Online Exclusives

Editor’s Note: Professors Michael E. Porter and Elizabeth Olmsted Teisberg are the authors of Redefining Health Care, which was released in May. The authors explain how the right kind of competition in the healthcare industry can reform the system while reducing costs and raising patient value. Renal Business Today spoke with Teisberg, who is an economist with expertise in strategy and innovation. She is also an associate professor of Business Administration at the University of Virginia.

Click on the links below to access an exclusive book excerpt from Redefining Health Care and read about how the Care Delivery Value Chain can be applied to chronic kidney disease. Also read about how good outcomes reporting arose in the United States and how the renal community has affected its awareness.

excerpt from pages 127-134
excerpt from page 204
excerpt from pages 397-412

According to your book, the healthcare system in America is broken because competition is broken. On what level is the industry competing now, and where should it compete if it wants to right itself?
Competition in the U.S. system is on the wrong level in three ways. It’s too broad, in that we now have competition between hospital systems and between health plans. Value in healthcare is created in the treatment of individual patients. Patients have particular conditions or combinations of conditions, and we need competition on the level that drives improvement in the treatment of medical conditions as patients experience them. We need a patient-centered system. So [current] competition between hospitals or health plans can mask or prevent competition at the level of medical conditions.

The second way, ironically, is that the competition is simultaneously too narrow. It’s too narrow in that we have this fractured system of care that’s focused on individual procedures or piecemeal treatment for patients. So for example, most people who need kidney dialysis have never seen a nephrologist before their kidneys failed. And so we need attention to the full cycle of care rather than to just individual procedures.

One of the surgeons I talked to used a colorful phrase saying that he spends 50 percent of his time ensuring that his patients don’t fall through the cracks in the floor. It’s a terrible amount of his time to be spent on that and yet it’s a critical activity. That particular doctor is actually a breast surgeon, so because he’s focused on breast cancer all the time, he understands where the cracks in the floor are and can help guide his patients through more continuous, more effective care. He’s actually hired a full-time person to help with that part of the practice. There’s no reimbursement for that person. It’s makes the surgeon much more effective in his use of time, and its tremendously valuable to the patients who do have to navigate through the fractured cycle of care.

The third way in which competition is at the wrong level is that it’s too local in that what’s required is to be successful in your local area. So with protected networks, if you’re the only provider for the particular condition you're treating within your network you have a guaranteed flow of patients regardless of your quality. So when you’re thinking about competition happening at a regional, national or even an international scale, what we’re talking about is not having patients travel all over the place, but having physicians competing to be pushing forward the quality of care in the conditions they treat. So it might not require patients to travel, or even to shop, but just have physicians focused on competing to improve care. And you think about it, when a physician succeeds by or a physician team succeeds by improving the care for patients, the patients win too. By the way, so does the employer, so does the health plan, so does the family because the win there is better health.

How can you measure the amount of value directed toward the patient?
Value is the outcomes per dollar spent. It means the same thing that it means to you when you are shopping. It weighs outcomes and costs.

You write, “Moving to a single-payer system would not be a solution, but an admission to failure.” What is the danger of a single-payer format in healthcare?
The advantage of a single-payer format is that it brings everybody into the system automatically. That has to be done. We favor individual mandate with subsidies or vouchers for those we need them as a way of doing that. But let me clarify first that we will have to have everyone in the system to have a fix for both reasons of equity and efficiency. 

If you think of the single-payer system relative to the dysfunctional competition right now, different participants try to create as much bargaining power as possible so they can effectively shift costs to someone else. If we create a system where there is a single payer, so that payer has tremendous bargaining power, not to mention a lot of pressure to reduce costs, the chance is way too high that what we’ll see is using that tremendous bargaining power to either micromanage providers or ration care or all of the above.

Theoretically, a well-administered single-payer plan could work well. But that is not what we have seen in practice with administratively managed care. 

Do some people feel the word “business” in this context is akin to a dirty word?
We try to use the word service line as opposed to business. It is services provided to patients. The other thing to realize is the good or the product here, if you will, is not treatment but health. And that’s a very different mindset than the way the whole system is structured today. 

You and Prof. Porter write, “Mandatory measurement and reporting of results is perhaps the single most important step in reforming the healthcare system.” What can the rest of healthcare learn from the dialysis industry in this regard and is their anything the dialysis industry should improve upon?
Right now the reporting is 5 percent of patients and the data are collected, I think, in one quarter of the year in the fall. It would be better to collect more data. As the faster we move to better IT systems the easier it will be to collect more data.

Where you see data collection efforts, including in end-stage kidney disease, you see improvement happening as a result of people analyzing and understanding that data. One of the really key things about data collections in outcomes reporting is not to think of it as a report card, sort of an end, but as an improvement tool, a beginning. As you collect data, you are trying to enable the care-giving team to understand what it does well and what it can improve and implement those improvements. In order to understand improvement you have to know how you’re doing. So that’s a big story.

