In health care, the days of business as usual are over. Around the world, every health care system is struggling with rising costs and uneven quality, despite the hard work of well-intentioned, well-trained clinicians. Healthcare leaders and policy makers have tried countless incremental fixes—attacking fraud, reducing errors, enforcing practice guidelines, making patients better “consumers,” implementing electronic medical records—but none have had much impact.
It’s time for a fundamentally new strategy. At its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost. The strategy for moving to a high-value health care delivery system comprises six interdependent components.
Making this transformation is not a single step but an overarching strategy which Michael Porter postulates as the “Value Agendas.”
The strategic agenda for moving to a high-value health care delivery system has six components. They are interdependent and mutually reinforcing; as we will see, progress will be easiest and fastest if they are advanced together.
Value Agendas for Healthcare Improvement
1. Organize into Integrated Practice Units (IPUs)
At the core of the value transformation is changing the way clinicians are organized to deliver care. The first principle in structuring any organization or business is to organize around the customer and the need. In health care, that requires a shift from today’s siloed organization by specialty department and discrete service to organizing around the patient’s medical condition. Michael Porter calls such a structure an integrated practice unit (IPU). IPU is envisioned as having the following components:
- Dedicated team of both clinical and nonclinical personnel providing full care cycle for the patient’s condition. IPU treats not only a disease but also the related conditions, complications, and circumstances that commonly occur along with it—such as kidney and eye disorders for patients with diabetes, or palliative care for those with metastatic cancer.
- IPUs not only provide treatment but also assume responsibility for engaging patients and their families in care. In an IPU, personnel work together regularly as a team toward a common goal: maximizing the patient’s overall outcomes as efficiently as possible.
- Ideally, IPU members are co-located, to facilitate communication, collaboration, and efficiency for patients, but they work as a team even if they’re based at different locations.
2: Measure Outcomes and Costs for Every Patient
Rapid improvement in any field requires measuring results—a familiar principle in management. Yet the reality is that the great majority of health care providers (and insurers) fail to track either outcomes or costs by medical condition for individual patients. For example, although many institutions have “back pain centers,” few can tell you about their patients’ outcomes (such as their time to return to work) or the actual resources used in treating those patients over the full care cycle. That surprising truth goes a long way toward explaining why decades of health care reform have not changed the trajectory of value in the system.
Outcomes should be measured by medical condition (such as diabetes), not by specialty (podiatry) or intervention (eye examination). Outcomes should cover the full cycle of care for the condition, and track the patient’s health status after care is completed.
3: Move to Bundled Payments for Care Cycles
Neither of the dominant payment models in health care—global capitation and fee-for-service—directly rewards improving the value of care. Global capitation, a single payment to cover all of a patient’s needs, rewards providers for spending less but not specifically for improving outcomes or value. It also decouples payment from what providers can directly control. Fee-for-service couples payment to something providers can control—how many of their services, such as MRI scans, they provide—but not to the overall cost or the outcomes. Providers are rewarded for increasing volume, but that does not necessarily increase value.
The payment approach best aligned with value is a bundled payment that covers the full care cycle for acute medical conditions, the overall care for chronic conditions for a defined period (usually a year), or primary and preventive care for a defined patient population (healthy children, for instance). Well-designed bundled payments directly encourage teamwork and high-value care. Payment is tied to overall care for a patient with a particular medical condition, aligning payment with what the team can control. Providers benefit from improving efficiency while maintaining or improving outcomes.
4. Integrate care across locations
The final component of health system integration is to integrate care for individual patients across locations. As providers distribute services in the care cycle across locations, they must learn to tie together the patient’s care across these sites. Care should be directed by IPUs, but recurring services need not take place in a single location. For example, patients with low back pain may receive an initial evaluation, and surgery if needed, from a centrally located spine IPU team but may continue physical therapy closer to home. Wherever the services are performed, however, the IPU manages the full care cycle. Integrating mechanisms, such as assigning a single physician team captain for each patient and adopting common scheduling and other protocols, help ensure that well-coordinated, multidisciplinary care is delivered in a cost-effective and convenient way
5: Expand Geographic Reach
Health care delivery remains heavily local, and even academic medical centers primarily serve their immediate geographic areas. If value is to be substantially increased on a large scale, however, superior providers for particular medical conditions need to serve far more patients and extend their reach through the strategic expansion of excellent IPUs. Buying full-service hospitals or practices in new geographic areas is rarely the answer. Geographic expansion should focus on improving value, not just increasing volume.
Geographic expansion takes two principle forms. The first is a hub-and-spoke model. Patients often get their initial evaluation and development of a treatment plan at the hub, but some or much care takes place at more-convenient (and cost-effective) locations. Satellites deliver less complicated care, with complex cases referred to the hub.
The second emerging geographic expansion model is clinical affiliation, in which an IPU partners with community providers or other local organizations, using their facilities rather than adding capacity. The IPU provides management oversight for clinical care, and some clinical staff members working at the affiliate may be employed by the parent IPU. Local affiliates benefit from the expertise, experience, and reputation of the parent IPU—benefits that often improve their market share locally. The IPU broadens its regional reach and brand, and benefits from management fees, shared revenue or joint venture income, and referrals of complex cases.
6: Build an Enabling Information Technology Platform
The preceding five components of the value agenda are powerfully enabled by a sixth: a supporting information technology platform. Historically, health care IT systems have been siloed by department, location, type of service, and type of data (for instance, images). Often IT systems complicate rather than support integrated, multidisciplinary care. That’s because IT is just a tool; automating broken service-delivery processes only gets you more-efficient broken processes. But the right kind of IT system can help the parts of an IPU work with one another, enable measurement and new reimbursement approaches, and tie the parts of a well-structured delivery system together.
Conclusion:
The six components of the value agenda are distinct but mutually reinforcing. Organizing into IPUs makes proper measurement of outcomes and costs easier. Better measurement of outcomes and costs makes bundled payments easier to set and agree upon. A common IT platform enables effective collaboration and coordination within IPU teams, while also making the extraction, comparison, and reporting of outcomes and cost data easier. With bundled prices in place, IPUs have stronger incentives to work as teams and to improve the value of care. And so on.
Implementing the value agenda is not a one-shot effort; it is an open-ended commitment. It is a journey that providers embark on, starting with the adoption of the goal of value, a culture of patients first, and the expectation of constant, measurable improvement. The journey requires strong leadership as well as a commitment to roll out all six value agenda components. For most providers, creating IPUs and measuring outcomes and costs should take the lead.
Providers that cling to today’s broken system will become dinosaurs. Those organizations—large and small, community and academic—that can master the value agenda will be rewarded with financial viability and the only kind of reputation that should matter in health care—excellence in outcomes and pride in the value they deliver.
Disclaimer: A version of this article appeared in the October 2013 issue of Harvard Business Review.
Michael E. Porter is a University Professor based at Harvard Business School.
Thomas H. Lee, MD, is the chief medical officer at Press Ganey Associates. He is the co-author of the article “Engaging Doctors in the Health Care Revolution” in the June 2014 issue of HBR.
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