
“Day Hospital”
Network
Neurologists
Essen
Univ.
Hospital
Inpatient
Unit
Primary
Care
Physicians
Affiliated “Network”
Neurologists
Existing Model:
Organize by Specialty and
Discrete Services
New Model:
Organize into Integrated
Practice Units (IPUs)
1. Organizing Care Around Patient Medical Conditions
Migraine Care in Germany
Primary Care
Physicians Inpatient
Treatment
and Detox
Units
Outpatient
Psychologists
Outpatient
Physical
Therapists
Outpatient
Neurologists
Imaging
Centers
2011.10.27 Introduction to Social Medicine Presentation 9 Copyright © Michael Porter 2011
• A medical condition is an interrelated set of patient medical
circumstances best addressed in an integrated way
– Defined from the patient’s perspective
– Involving multiple specialties and services
– Including common co-occurring conditions and complications
– E.g., diabetes, breast cancer, knee osteoarthritis
• In primary / preventive care, the unit of value creation is
defined patient segments with similar preventive,
diagnostic, and primary treatment needs (e.g. healthy adults,
frail elderly)
• The medical condition / patient segment is the proper unit of
value creation and the unit of value measurement in health
care delivery
What is a Medical Condition?
2012.03.26 VBHCD Core Concepts 10 Copyright © Michael Porter 2012
INFORMING
AND
ENGAGING
MEASURING
ACCESSING
THE PATIENT
• Counseling patient
and family on the
diagnostic process
and the diagnosis
• Counseling on the
treatment process
• Education on
managing side
effects and avoiding
complications
• Achieving
compliance
• Counseling on long
term risk
management
• Achieving compliance
• Self exams
• Mammograms
• Labs • Procedure-specific
measurements
• Range of
movement
• Side effects
measurement
• MRI, CT
• Recurring mammograms
(every six months for the
first 3 years)
• Office visits
• Mammography unit
• Lab visits
MONITORING/
PREVENTING DIAGNOSING PREPARING INTERVENING RECOVERING/ REHABING MONITORING/ MANAGING
• Medical history
• Control of risk
factors (obesity,
high fat diet)
• Genetic screening
• Clinical exams
• Monitoring for
lumps
• Medical history
• Determining the
specific nature of
the disease
(mammograms,
pathology, biopsy
results)
• Genetic evaluation
• Labs
• Advice on self
screening
• Consultations on
risk factors
• Office visits
• Lab visits
• High risk clinic
visits
• Mammograms
• Ultrasound
• MRI
• Labs (CBC, etc.)
• Biopsy
• BRACA 1, 2…
• CT
• Bone Scans
• Office visits
• Hospital visits
• Lab visits
• Hospital stays
• Visits to outpatient
radiation or chemotherapy units
• Pharmacy visits
• Office visits
• Rehabilitation
facility visits
• Pharmacy visits
• Choosing a
treatment plan
• Surgery prep
(anesthetic risk
assessment, EKG)
• Plastic or oncoplastic surgery
evaluation
• Neo-adjuvant
chemotherapy
• Surgery (breast
preservation or
mastectomy,
oncoplastic
alternative)
• Adjuvant therapies
(hormonal
medication,
radiation, and/or
chemotherapy)
• Periodic mammography
• Other imaging
• Follow-up clinical exams
• Treatment for any continued
or later onset side effects or
complications
• Office visits
• Lab visits
• Mammographic labs and
imaging center visits
• In-hospital and
outpatient wound
healing
• Treatment of side
effects (e.g. skin
damage, cardiac
complications,
nausea,
lymphedema and
chronic fatigue)
• Physical therapy
• Explaining patient treatment options/
shared decision
making
• Patient and family
psychological
counseling
• Counseling on
rehabilitation
options, process
• Achieving
compliance
• Psychological
counseling
Integrating Across the Cycle of Care
Breast Cancer
2012.3.1_Book Launch_Redefining German Health Care_Porter_Guth 11 Copyright © Michael Porter 2012
Attributes of an Integrated Practice Unit (IPU)
1. Organized around the patient medical condition or set of closely
related conditions (or patient segment in primary care)
2. Involves a dedicated, multidisciplinary team who devotes a
significant portion of their time to the condition
3. Providers involved are members of or affiliated with a common
organizational unit
4. Takes responsibility for the full cycle of care for the condition
− Encompassing outpatient, inpatient, and rehabilitative care as well as
supporting services (e.g. nutrition, social work, behavioral health)
