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1 ing following PowerPoint presentation is probably unlike any presentations you have ever experienced. There are too words on each cell. It jumps to conclusions on every click resupposes that you are smarter than you think you are. The enter adds nothing and simply presents the cells. It attemp oncentrate 10 gigabytes of background, context and concepts a puny 300,000 bytes of information. The overload could be ardous to your health, or at the very least irritating. Abs respond. Let it flow.
47

Redefining healthcare12bc

May 08, 2015

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Health & Medicine

John Gillis

Porter and Teisberg's landmark book applying value chain thinking to the 2 trillion dollar healthcare system in America.
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Page 1: Redefining healthcare12bc

1

Warning

The following PowerPoint presentation is probably unlike anygood presentations you have ever experienced. There are toomany words on each cell. It jumps to conclusions on every click.It presupposes that you are smarter than you think you are. Thepresenter adds nothing and simply presents the cells. It attemptsto concentrate 10 gigabytes of background, context and conceptsinto a puny 300,000 bytes of information. The overload could beharvardous to your health, or at the very least irritating. Absorb and respond. Let it flow.

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Four Concepts Four Words

Universe

Disaggregation

Conceptual Scheme

Relative Significance

Philosophy

Reason

Knowledge

Behavior

Sum total of beliefs

Manageable groupings

Walking Stick/Valid Information

You!

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Redefining Health Care

CreatingValue-Based Competition

On Results

Michael E. PorterElizabeth Olmsted Teisberg

H A R V A R D B U S I N E S S S C H O O L P R E S S

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Note:The following cells are excerpted

from the book for discussion purposes only. Please refer to the book itself for exact verbiage,

references and quotations.

Michael E. Porter and Elizabeth Olmsted Teisberg. Redefining Health Care (Boston, MA: Harvard Business

School Press, 2006).

Page 5: Redefining healthcare12bc

5The evolution of reform models

Past Objective: Reduce Costs, Avoid Costs

Focus: Costs, bargaining powerand rationing.System characterized by: Cost shifting among patients, providers, physicians, payers, employers, government. Limits on access to service. Bargained-down prices for

drugs and services. Prices unrelated to the

economics of delivering care.Focus: Legal recourse andregulation.

System characterized by: Patients’ rights. Detailed rules for system participants. Increased reliance on the legal system.

Present Objective: Enable Choice, Reduce Errors

Focus: Choice of health plan.System characterized by: Competition among health plans. Information on health plans. Financial incentives for patients.

Focus: On provider and hospital practice.

System characterized by: Online order entry. Six Sigma practices. Appropriate ICU staffing. Volume thresholds for complex

referrals. Mandatory guidelines. “Pay for performance”

when standards of care are used.

Source: Porter and Teisberg, “Redefining Competition in Health Care,” Harvard Business Review, June 2004, 64-77. Copyright HBS Publishing

Reform Efforts Failed Because the Diagnosis was Wrong

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FutureObjective: Increase Value

Focus: Should be on the natureof competition.

System characterized by: Competition at the level of

specific diseases and conditions. Distinctive strategies by payers

and providers. Incentives to increase value

rather than shift costs. Information on providers’

experiences, outcomes, and prices.

Consumer choice.

The evolution of reform modelsSource: Porter and Teisberg, “Redefining Competition in Health Care,” Harvard Business Review, June 2004, 64-77. Copyright HBS Publishing

Address the Absence of Value-Based Competition on Results

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Does the United States Spend Too Much on Health Care?

The value perspective makes it clear that the share of U.S. GDP that goes into health care is not the right measure of the successof a health care system. Success can only be measured by the value delivered per dollar spent.

Health care is more expensive today than it was in the 1930s, butthe average life expectancy has increased from about 60 years to77 years, and the quality of life for older Americans is far better. Hence it is clear that there have been important advances.

It is also clear that the efficiency of the system is far less than it could be, and that quality falls well short of the ideal.

Meaningful change will need to focus on value at the medical condition level, and redefining competition around value.

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Deeper penetration(and geographic expansion)

In a medical condition

Rapidly accumulating experience

Rising efficiency

Better information/clinical data

More fullydedicated teams

More tailoredfacilities

Greater leveragein purchasing

Rising capability forsubspecialization

Wider capabilities in the care cycle

Greater patient volume to spreadIT, measurement,

process improvement costs

Faster innovation

Better results,adjusted for risk

Improving reputation

The virtuous circle in health care delivery

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The Value Chain

OutboundLogistics

Procurement

Technology Development

Human Resource Management

Firm Infrastructure (Finance, Planning, etc.)

