Using Competition to Reform Healthcare Editor's Note: The ills of the U.S. healthcare system are well chronicled—soaring costs, low customer satisfaction, increasing problems with quality, and restricted coverage lead the list. But do we really understand the underlying issues well enough to write a prescription? In their new book Redefining Health Care: Creating Value-Based Competition on Results, Michael E. Porter and Elizabeth Olmsted Teisberg take a systemic approach to healthcare reform. Today's system is dysfunctional, they argue, rewarding participants who redirect costs and restrict services rather than those who create value for the consumer. The system needs to be redesigned so that each participant is motivated to increase value, measured by health outcomes per dollar expended. This excerpt discusses how healthcare providers can shift to a value-based model. An interview with Professor Porter will be featured in HBS Working Knowledge next month. How can providers compete on value? To do so, they must embrace a series of strategic and organizational imperatives, shown in Figure 5-1. We describe the imperatives in the context of hospitals and physician groups. However, they apply even to the practice of an individual physician. A growing number of providers have begun to address several of the imperatives, but few, if any, providers are currently addressing all of them. The shift to a value-based model is self-reinforcing. As more of these imperatives are addressed, the benefits grow disproportionately. Redefine the business around medical conditions The starting point for developing strategy in any field is to define the relevant business or businesses in which an organization competes. Health care delivery is no different. Health care providers do not think of themselves as businesses, but they are in the business of providing services to patients. (Those who are uncomfortable with the notion of businesses in health care can substitute the term service lines.) The question "What business are we in?" is an important one because it guides an organization's thinking about who its customer is, what needs it is trying to meet, and how it should organize. Implicit in every business definition is a view of how value is created. Aligning an organization's view of value with actual value is a precondition for excellent performance. In some fields, defining the relevant business is straightforward. In health care this is not the case, in part because of the way medicine has traditionally been structured and organized. Many hospitals, for example, see themselves in the "hospital" business or the "health care delivery" business, competing with other hospitals based on their overall service offering. An even broader definition of the business, "health care," is common among experts in health policy. This leads them to favor large health systems, believing that health care is best organized by combining insurance and health care delivery into one vertically integrated, full-line system. Other providers, including most physician practices, define their business around specific functions Published: June 5, 2006 Authors: Michael E. Porter and Elizabeth Olmsted Teisberg Página 1 de 4 Using Competition to Reform Healthcare — HBS Working Knowledge 19/3/2009 http://hbswk.hbs.edu/cgi-bin/print?id=5369