5. Incorporates patient education, engagement, and follow-up as
integral to care
6. Utilizes a single administrative and scheduling structure
7. Co-located in dedicated facilities
8. Care is led by a physician team captain and a care manager who
oversee each patient’s care process
9. Measures outcomes, costs, and processes for each patient using a
common information platform
10. Providers function as a team, meeting formally and informally on a
regular basis to discuss patients, processes and results
11. Accepts joint accountability for outcomes and costs
2012.03.26 VBHCD Core Concepts 12 Copyright © Michael Porter 2012
Volume in a Medical Condition Enables Value
• Volume and experience will have an even greater impact on value in
an IPU structure than in the current system
Better Results,
Adjusted for Risk Rapidly Accumulating
Experience
Rising Process
Efficiency
Better Information/
Clinical Data
More Tailored Facilities
Rising
Capacity for
Sub-Specialization
More Fully
Dedicated Teams
Faster Innovation
Greater Patient
Volume in a
Medical
Condition
Improving
Reputation
Costs of IT, Measurement, and Process
Improvement Spread
over More Patients
Wider Capabilities in
the Care Cycle,
Including Patient
Engagement
The Virtuous Circle of Value
Greater Leverage in
Purchasing
Better utilization of
capacity
2012.3.1_Book Launch_Redefining German Health Care_Porter_Guth 13 Copyright © Michael Porter 2012
Role of Volume in Value Creation
Fragmentation of Hospital Services in Sweden
Source: Compiled from The National Board of Health and Welfare Statistical Databases – DRG Statistics, Accessed April 2, 2009.
DRG Number of
admitting
providers
Average
percent of total
national
admissions
Average
admissions/
provider/ year
Average
admissions/
provider/
week
Knee Procedure 68 1.5% 55 1
Diabetes age > 35 80 1.3% 96 2
Kidney failure 80 1.3% 97 2
Multiple sclerosis and
cerebellar ataxia
78 1.3% 28
1
Inflammatory bowel
disease
73 1.4% 66
1
Implantation of cardiac
pacemaker
51 2.0% 124
2
Splenectomy age > 17 37 2.6% 3 <1
Cleft lip & palate repair 7 14.2% 83 2
Heart transplant 6 16.6% 12 <1
2011.09.03 Comprehensive Deck 14 Copyright © Michael Porter 2011
Patient
Adherence
E.g., Hemoglobin
A1c levels for
diabetics
Protocols/
Guidelines
Patient Initial
Conditions
Processes Indicators (Health)
Outcomes
Structure
E.g., Staff certification,
facilities standards
2. Measuring Outcomes and Cost for Every Patient
The Measurement Landscape
2011.09.03 Comprehensive Deck 15 Copyright © Michael Porter 2011
The Outcome Measures Hierarchy
Survival
Degree of health/recovery
Time to recovery and return to normal activities
Sustainability of health /recovery and nature of
recurrences
Disutility of the care or treatment process (e.g., diagnostic errors
and ineffective care, treatment-related discomfort,
complications, or adverse effects, treatment errors and their
consequences in terms of additional treatment)
Long-term consequences of therapy (e.g., careinduced illnesses)
Tier
1
Tier
2
Tier
3
Health Status
Achieved
or Retained
Process of
Recovery
Sustainability
of Health
Recurrences
Care-induced
Illnesses
Source: NEJM Dec 2010
2011.09.03 Comprehensive Deck 16 Copyright © Michael Porter 2011
40
50
60
70
80
90
100
0 100 200 300 400 500 600
Percent 1 Year
Graft Survival
Number of Transplants
Adult Kidney Transplant Outcomes
U.S. Centers, 1987-1989
16 greater than predicted survival (7%)
20 worse than predicted survival (10%)
Number of programs: 219
Number of transplants: 19,588
One year graft survival: 79.6%
2011.09.03 Comprehensive Deck 17 Copyright © Michael Porter 2011
8 greater than expected graft survival (3.4%)
14 worse than expected graft survival (5.9%)
40
50
60
70
80
90
100
0 100 200 300 400 500 600 700 800
Percent 1-year
Graft Survival
Number of Transplants
Adult Kidney Transplant Outcomes
U.S. Center Results, 2008-2010
Number of programs included: 236
Number of transplants: 38,535
1-year graft survival: 93.55%
8 greater than expected graft survival (3.4%)
14 worse than expected graft survival (5.9%)
2012.02.29 UK Plenary Session 18 Copyright © Michael Porter 2011
Measuring the Cost of Care Delivery: Principles
• Cost is the actual expense of patient care, not the charges billed or
collected
• Cost should be measured around the patient
• Cost should be aggregated over the full cycle of care for the
