June 9, 2004
Professor Porter tackles health care finance
Michael E. Porter is one of 15 current University Professors at Harvard and one of America's foremost business theorists. This Boston Globe article reports on Professor Porter's latest research project -- America's dysfunctional health care finance system.
In a long essay in the June edition of Harvard Business Review, the 57-year-old Porter argues for redefining healthcare competition on the level of specific diseases and treatments, rather than on the level of health plans, networks, or hospital groups. ''The wrong kinds of competition have made a mess of the American healthcare system," contend Porter and his coauthor, Elizabeth Olmsted Teisberg of the University of Virginia. ''The right kind of competition can straighten it out."
The article notes that the health care finance problem is the type of particularly knarly issue that Professor Porter enjoys taking on:
What attracted Porter to the healthcare sector, in fact, was its standing as a competitive industry that seemed to defy the laws of competition. In properly functioning businesses, from personal computers to mobile phones, product and process improvements drive down prices and costs, quality rises, markets expand, and uncompetitive players go out of business. In healthcare, costs are forever climbing, services are restricted or rationed, many patients receive poor care, preventable medical errors persist, and there are wide discrepancies in costs and quality among providers and across geographic areas.
Professor Porter and his collegue, Elizabeth Olmsted Teisberg of the University of Virginia, note that the antidote to what ails the health care finance industry is simple:
Porter and Teisberg have a deceptively simple diagnosis: Healthcare competition today works on the wrong level. The players -- health plans, payers, providers, and doctors -- engage in what the authors call ''zero-sum competition," dividing value rather than creating it. They seek to transfer costs onto one another, limit access to care, hoard information, and stifle innovation, all to the detriment of patients.
The right kind of competition should occur at the level of preventing, identifying, and treating patients' conditions and diseases, Porter and Teisberg assert. They call for collecting and disseminating information about the outcome of medical procedures, so patients can make intelligent choices about physicians and hospitals. They also recommend transparency in billing and pricing to reduce cost shifting, discrimination, and other inefficiencies. And they propose increased specialization by healthcare providers, resulting in more centers of excellence in conditions and treatments that compete for patients.
''There's only one kind of competition that's directly connected to healthcare value," Porter maintained in an interview. ''And that's the competition about who can do the best job of your prostate surgery, with the least complications and the best recovery records. That's where the competition needs to be. Yet that kind of competition has been all but eliminated in the system, in a misguided effort to save costs."
Although the Porter-Teisberg model reduces the government's role in the health care finance system, the government would nevertheless have an important policing role:
Government would have a role, not as a ''single payer" or an insurer of last resort, but by blocking network restrictions, hospital consolidation, and multiple hospitalization bills, and helping to set a framework for reform through its Medicare program. The role of health plans, meanwhile, would be more akin to that of coaches and advisers, helping their members navigate the system and find the best care.
And what does Professor Porter think about the current level of debate over health care finance reform in the Presidential campaign?:
''The debate now is totally about cost shifting and not value creation" in healthcare. Could his proposal influence that debate?
''I hope so," Porter said. ''I would love to challenge both candidates to see what they're going to do to engage these issues."
The type of innovative approach that the Porter-Treisberg model advocates --along with such concepts as the Health Savings Accounts described in this earlier post -- is what is necessary to overhaul the increasingly obsolescent American health care finance system. Inasmuch as that system already accounts for almost 20% of federal expenditures and those expenditures are increasing rapidly, my sense is that we all would be better advised to require our Presidential candidates to address these tough issues rather than the relatively unimportant but trendier business issues such as "outsourcing" and "energy independence."
Hat tip to Tom Mayo's HealthLawBlog for the link to the article on the Porter-Teisberg study.
Posted by Tom at June 9, 2004 9:04 AM |
Maybe it's because Professor Porter exhausts my store of knowledge abotu finance whilst on the john, but I must admit, his proposal seems long on theory (which I generally agree with) and short on consequences.
How exactly will his model revamp the HC system in actual practice? I agree with the theory, and even with the changes he urges--I'm just not sure I see the results he posits.
Posted by: TP at June 9, 2004 9:46 AM
TP, I have not read the Porter-Teisberg piece in the Harvard Business review yet, so I am not familiar with the details of their proposals. But from the Globe article, it sounds like they are proposing that insurers would be transformed from mere claims processors to health service organizations that would facilitate the insured's choices of the best available health care choices. As you note, the theory of that sounds fine, but the reality is that the insurers are still going to need to make a sufficient profit to justify the risk of providing the insurance service, and that profit can be quickly eaten up by processing higher priced rather than lower priced claims. I do not know how Porter-Teisberg model addresses that issue, but I will post an update once I have had a chance to read their complete HBR article.
Posted by: Tom Kirkendall at June 9, 2004 10:26 AM
One might note that Tiesberg-Porter are prepping for the release of their book "Redefining Health Care". While noting that neither is trained in the field of health economics nor deemed "experts" in the disicipline by their peers, I suppose their pontification will be as "revolutionary" as one should expect from any B School authored publication.
The following are several links to expand one's knowledge base in the area of health care economics, including finance.
In assessing the relative merits of a single-payer system, I'd suggest Robert G. Evans from the Univ. of British Columbia at http://www.utoronto.ca/hpme/dhr/events_reports/Evans_2sys.pdf. Expectantly, his views are seldom shared by the U.S. service and product providers, the private sector insurers nor the press that they finance through advertisements.
However, the single-payer method of financing is more efficient than the multi-payer method and less costly to administer. As well, when applied to all citizens, as opposed the patchwork method currently employed in the U.S. system with 45 million uninsured citizens, it is more equitable from a societal perspective.
Also, one might wish to review other readings from Evans' course which are detailed and presented at http://www.econ.ubc.ca/evans/384out.pdf. Contained in those readings is a publication assessing physician licensing and price competitiveness titled "Professionals and the Production Function" is of particular interest. Again, one will find few physicians, if any, that are advocates of expanding that labor pool. And yet, it may be the source of the system's problems with respect to cost containment, specifically the conflicts of interest that often occur in the principal (patient) and agent (physician) relationship.
When a system incentivizes participants for inefficiency, e.g. unnecessary procedures, and allows conflicts of interest to prevail, e.g. physician rebates for the prescription of medications, what type of cake is one baking?
Posted by: Dr. John Lang at July 31, 2005 7:48 AM
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