Value-Based Health Care Delivery - Harvard Business School Files/2010-0617_Philips... · Harvard...
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Value-Based Health Care Delivery
P f Mi h l E P tProfessor Michael E. PorterHarvard Business School
Philips Board of ManagementPhilips Board of ManagementJune 17, 2010
This presentation draws on Michael E. Porter and Elizabeth Olmsted Teisberg: Redefining Health Care: Creating Value-Based Competition on Results, Harvard Business School Press, May 2006, and Porter, Michael E. “A Strategy for Health Care Reform.” New England Journal of Medicine. June 3, 2009. Porter, Michael E. “Defining and Introducing value in Health Care.” Evidence-Based Medicine and the Changing Nature of Healthcare: Meeting
Copyright © Michael Porter 2010120100617 Philips
Summary (IOM Roundtable on Evidence-Based http://www.nap.edu/catalog/12041.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 Olmsted Teisberg. Further information about these ideas, as well as case studies, can be found on the website of the Institute for Strategy & Competitiveness at http://www.isc.hbs.edu.
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Zero-Sum Competition in U.S. Health Care
Bad Competition
• Competition to capture
Good Competition
• Competition to increaseCompetition to capture patients and restrict choice
• Competition to increase bargaining power to secure
Competition to increase value for patients
g g pdiscounts or price premiums
• Competition to shift costs orcapture greater revenue
• Competition to exclude less healthy individuals
Positive SumZero or Negative Sum
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Positive SumCompetition
Zero or Negative SumCompetition
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Principles of Value-Based Health Care Delivery
The central goal in health care must be value for patients, not access, volume, convenience, or cost containment
Value =Health outcomes
Costs of delivering the outcomesCosts of delivering the outcomes
• Outcomes are the full set of patient health outcomes over the care cycley
• Costs are the total costs of care for the patient’s condition, not just the cost of a single provider or a single service
How to design a health care system that dramatically improves patient value
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patient value
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Principles of Value-Based Health Care Delivery
Quality improvement is the key driver of cost containment and value
- Prevention - Fewer complications
Quality improvement is the key driver of cost containment and value improvement, where quality is health outcomes
- Early detection - Right diagnosis- Right treatment to the right
patient
p- Fewer mistakes and repeats in
treatment - Faster recovery
More complete recoverypatient - Early and timely treatment- Treatment earlier in the causal
chain of disease
- More complete recovery- Less disability- Fewer relapses or acute
episodes- Rapid cycle time of diagnosis
and treatment- Less invasive treatment
methods
- Slower disease progression- Less need for long term care- Less care induced illness
• Better health is the goal not more treatment
methods
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• Better health is the goal, not more treatment• Better health is inherently less expensive than poor health
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Value-Based Health Care DeliveryThe Strategic Agenda
1. Organize into Integrated Practice Units Around the Patient’s Medical Condition (IPUs)Medical Condition (IPUs)
− Specialty care− Primary and preventive care for distinct patient populations
2. Measure Outcomes and Cost for Every Patient
3. Move to Bundled Prices for Care Cycles
4. Integrate Care Delivery Across Separate Facilities
5 Expand Excellent IPUs Across Geography5. Expand Excellent IPUs Across Geography
6. Create an Enabling Information Technology Platform
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1. Moving to Care Delivery Integrated Around the PatientMigraine Care in Germany
Existing Model: Organize by Specialty and Discrete Services
New Model: Organize into Integrated Practice Units (IPUs)
Affiliated Imaging UnitOutpatient
Physical Therapists
Imaging Centers
West GermanHeadache Center
N l i tEssen Univ
Therapists
Outpatient Primary
Primary Care Physicians
NeurologistsPsychologists
Physical TherapistsDay Hospital
Univ.HospitalInpatient
UnitInpatient Treatment
d D t
OutpatientNeurologists
PrimaryCare
Physicians
NetworkNeurologists
and DetoxUnits
OutpatientP h l i t
Affiliated “Network”N l i t
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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
Psychologists Neurologists
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Integrated Care Delivery Includes the Patient
• Value in health care is co-produced by clinicians and the patient
• Unless patients comply with care and take steps to improve their health even the best delivery team will failtheir health, even the best delivery team will fail
• For chronic care, patients are often the best experts on their own health and personal barriers to compliance
• Today’s fragmented system creates obstacles to patient education, involvement, and adherence to care
• IPUs dramatically improve patient engagement– Focus, resources, sustained patient contact and accountability
Ed ti d t i– Education and support services
• Simply forcing consumers to pay more is a false solution
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Integrating Across the Cycle of CareBreast Cancer
INFORMING AND ENGAGING
MEASURING