The concept of disease management seems to be a foundation to the solution to the problem in this book. Chronic kidney disease is specifically mentioned as an example.  How can practices adapt to this and remain profitable when many of these services are not reimbursed?
The importance of disease management is a symptom of the fractured system. It’ll be better when we get the point where disease management is a normal part of the care cycle. It doesn’t sort of need to be done separately. And yes, disease management is, in our view, is an important piece of the puzzle because the emphasis needs to shift to health. When you look at the cost of the U.S. system relative to other countries, one of the things the U.S. seems to fall short on is preventative care. Not just prevention of the occurrence of conditions, but the prevention of the progression of disease once the condition is identified. And so we can do a lot better on that, and disease management is one of the ways.

There’s a tendency in our system to reimburse procedures rather than consultative care. And a lot of things that need to happen to help people to manage their own health are low-tech or consultative nature. That’s something that we need to step up to the plate on. We need to reimburse better for things that create value without procedures.

So payers are really going to have to be swayed to reimburse for things that fall under the umbrella of disease management for it to catch on is what you’re saying?
Yes. I don’t even like calling them payers. I think we should call them health plans and expect them to behave as health plans. Because if they think of themselves only as payers, then they are going to think of themselves as in the business of cost shifting, and so we so we really want them to think of themselves as health plans. And the one’s that are, are tending in good directions on that.

It’s interesting, for example when we talked to Cigna, they commented that when they are the insurer they fund all of the disease management programs they have under their umbrella. When they are acting as an administrator for an employer, the insuring party is the employer and they sometimes won’t step up to the plate for disease management. There’s a lot of data being developed now that shows the value of disease management and I think as that becomes clearer, employers will do it.

The other story as to why disease management hasn’t caught on is the notion that health plans didn’t want to attract chronically ill people. So if you’re one of several health plans being offered by an employer, do you have an incentive to not offer disease management so that the chronically ill will choose a different health plan. And so there, that implies that it’s up to the employer that they must offer these services so that health plans can’t create an advantage by cherry picking.

Where does the patient fit in all of this?
Given how fractured the system is now, its really difficult for the patient. The whole notion of consumer-directed care just hasn’t taken off over the fifteen years that it has been promoted. Part of that is the way the system if structured, the way care is delivered, the way competition occurs, it’s difficult for a doctor to navigate the system. So what can a patient do? The studies are consistent that informed, involved patients get better results, also at lower costs because involved, informed patients tend to choose less-invasive, less-expensive care. If you recognize that the surgical route won’t get the better outcome, then why would you put yourself through that?

Getting informed is one thing. It makes sense to ask questions, do your homework, do your research, and know that it’s fine to ask those questions. It’s intimidating to ask questions in today’s system. Another thing is responsibility for your own health. I always cringe when I hear someone say, “The patient doesn’t have any skin in the game.” Skin, bones and organs, we’ve got it all in the game. It’s your health, and so it makes sense to learn about and purse healthy behavior.

A few years back, you and Prof. Porter predicted healthcare consolidation was inevitable. It certainly happened in the dialysis industry. In the book, you write, “Another round of consolidation and cost shifting will not provide a solution.” What did you mean by that? And can large providers ingrained in a specific model adapt to change?
The consolidation that goes on tends to be ever broadening. We will provide a broader array of services or we will more comprehensively blanket a geographic area. So the consolidation that has gone on is a bargaining power approach. And increasing bargaining power doesn’t create value for patients. The whole purpose of any reform is to increase value for patients. With patients, I don’t mean the already sick because we are also talking about prevention of the occurrence of conditions and prevention of the progression of disease. So we can take people as well as patients.

The strategic changes that have to be made are changes that enable caregiver, health plans and information services to provide more value to patients. And will another round of consolidations help that? No. One of the recurring themes in the types of consolidation is the notion that if we put together health plans and providers, we could circumvent some of the current dysfunctional competition. A better solution would be to create a system focused on health and improving healthcare value and have competition at the right level rather than just consolidate in hopes that less dysfunctional competition would be an improvement.

What are some of the flaws of a pay-for-performance system?
It sure sounds right, doesn’t it? It sounds like, Reward good results. But the problem is the way its being implemented is pay-for-process compliance. In the early days of managed care, the idea of managed care wasn’t administratively managed care; the idea was that the physician that cared for you would help you to direct your healthcare, he or she would understand the system. But it became administratively managed care. The same risk is going on with pay-for-performance.

There are four problems with pay-for-performance when it becomes pay-for-process compliance. The first one is that medicine is complicated, so it’s hard to specify everything you should do in all circumstances. So the specifications may not be appropriate to the care, but you have to do the specifications in order to get the payment. There needs to be room for judgment.