Marketing& Sales

Operations(Mfg)

InboundLogistics

After-SaleService

M

A

RG

I

N

Michael Porter, Competitive Advantage of Nations

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The Value Chain Technologies

OutboundLogistics

Procurement

Technology Dev.

Human Resource Mgmt

Firm Infrastructure

Marketing& Sales

Operations(Mfg)

InboundLogistics

After-SaleService

MA

RG

IN

TransportationMtl HandlingStorage & PreservationCommo SysTestingInfo Sys

MediaAudio &VideoCommo SysInfo Sys

ProcessMachine ToolMtl HandlingPackagingMaintenanceBuilding Design & Ops

TransportationMtl HandlingStorage & PreservationPackagingCommo SysInfo Sys

Diagnostic & TestingCommo SysInfo Sys

Info Sys Technology Commo Sys Technology Transportation Sys Technology

Product Tech Software Info Sys Computer-aided design Pilot Plant

Training Motivation Research Info Systems

Finance Planning Budget Office

Michael Porter, Competitive Advantage

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SupplierValue Chains

ChannelValue Chains

Business UnitValue Chain

BuyerValue Chains

Business UnitValue Chain

Business UnitValue Chain

Firm Value Chain

Diversified Firm

SupplierValue Chains

ChannelValue Chains

BuyerValue Chains

The Value System

Michael Porter, Competitive Advantage

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Value Chain Linkages

FIHRM

TDP

IL O OL MS S

FIHRM

TDP

IL O OL MS S

Firm Value Chain Buyer Value Chain

“A company lowers buyer cost or raises buyer performance through the impact

of its value chain on the buyer’s value chain.”

Michael Porter, Competitive Advantage

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Knowledge development

Monitoring/preventing

M

A

R

GI

N

Results measurement & tracking, staff physician training, technology development, process improvement

Informing Patient education, patient counseling, pre-intervention educationprograms, patient compliance counseling

Measuring

Accessing

Tests, imaging, patient records management

Office visits, lab visits, hospital sites of care, patient transport, visiting nurses,remote consultation

PR

O

E

D

V

I

RDiagnosingPreparingInterveningRecovering/

RehabMonitoring/ managing

• Medical history

• Screening• Identifying

risk factors• Prevention

programs

• Medical history• Specifying

& organizing tests

• Interpreting data

• Consultation w/ experts

• Determining treatment plan

• Medical history

• Screening• Identifying

risk factors• Prevention

programs

• Ordering & administrating drug therapy

• Performing procedures

• Performing counseling therapy

• Inpatient recovery

• Inpatient/ outpatient rehab

• Therapy fine tuning

• Developing a discharge plan

• The patient’s condition

• Therapy compliance

• Lifestyle modifications

Feedback loops

Patient Value(health results

per unit of costs)

The care delivery value chain for an integrated practice unit

enablers1.CDVC2.IT3.PKD*

*process for knowledge development

organized at the medical condition level

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Health Plan Practices – have worked against value-based competition… have focused on the size of discounts rather than patient value...have sought contracts with broad-line providers and fostered unproductive duplication of services. They have attempted to micromanage providers rather than rewarding excellent results with more patients. Integrated health plan and provider networks have mitigated many of these dysfunctional practices, but value-based competition will work better if health plans are separate from providers.

Overcoming Barriers to Value-Based Competition

(see chapter six)

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Overcoming Barriers to Value-Based Competition

Medicare Reimbursement – strong influence on reimbursement throughout the system…has worked against value-based competition (e.g. Medicare reimbursement levels are not tied to cost or value, leading to cross subsidies and excess capacity). Reimbursement has been biased toward treatment procedures, rather than improving value over the care cycle. The reimbursement structure is also unintentionally biased against cost-reducing innovations in treatment methods.

(see chapter eight)

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Overcoming Barriers to Value-Based Competition

Regulation – regulatory and legal impediments work against value-enhancing strategies and structures. “Certificate of Need” regulation tends to protect established institutions rather than encourage new, high-value competitors…“Stark” law and corporate practice of medicine laws inadvertently work against care-cycle integration. State-level licensing works against cross-geographic integration of care delivery.

(see chapter eight)

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Overcoming Barriers to Value-Based Competition

Governance – Provider governance structures inadvertently work against value-based strategies. A local orientation and a full-service bias are reinforced by local boards and community service obligations… resistance to closing any service, and closing an entire hospital is almost unthinkable even if there are other nearby institutions of better quality. The mind-set that “closer is better” is deeply ingrained. Boards must embrace patient value as the central goal. A hospital will create more value for more patients if it provides only services where its results are excellent.

