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Michael Porter: Overhauling Health Care

University Professor Michael E. Porter laid out his long-anticipated evaluation of the ailing American health care system to an audience of students, scholars, and health care professionals at the Spangler auditorium on February 17th. Porter, whose new book Redefining Health Care: Creating Positive-Sum Competition to Deliver Value (coauthored by Elizabeth Olmsted Teisberg) will be released by the Harvard Business School Press in June, provided a scathing critique of a system he called “broken” and fraught with “zero sum” tendencies like cost-shifting among insurers, providers, and patients. Such a system, he pronounced, fosters competition among those who should not be competitors, on issues that should not be at the nexus of competition.

Insurance-and access to insurance-and care coverage, said Porter, make up the bulk of all debate about health care in the United States. But fundamental to the questions of ‘who pays?’ and ‘what they pay for,’ he advanced, is the issue of how health care is delivered and the results of the care. In most cases, said Porter, drawing on his extensive experience in competitiveness and strategy, competition encourages innovation, cost-cutting, and superior results. But the “paradox of health care,” he continued, was that while the health care system in the United States features more competition than virtually all other systems globally, “it isn’t working,” and “many people [even] blame innovation as the problem” in an increasingly expensive health care system.

The story according to Porter is that competition is occurring at the “wrong level and on the wrong things” because the system is set up so that “benefit to one party comes at a cost to another.” Provider and insurer, federal government and states, employer and employee: all, said Porter, are competing to shift costs towards the other party, and resorting to tactics like restricting choice of providers and services, and using volume clout to negotiate lower rates. The result? Skyrocketing administrative costs, and a “perverse cross subsidy in the system” that favors large corporations at the cost of “the little man.”

His assessment of the cause of rising costs was perhaps the most damning part of Porter’s presentation. As Porter pointed out, “we don’t know who the best provider is [nor] how much experience they have…in treating individual conditions.” Because of this lack of data, he explained, competition [at the] disease level has been virtually eliminated, with competitive energy overwhelmingly directed at “micromanag[ing] process rather than foster[ing] competition on results.” Legislation such as one in the pipeline in Massachusetts, cited Porter, specifies procedural technicalities such as the number of nurses per patient, while providers continue to be paid to treat, then be paid again, to “fix their mistakes.”

The nature of the problem is essentially managerial, Porter determined. Hence, he claimed, the blame is rightfully on businesses, which, remained wrapped up in a “culture of denial” as early weaknesses in the health care system mounted into a full-blown crisis. “Any employer worth his salt should know that quality matters,” railed Porter. Employers should know that the objective of health care is not cost, but value, he continued, and that the “massively fragmented system” of providers should be consolidated at the local level by expertise, so employees can “find the excellent provider of the services [they need].” “All of these things should be obvious to businesses,” scolded Porter, “but they have been complicitous.”

Although Porter painted a picture of a severely crippled system, he stopped short of calling the situation helpless, instead offering the optimistic view that “if we just had the will,” reforms are “very much in reach today.” To begin, he said, insurers need to begin collecting information on providers’ treatment success rates by disease, rather than by pieces of diseases. Moreover, said Porter, doctors need to stop being treated as “free agents,” or “journeying yeomen” in a “pre-industrial guild” and committed to groups in which they see the whole cycle of disease treatment, rather than merely taking part in their step of the assembly line before moving on to the next patient. With these two changes, Porter theorized, not only would patients have the information needed to make educated decisions about their health treatment, but genuine expertise could be developed in the successful treatment of the full run of a disease.

Insurers could abet progress, proposed Porter, by requiring providers to submit just one bill for the treatment of a single disease. It’s “not rocket science” he chided. Such a requirement, Porter predicted, would cause optimization of treatment process by encouraging hospitals to cease viewing themselves “functionally,” and rather see themselves as centers for disease treatment. This way, he said, hospitals will develop expertise in treating certain diseases, and competition among experts in successful treatment will eventually deliver true value to the patient market. Patient health information ought to be stored in a centralized location, he added, so that expert providers could access it easily and fully, as needed.

Finally, proposed Porter, citizens ought to be mandated to buy health insurance, with subsidies provided for the poor. While he allowed that such a measure would be controversial politically, Porter took the stance that those who can afford health insurance but simply choose to forego it should be required by law to buy into a health plan, so as to create a stable system with enough resources for all.

Concluding with a note that his presentation was based on work-in-progress, Porter emphasized that he welcomed questions, concerns, and requests for clarification via email: mporter@hbs.edu.

February 28, 2005
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