The second thing is that the state-of-the-art evolves and improves, and there has to be room for that. At one of the hospitals I talked to, doctors explained to me that there are some drugs they now give to patients where there have been some clinical trials that show those patients don’t need the drug or benefit from them. But their judgment is the side effects from these drugs are not horrendous and the amount of paperwork that they would have to fill out against the process specification is onerous to them. So they give the drug anyway. The point is that the process specification, already, hasn’t kept up with the state-of-the-art and our understanding of changes.

The third is that what we want is to improve results, but process compliance and improving results are different. So you can have different teams of caregivers following the same processes, they won’t necessarily get the same results. Part of it has to do with their interpretations of processes, part of it has to do with the patients they have, but it’s not the same. The right goal is not to have everyone do the same process; the right goal is to be driving the results forward. Economics 101 says "Specify the results that you want, not the processes," because then you enable creativity and innovation and the ability to push things forward. So the notion that process compliance is not the same thing as ensuring results is important.

The fourth point is that the way we’re implementing pay-for-performance, we’re building in price increases that we probably don’t need to build in. Better health is less expensive that worse health. Less-invasive procedures are less expensive than more-invasive procedures. The places that achieve superb results can often do it more efficiently. You want the best providers to have higher margins; you want them to earn more. But that doesn’t necessarily mean that they have to charge higher prices.

To some people, information technology and electronic medical records are the Holy Grail to healthcare reform? Are there any misconceptions about this, and where will IT truly help reform healthcare?
IT will be a tremendous enabler. We have a tendency to talk about IT as if it were one thing.  It’s many things. So people are often overwhelmed by the notion that they should use IT, but that’s because you are talking about it meaning 25 different things at once, of course its overwhelming.

Having individual medical records is another very powerful idea. Medical records need to be individually owned so that the information is automatically continuous in all their life. When your thinking about IT, you want to not think IT as transforming your system, but rather use IT to enable the transformations that you want to make. So if you rely on IT to change the world for you, you’re likely to be overwhelmed. But if you figure out the directions that you need to go, the things that you need to change, and then design the IT to make those things easier. It’s an enabler, not a solution.

Are medical suppliers competing on the wrong level as well? If so, how can they fix it?
Yes, given the way the system is, I think everyone participating in the dysfunctional competition. When you think about the pharma companies, the model of reach and frequencies in the approach to sales is really not the best model. What you want to be doing is delivering the right drugs to right patients at the right time. When reach and frequency gets drugs that are less effective or even dangerous to people, that’s value destroying, not increasing. And over time, not only are the patients better off, but the companies will make more money when their drugs are creating a lot of value for everyone who gets them.

Similarly with the device manufacturers, they need to be thinking in terms of the cycle of care and how you improve it for patients. One example here is the gurneys for various imaging machines tend to only go into the one imaging machine. They don’t move from one machine to the other. So you could have a situation where the care for a patient is significantly held up while they try to transfer the patient from one gurney to the other. The device manufacturers are very good at thinking at how to improve that machine and what that machine does technically, but if you look at what’s going on in the imaging facilities, there some relative simple changes that could add a lot of value and smooth the care cycle.

We need to think across the care cycle. One of the things for both drug and device makers is to think about ensuring their products are embedded within the best possible cycles of care. So the could do a lot in working with providers to improve care.

You write, “The fundamental flaw in U.S. healthcare policy is its lack of focus on patient value.” What, in your opinion, should be the government’s role in health care reform?
The first thing they need to do is really roll forward the collection and dissemination of outcomes measures. That would be a huge step. The gold standard in outcome measurement is in transplant data--and that was all driven by the government. Using that as a model and pushing forward collection, risk-assessment and peer-review and then dissemination of results would really help to get things focused on a patient-centric system that is really about health and care.

It seems part of the solution that you talk about is to not rely on the government as much to create rules, regulations and processes, but rather look within the business itself for change. Is it just a mindset that needs to change to not look for the government for all these solutions?
Yes. It’s the job of the government in terms of trying to improve the quality of care delivered to people. So much less complicated if they first push results measurements hard because there will be animated attention to improving processes. Without the government having to develop the expertise to administratively manage the task and so it’s a lot more straightforward.

According to the book, “We believe that healthcare reform can come, and will come, largely from within.” Do you still believe that?
Yes. I do. If you think about it, many people argue that the health plans are currently the most resistant to change. But the health plans are coming to understand better than anybody that if they don’t change we will end up with a single-payer system. So they have very strong incentive to figure out now, how to do better. And the nice thing about thinking about a system focused on improving healthcare value is that that kind of system is a win-win situation. When everyone’s focused on improving the health and healthcare value for people, the providers win, patients win, the health plans win, families win, government win, employers win.