(see chapter eight)

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Overcoming Barriers to Value-Based Competition

Attitudes & Mind-sets – Old assumptions, attitudes, and mind-sets are pervasive in health care. The bias toward breadth of services is deeply ingrained. Some physicians bristle at the idea of being held accountable for results. Another pervasive mind-set is that it is wrong to compete, since medicine is collaborative and competition will only result in price cutting. These attitudes will begin to change as the system realigns its focus around patient value.

(see chapter eight)

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Overcoming Barriers to Value-Based Competition

Management Capabilities – Management expertise within health care providers is limited, especially among individuals with medical training. These resources will be sorely tested by the kinds of organizational structures and delivery methods and processes described here. Improving managerial capability will be a challenge for nearly every provider, especially since the culture of medicine has not viewed “management” as important or prestigious. Providers will need to mount a conscious strategy to equip management staff with training as their roles expand.

(see chapter eight)

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Overcoming Barriers to Value-Based Competition

Medical Education – does not equip young physicians for their role in a value-driven health care system, nor does it serve the needs of experienced physicians. Medical education fails to address such crucial agendas as the role of teams, integrated care, care cycles, results measurement, knowledge development processes, information technology, and practice unit management.

(see page 221-225)

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Overcoming Barriers to Value-Based Competition

The Structure of Physician Practice – Improving care is difficult to accomplish when physicians see process improvement as a chore, which is the current norm. What we are talking about is a far cry from typical rounds in which senior doctors grill residents as part of medical education. Physician organization is enshrined in medical boards and societies involved in certification and in medical training. Another barrier to strategy is the free agent model so common in medicine. Most broadly, the free agent model means that health care delivery is physician centric, rather than patient and value centric.

(see chapter eight)

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Transforming the Roles of Health Plans

Old Role: Culture of denial

New Role: Value-Based Competition on Results

Restrict patient choice ofproviders and treatment.

Enable informed patient andphysician choice and patientmanagement of health.

Micromanage providerprocesses and choices.

Measure and reward providersbased on results.

Minimize cost of each service or treatment.

Maximize the value of careover the full care cycle.

Complex paperwork and administrative transactions with providers and subscribers to control costs and settle bills.

Minimize the need for administrative transactions.

Simplify billing.

Compete on minimizingpremium increases.

Compete on subscriber healthresults.

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Imperatives for Health Plans

Provide health information and support to patients and physicians

Organize around medical conditions, not geography or administrative functions.

Develop measures/assemble results on providers and treatments. Support provider and treatment choice with information and

unbiased counseling. Organize information and patient support around full cycle of care. Provide disease management and prevention services to all

members, even healthy ones.

Restructure the “health plan – provider” relationship Shift the nature of information sharing with providers. Reward provider excellence and value-enhancing innovation for

patients. Move to single bills/single prices for episodes and cycles of care. Simplify, standardize, and eliminate paperwork

and transactions.(Page I of II)

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Imperatives for Health Plans

Redefine the “health plan – subscriber” relationship Move to multiyear subscriber contracts and shift the nature of plan

contracting. End cost shifting practices, such as re-underwriting, that erode

trust in health plans and breed cynicism. Assist in managing members’ medical records.

(Page II of II)

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Electronic Medical Record (EMR)

An (EMR) is central and indispensable from a health value standpoint to: Reduce the cost of transactions and eliminate paperwork. Lower the cost of maintaining records of all actions taken and

facilities used. This will also support decisions and enable detailed understanding of cost at the activity level.

Make patient information easily and instantly available to physicians.

Allow the sharing of information in real time across doctors and institutions to improve decision making and eliminate redundant tests and effort.

Facilitate aggregation of patient information across episodes of care and time.

Integrate decision support tools to reduce errors and bring learning about diagnosis and treatment “best practices” to providers.

Create an information platform from which provider results, process metrics, and experience metrics can be extracted at a very low cost.

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The Benefits

Imagine if health plans were seen as experts on healthand the member’s greatest advocates. Imagine if a healthplan informed and advised members and reduced the anxiety of illness. Imagine if members knew that their health plan was dedicated to their getting the best provider for their condition,and receiving the most effective and up-to-date treatment.Imagine if health plans took responsibility for helping a patientnavigate the system. Imagine if members and health plans worked jointly to keep the member healthy. Imagine if the interests of health plans, patients, providers, and plan sponsors were all fundamentally aligned. If health plans were truly dedicated to health, the consequences in terms of creativity,innovation, and health care value would be enormous.