ACCESSINGACCESSING
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Volume and Experience in a Medical Condition Drive Patient Value
The Virtuous Circle of Value
Better Results
Greater Patient Volume in a
Medical C diti
Improving Reputation
The Virtuous Circle of Value
Better Results, Adjusted for Risk
Rapidly AccumulatingExperience
Faster Innovation
Condition
Better Information/Clinical Data
More Fully D di t d T
Costs of IT, Measure-ment, and ProcessImprovement Spread
over More Patients
More Tailored Facilities
Dedicated Teams
Wider Capabilities in the Care Cycle
Greater Leverage in Purchasing
Rising Process EfficiencyRising
Capacity for Sub-Specialization
the Care Cycle, Including Patient
Engagement
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• Volume and experience have an even greater impact on value in an IPU structure than in the current system
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Fragmentation of Hospital ServicesSweden
DRG Number of admitting providers
Average percent of total national admissions
Average admissions/ provider/ year
Average admissions/ provider/ weekadmissions week
Knee Procedure 68 1.5% 55 11Diabetes age > 35 80 1.3% 96 2Kidney failure 80 1.3% 97 2Multiple sclerosis and cerebellar ataxia
78 1.3% 281cerebellar ataxia 1
Inflammatory bowel disease
73 1.4% 661
Implantation of cardiac pacemaker
51 2.0% 1242pacemaker 2
Splenectomy age > 17 37 2.6% 3 <1Cleft lip & palate repair 7 14.2% 83 2Heart transplant 6 16.6% 12 <1
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Source: Compiled from The National Board of Health and Welfare Statistical Databases – DRG Statistics, Accessed April 2, 2009.
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2. Measuring Outcomes and Cost for Every Patient
Patient Compliance
Patient Initial Conditions
Processes Indicators (Health) Outcomes
E.g., Hemoglobin A1c levels for diabetics
Protocols/Guidelines
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The Outcome Measures Hierarchy
SurvivalTier Survival
Degree of health/recovery
Tier1
Health Status Achieved Degree of health/recoveryAchieved
Time to recovery or return to normal activities
Disutility of care or treatment process (e.g., discomfort,
Tier2
Process of R Disutility of care or treatment process (e.g., discomfort,
complications, adverse effects, errors, and their consequences)
Recovery
Sustainability of health or recovery and nature of recurrencesTier
3Sustainability
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Long-term consequences of therapy (e.g., care-induced illnesses)
Sustainability of Health
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100
Adult Kidney Transplant Outcomes, U.S. Center Results, 1987-1989
90
80
70Percent 1 Year Graft Survival
50
60Number of programs: 219Number of transplants: 19,5881 year graft survival 79.6%
40
5016 greater than predicted survival (7%)20 worse than predicted survival (10%)
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0 100 200 300 400 500 600Number of Transplants
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100
Adult Kidney Transplant Outcomes,U.S. Center Results, 1998-2000
90
80
70Percent 1 Year Graft Survival
50
60
1 year graft survival 90.9%
40
50y g10 greater than predicted survival (4.5%)14 worse than predicted survival (6.4%)
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0 100 200 300 400 500 600 700Number of Transplants
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100
Adult Kidney Transplant OutcomesU.S. Center Results, 2005-2007
90
100
80
70Percent 1 YearGraft Survival
60Number of programs: 240Number of transplants: 38,5151 year graft survival: 93 2%
40
501 year graft survival: 93.2%
16 greater than expected graft survival (6.6%)19 worse than expected graft survival (7.8%)
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400 200 400 600 800
Number of Transplants
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Cost MeasurementAspiration• Cost should be measured for each medical condition (which includes
common co-occurring conditions), not for all services• Cost should be measured for each patient, aggregated across the full
cycle of care• The cost of each activity or input attributed to a patient should reflect that
patient’s use of resources (e.g. time, facilities, service), not average ll tiallocations
• The only way to properly measure cost per patient is to track the time devoted to each patient by providers, facilities, support services, and other shared costsshared costs
Reality• Most providers track charges not costs
M t id t k t b billi t t f di l diti• Most providers track cost by billing category, not for medical conditions• Most providers cannot accumulate total costs for particular patients• Most providers use arbitrary or average allocations, not patient specific
ll ti
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allocations• Many providers allocate cost based in part on charge levels, which biases
cost estimates
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3. Move to Bundled Prices for Care Cycles
Bundled reimbursement
Globalcapitation
Fee for service
for medical conditions
GlobalGlobalbudgeting
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Bundled Payment in PracticeHip and Knee Replacement in Sweden
• Beginning in 2009, all joint replacements (hip and knee) in Stockholm County Council are reimbursed with a bundled price that includes:
- Pre-op evaluation - 1 follow-up visit within 3 months p- Lab tests- Radiology- Surgery & related admission
Prosthesis
p- Any additional surgery to the
joint within 2 years- If post-op infection requiring
antibiotics occurs guarantee
