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strategy and business
 / Spring 2007 / Issue 46(originally published by Booz & Company)


Does Health Care Have a Future?

Their second key insight is that when we turn to health care for a solution to our medical condition, we do not typically find any products designed to solve our problems. We find a vast array of specialists, technologies, devices, drugs, and therapies. Unlike other service industries, health care does not usually offer discrete, comprehensive “packages,” such as a “birthing program” that carries the mother and child from the earliest prenatal care through the birth, dealing with any complications, until mother and child are comfortably home. Or a “knee service” that includes diagnosis, an array of offerings ranked by severity and type of problem, treatment, rehabilitation, physical therapy, and follow-up condition management, all in one package. Or a comprehensive “diabetes product” to help people manage the disease, including a dedicated insurance (or prepay) program.

The third key insight proceeds directly from the other two: When we turn to health care with our medical condition, there is no value proposition even if we are paying part of the cost through our CDHPs. That’s why the lack of real prices and measurable results matters so much in health care. If you are considering buying a Toyota Prius, you know the value proposition: It costs about $24,000, it gets about 50 miles per gallon, and it carries Toyota’s reputation for quality. If you are getting knee surgery because you want increased range of motion and decreased pain and swelling, you don’t know the true price of the whole experience, whether your surgeon and the rest of the team are better or worse than average, or whether you can rely on getting what you (and your employer or insurer) are paying for.

You can’t know, your referring physician can’t know, even the surgeon can’t know, because the actual quality is never measured in any standard way. In those parts of health care in which actual results are measured, the data is typically either kept secret or not broken out in a way that would help the consumer make a choice (such as by institution, team, or individual practitioner). As a consumer or referring physician, your most appropriate question is not, “Which is the most impressive institution?” or even, “Which institution or surgical practice has the best overall reputation for quality?” Your question is, “By measurable, risk-adjusted results and published prices, who can do the best job on this knee for the lowest price?”

Porter and Teisberg offer a vision in which health care is organized mainly around products tailored to particular medical conditions. These products are delivered by medically integrated practice units made up of teams that work together on the same medical condition over long periods of time, continually learning from their experience with the condition and from each other. These teams are comprehensive and seamless. A diabetes management team might include an endocrinologist, a behavioral therapist, a nurse educator, a dietitian, an exercise physiologist, a podiatrist, a dentist, and even a computer technician to help patients set up their home health monitoring devices. These products are clearly delineated, with real prices and a single bill, and the teams compete directly against other teams that work on the same medical condition, on the basis of value: measurable results at a published price.

In this vision, transparency drives quality. Health plans steer patients toward the providers who offer the best results for the least money. Referring physicians refuse to recommend any specialist or package with quality scores in the lower quintiles, for fear of being sued for malpractice themselves.

When health-care providers compete at the level of the medical condition, on real prices and real results, the feedback loops will become extremely compelling. Offering the highest possible quality at the lowest possible price will no longer be voluntary. Health plans will also be forced to compete on the basis of real results and genuine customer service at the lowest price, rather than their current modus operandi — which can include denying coverage and shifting cost and risk to employers, consumers, and providers.

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Health-Care Resources
Works mentioned in this review.

  1. Donald L. Barlett and James B. Steele, Critical Condition: How Health Care in America Became Big Business and Bad Medicine (2004; Broadway, 2005), 286 pages, $14.95
  2. Susan Starr Sered and Rushika Fernandopulle, Uninsured in America: Life and Death in the Land of Opportunity (University of California Press, 2005), 272 pages, $15.95
  3. The Institute of Medicine, Insuring America’s Health: Principles and Recommendations (National Academies Press, 2004), 222 pages, $26.10, or download PDF for $22.50 at Click here.
  4. Charles R. Morris, Apart at the Seams: The Collapse of Private Pension and Health Care Protections (Century Foundation Press, 2006), 86 pages, $14.95
  5. Jill S. Quadagno, One Nation, Uninsured: Why the U.S. Has No National Health Insurance (Oxford University Press, 2005), 286 pages, $28
  6. Arnold S. Kling, Crisis of Abundance: Rethinking How We Pay for Health Care (Cato Institute, 2006), 120 pages, $16.95
  7. Regina E. Herzlinger, editor, Consumer-Driven Healthcare: Implications for Providers, Payers, and Policymakers (Jossey-Bass, 2004), 926 pages, $55
  8. Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining Health Care: Creating Value-Based Competition on Results (Harvard Business School Press, 2006), 524 pages, $35
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