patient’s medical condition, not for departments, services, or line
items
• Cost depends on the actual use of resources involved in a patient’s
care process (personnel, facilities, supplies)
– The time devoted to each patient by these resources
– The capacity cost of each resource
– The support costs required for each patient-facing resource
2011.09.03 Comprehensive Deck 19 Copyright © Michael Porter 2011
Mapping Resource Utilization
MD Anderson Cancer Center – New Patient Visit
Registration and
Verification
Receptionist, Patient Access
Specialist, Interpreter
Intake
Nurse,
Receptionist
Clinician Visit
MD, mid-level provider,
medical assistant, patient
service coordinator, RN
Plan of Care
Discussion
RN/LVN, MD, mid-level
provider, patient service
coordinator
Plan of Care
Scheduling
Patient Service
Coordinator
RCPT: Receptionist
PAS: Patient Access Specialist
RN: Registered Nurse
PSC: Patient Service Coordinator Decision
point
PHDB: Patient History DataBase
Time
(min)
INT: Interpreter
MD: Medical Doctor,
MA: Medical Assistant
Pt: Patient, outside of process
2011.10.27 Introduction to Social Medicine Presentation 20 Copyright © Michael Porter 2011
Major Cost Reduction Opportunities in Health Care
• Process variation that reduces efficiency without improving outcomes
• Over-provision of low- or non-value adding services or tests
− Sometimes to follow rigid protocols or justify billing
• Redundant administrative and scheduling units
• Low utilization of expensive physicians, staff, clinical space and
equipment, partly due to duplication and service fragmentation
• Use of physicians and skilled staff for less skilled activities
• Delivering care in over-resourced facilities
− E.g. routine care delivered in expensive hospital settings
• Long cycle times and unnecessary delays
• Excess inventory and weak inventory management
• Focus on minimizing the costs of discrete services rather than
optimizing the total cost of the care cycle
• Lack of cost awareness in clinical teams
• There are numerous cost reduction opportunities that do not require
outcome tradeoffs, but will actually improve outcomes
2011.10.27 Introduction to Social Medicine Presentation 21 Copyright © Michael Porter 2011
3. Reimbursing through Bundled Prices for Care Cycles
Bundled
reimbursement
for medical
conditions
Fee for
service
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
Global
capitation
2012.01.11_VBHCD_Reimbursement 22 Copyright © Michael Porter 2012
• Components of the bundle
• Currently applies to all relatively healthy patients (i.e. ASA scores of 1 or 2)
• The same referral process from PCPs is utilized as the traditional system
• Mandatory reporting by providers to the joint registry plus supplementary
reporting
• Applies to all qualifying patients. Provider participation is voluntary, but all
providers are continuing to offer total joint replacements
• The Stockholm bundled price for a knee or hip replacement is about
US $8,000
- Pre-op evaluation
- Lab tests
- Radiology
- Surgery & related admissions
- Prosthesis
- Drugs
- Inpatient rehab, up to 6 days
- All physician and staff fees and costs
- 1 follow-up visit within 3 months
- Any additional surgery to the joint
within 2 years
- If post-op infection requiring
antibiotics occurs, guarantee extends
to 5 years
Bundled Payment in Practice
Hip and Knee Replacement in Stockholm, Sweden
2011.09.03 Comprehensive Deck 23 Copyright © Michael Porter 2011
4. Integrating Care Delivery Across Separate Facilities
Children’s Hospital of Philadelphia Care Network
CHOP Newborn Care
CHOP Pediatric Care
CHOP Newborn & Pediatric Care
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.
Shore Memorial Hospital
Harborview/Somers Point
Atlantic County
Harborview/Smithville
Mt. Laurel
Salem Road
Holy Redeemer Hospital
Newtown
University
Medical Center
at Princeton
Princeton
Saint Peter’s
University Hospital
(Cardiac Center)
Doylestown
Hospital
Central Bucks
Bucks County
High Point
Indian
Valley
Grand View
Hospital
Abington
Hospital
Flourtown
Chestnut
Hill
Pennsylvania Hospital
University City
Market Street
Voorhees
South Philadelphia
Roxborough
King of
Prussia
Phoenixville Hospital
West Grove
Kennett Square
Coatesville
West Chester
North Hills
Exton Paoli
Chester Co.
