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Can competition cure healthcare?

On this blog we often trump the possible role of the private sector in improving healthcare service delivery in developing countries. However, many are quick to point out that a private and competitive approach to healthcare in the US has actually faired quite poorly in the eyes of many. This issue of private healthcare performance is the new focus of strategy-guru Michael Porter. For example, see a recent Q&A with him where he discusses whether competition might be the cure for healthcare. So according to him, why isn't high quality, value-driven healthcare more expensive?

Healthcare is not like buying a car. If you want leather seats in a car, this costs more because leather costs more than plastic. If you want a TV set with a bigger screen and more features, that is more expensive; it takes more circuits, more material, and so on. Healthcare is very different, especially today when we already treat virtually every medical condition in some way. Most of the time, the best quality healthcare is also the lowest cost care. The reason is that the lowest costs arise when the patient stays healthy, or gets healthy faster.

If you get the diagnosis right, you save a lot of wasted and unnecessary treatment, and costs go down. If you avoid making mistakes, costs go down. If excellent surgery allows the patient to go home sooner, costs go down. If you actually cure the disease, the patient does not need to have any more office visits or drugs, and so on, as we discuss extensively in the book. Of all the fields we have worked in, this is the field where the notion that quality is free is the most powerful.

One of the central themes of our book is that the way to drive down costs in healthcare is to drive up quality. That is the dynamic we have to harness. And in order to drive up quality, there is only one way that will work: We have to measure results. And in order to use results to drive quality, we have to create competition on results at the medical-condition level.

And what about pay for performance?

Most pay for performance programs are actually pay for process compliance, not pay for results. While many in the field understand that such programs must move toward outcomes, there is a deeper problem. Pay for performance assumes you should have to pay more for high quality.

As we already discussed, in healthcare excellent providers are often also the most efficient. Patient flow to excellent providers in addressing a medical condition is a much more powerful incentive than a small bonus because it feeds the virtuous circle of value improvement from volume and experience. As patients seek out the excellent providers who demonstrate good results, there will be rapid improvement of other providers, and a reallocation of capacity. Physicians practicing at institutions with little volume and substandard results will shift to other fields, or move to organizations and management structures where they can succeed.

Doctors will come to understand that there is no inherent right to practice medicine unless the organization can demonstrate good results. This is a much better way to be held accountable than today's flawed malpractices system.

The bold is mine. Porter and Elizabeth Olmsted Teisberg have a new book out on the topic, ‘Redefining Health Care: Creating Value-Based Competition on Results.’ Here is a free excerpt and the introduction. I found the Q&A and excerpts interesting reads, with some guidance for general aid effectiveness in developing countries mixed in-between; for example, the text in bold above.

Update: One more part to highlight:

[The] system can be reformed from the bottom up. Any hospital, physician practice, health plan, or employer can take positive steps in the direction of value-based competition today and be better off, even if nobody else changes. They will be more efficient, achieve better customer satisfaction, and the physicians involved will feel more pride in what they are doing.... Reforming the U.S. system does not require a top down, big bang, government-led regulatory change. That having been said, the government can actually help a lot through modifying and extending key policies, particularly in the area of results information and removing restrictive and unnecessary impediments to competition.

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