• The bundled price applies to all relatively healthy patients (i e ASA
- Prosthesis - Drugs- Inpatient rehab, up to 6 days
antibiotics occurs, guarantee extends to 5 years
The bundled price 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 systemy
• There is mandatory reporting by providers to the joint registry plus supplementary reporting
• Provider participation is voluntary but all providers are involved
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– 6 public hospitals, 4 private hospitals– 3400 patients treated in 2009
• The bundled price for a knee or hip replacement is about US $8,000
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What is a Bundled Payment?• A total package price for the care cycle for a medical condition• A total package price for the care cycle for a medical condition
– Time-based bundled reimbursement for managing chronic conditions– Time-based reimbursement for defined prevention, screening,
wellness/health maintenance service bundleswellness/health maintenance service bundles– Should include responsibility for avoidable complications– “Medical condition capitation”
• The bundled price should be severity adjustedThe bundled price should be severity adjustedWhat is Not a Bundled Payment
• Price for a short episode (e.g. inpatient only, procedure only)• Separate payments for physicians and facilities• Pay-for-performance bonuses• “Medical Home” payment for care coordinationMedical Home payment for care coordination
• DRGs can be a starting point for bundled payment models
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• Providers and health plans should be proactive in driving new reimbursement models, not wait for government
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4. Integrate Care Delivery Across Separate Facilities
Integrated Care Delivery Network
Confederation of Standalone NetworkUnits/Facilities
• Increase overall volume • Increase value
• Benefits limited to contracting and spreading limited fixed
• The network is more than the sum of its parts
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spreading limited fixed overhead
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Provider System IntegrationChildren’s Hospital of Philadelphia (CHOP)
Hospital AffiliatesHospital Affiliates
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Levels of System Integration
• Rationalize service lines/ IPUs across facilities to improve volume, avoid duplication, and concentrate excellence
• Offer specific services at the appropriate facility– E.g. acuity level, cost level, need for convenience
– Patient referrals across unitsPatient referrals across units
• Clinically integrate care across facilities, within an IPU structure– Expand and integrate the care cycle
– Better connect preventive/primary care units to specialty IPUs
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5. Expand Excellent IPUs Across GeographyThe Cleveland Clinic Managed Practices
Rochester General Hospital, NY Cardiac Surgery
CLEVELAND CLINICCardiac Care
Chester County Hospital, PA
Cape Fear Valley HealthCape Fear Valley HealthSystem NC
Chester County Hospital, PACardiac Surgery
System, NCCardiac Surgery
McLeod Heart & Vascular Institute, SCMcLeod Heart & Vascular Institute, SCCardiac Surgery
Cleveland Clinic Florida Weston, FLCardiac Surgery
g y
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g y
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Models of Geographic Expansion
AffiliationAffiliationAgreements
with Independent
Provider
Second Opinions and Telemedicine
Affiliations
Provider Organizations
Complex IPU Components (e.g. surgery) in Additional
Convenience Sensitive Service
Locations in the
Dispersed Diagnostic
Centers DispersedServices
S i lt
LocationsCommunity
Specialty Hospitals as
Referral Hubs in Additional
L ti
New Broader-Line Hospital
HubsNew Hubs
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Locations
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6. Create 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 over time
D h f ll l i l di f i i i• Data encompasses the full care cycle, including referring entities• Allowing access and communication among all involved parties, including
patients• “Structured” data vs. free textStructured data vs. free text• Templates for medical conditions to enhance the user interface• Architecture that allows easy extraction of outcome, process, and cost
measuresI t bilit t d d bli i ti diff t• Interoperability standards enabling communication among different provider systems
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Value-Based Healthcare Delivery: Implications for Contracting Parties/Health PlansImplications for Contracting Parties/Health Plans
Value-Added Health Organization“Payor”
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Value-Based Health Care Delivery:Implications for Suppliers
• Compete on delivering unique value measured over the full care cycle
Implications for Suppliers
• Demonstrate value based on careful study of long term outcomes and costs versus alternative approaches
• Ensure that the products are used by the right patientsEnsure that the products are used by the right patients
• Work to embed drugs/devices in the right care delivery processes
• Market products based on value, information, provider support and patient support
• Offer services that contribute to value rather than reinforce costOffer services that contribute to value rather than reinforce cost shifting
• Move to value-based pricing approaches
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– e.g. price for success, guarantees