Hospital
Haverford
Broomall
Chadds
Ford
Drexel
Hill
Media
Springfield
Springfield
The Children’s Hospital
of Philadelphia®
Cobbs
Creek
DELAWARE
PENNSYLVANIA
NEW JERSEY
Network Hospitals:
Wholly-Owned Outpatient Units:
2012.3.1_Book Launch_Redefining German Health Care_Porter_Guth 24 Copyright © Michael Porter 2012
1. Choose an overall scope of services where the provider system
can achieve excellence in value
2. Rationalize service lines / IPUs across facilities to improve
volume, better utilize resources, and deepen teams
3. Offer specific services at the appropriate facility
– Based on medical condition, acuity level, resource intensity, cost level,
need for convenience
– E.g., shifting routine surgeries to smaller, more specialized facilities
4. Clinically integrate care across units and facilities using an IPU
structure
– Integrate services across the care cycle
– Integrate preventive/primary care units with specialty IPUs
There are major value improvements available from
concentrating volume by medical condition and moving care out
of heavily resourced hospital, tertiary and quaternary facilities
Four Levels of Provider System Integration
2012.3.1_Book Launch_Redefining German Health Care_Porter_Guth 25 Copyright © Michael Porter 2012
Leading Providers
• Grow areas of excellence across geography:
− Hub and spoke expansion of satellite pre- and post-acute services
− Affiliations with community providers to extend the reach of IPUs
• Increase the volume of patients in medical conditions or primary
care segments vs. widening service lines locally, or adding new
broad line units
Community Providers
• Affiliate with excellent providers in more complex medical
conditions and patient segments in order to access expertise,
facilities and services to enable high value care
− New roles for rural and community hospitals
5. Expanding Geographic Coverage by Excellent Providers
26 Copyright © Michael Porter and Elizabeth Teisberg 2011
Central DuPage Hospital, IL
Cardiac Surgery
McLeod Heart & Vascular Institute, SC
Cardiac Surgery
CLEVELAND CLINIC
Chester County Hospital, PA
Cardiac Surgery
Rochester General Hospital, NY
Cardiac Surgery
Expanding Geographic Coverage by Excellent Providers
The Cleveland Clinic Affiliate Programs
Pikeville Medical Center, KY
Cardiac Surgery
Cleveland Clinic Florida Weston, FL
Cardiac Surgery
Cape Fear Valley Medical Center, NC
Cardiac Surgery
Charleston, WV
Kidney Transplant
St. Vincent Indianapolis, IN
Kidney Transplant
2012.03.26 VBHCD Core Concepts 27 Copyright © Michael Porter 2013
6. Building an Enabling Information Technology Platform
Utilize information technology to enable restructuring of care delivery
and measuring results, rather than treating it as a solution itself
• Common data definitions
• Combine all types of data (e.g. notes, images) for each patient
• 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
2012.03.26 VBHCD Core Concepts 28 Copyright © Michael Porter 2013
A Mutually Reinforcing Strategic Agenda
Organize
into
Integrated
Practice
Units
Measure
Outcomes
and Cost
For Every
Patient
Move to
Bundled
Prices for
Care
Cycles
Integrate
Care
Delivery
Across
Separate
Facilities
Grow
Excellent
Services
Across
Geography
Build an Enabling IT Platform
29 Copyright © Michael Porter 2011
Creating a Value-Based Health Care Delivery System
Implications for Physician Leaders
• Lead multidisciplinary teams, not specialty silos
• Become an expert in measurement and process
improvement
• Proactively develop new bundled reimbursement options
and care guarantees
• Champion value enhancing rationalization, relocation, and
integration with sister hospitals, as well as between
inpatient and outpatient units, instead of protecting turf
• Create networks and affiliations to expand high-value care
outside the local area
• Become a champion for the right EMR systems, not an
obstacle to their adoption and use
1. Integrated
Practice Units
(IPUs)
4. Integrate
Across Separate
Facilities
3. Move to
Bundled Prices
5. Expand
Excellence
Across
Geography
6. Enabling IT
Platform
2. Measure Cost
and Outcomes |