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Part Two

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New Opportunities for Suppliers

Compete on delivering unique value over the full cycle of care.

Creating unique value for patients. Focus on cycles of care rather than narrow product usage. Sell not just products, but provider and patient support.

Demonstrate value based on careful study of long-term results and costs versus alternative therapies.

Use evidence of long-term clinical outcomes and cost todemonstrate value compared to alternative therapies.

Conduct new types of long-term comparative studies in collaboration with providers and patients.

Ensure that products are used by the right patients. Increase the success rate instead of maximizing usage. Target marketing and sales to minimize unnecessary or

ineffective therapies.

(Page I of II)

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New Opportunities for Suppliers

Ensure that products are embedded in the right care deliveryprocesses.

Help providers utilize products better and minimize errors.

Build marketing campaigns based on value, information and customer support.

Concentrate marketing efforts on value, not volume and discounts.

Offer support services that add value rather than reinforce cost shifting.

Support provider efforts to measure and improve results at the medical condition level.

(Page II of II)

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New Responsibilities for Consumers

Participate actively in managing personal health. Take responsibility for health and health care. Manage health through lifestyle choices, obtaining routine care

and testing, complying with treatments, and active participation in disease management and prevention.

Expect relevant information and seek advice. Gather information on provider results and experience in

medical conditions. Seek help and advice in interpreting information from physicians

and the health plan. Utilize independent medical information companies when

needed.

Make treatment and provider choices based on excellent results and personal values, not convenience or amenities.

Choose excellent providers, not the closest provider or the past provider of unrelated care.

(Page I of II)

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New Responsibilities for Consumers

Choose a health plan based on value added. Expect the health plan to be the overall health adviser. Choose cost-effective health plan structures involving

deductibles together with health savings accounts (HSAs) to save for future health care needs.

Build a long-term relationship with an excellent health care plan.

Seek a long-term relationship instead of plan churning.

Act responsibly. Accept responsibility for health and health care. Communicate personal intentions regarding organ donorship

and end-of-life care. Designate a health care proxy and prepare a living will.

(Page II of II)

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New Roles for Employers

Goal of increasing health value, not minimizing health benefit costs.

Choose plans that demonstrate excellence in the roles of“Imperatives for Health Plans” (cells 19-20).

Select plans and plan administrators based on health results, not administrative convenience.

Provide for health plan continuity for employees, rather thanplan churning.

Align interests by encouraging long-term relationships between the plan and subscribers.

Set new expectations for health plans, including self-insured plans.

(Page I of III)

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New Roles for Employers

Offer encouragement, incentives and support to employees in managing their health.

Provide independent information and advising services to employees to supplement other sources.

Offer health plan structures that provide good value and encourage saving for long-term health needs.

Support and motivate employees in making good health choices and in managing their own health.

(Page II of III)

Enhance provider competition on results. Expect demonstrated excellence from all providers involved in

employee care. Collaborate with other employers in advancing value-based

competition.

Goal of increasing health value, not minimizing health benefit costs.

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New Roles for Employers

Health benefits must ultimately be a senior management responsibility, with staff responsible for results.

Measure and hold employee benefit staff accountable for the company’s health value.

(Page III of III)

Find ways to expand insurance coverage and advocate reform of the insurance system.

Create collaborative vehicles with other employers to offer group insurance coverage to employees or affiliated individuals not currently part of the employer’s health plan.

Support insurance reform that levels the playing field among employers.

Goal of increasing health value, not minimizing health benefit costs.

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$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

$4,000.00

2003 2004

Employer contribution Worker contribution

Changes in Employer Health Benefits 2003 to 2004

$2,875

$508$558

$3,137

Total $3,383Total $3,695

9.2%

9.8%

9.1%

Premium increases

Source: Data from Kaiser Family Foundation and Health Research and EducationTrust (2004), based on 1,925 randomly selected firms with three or more employees

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59%

60%

61%

62%

63%

64%

65%

66%

2001 2002 2003 2004

% of Workers Covered by their Employer Health Benefits

Source: Data from Kaiser Family Foundation and Health Research and EducationTrust (2004), based on 1,925 randomly selected firms with three or more employees

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Less More Same

79%

6%

15%

Level of Benefits for Covered Workers Compared to Previous Year

Source: Data from Kaiser Family Foundation and Health Research and EducationTrust (2004), based on 1,925 randomly selected firms with three or more employees

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Measurements – Health Value Received

Extent of illness, number of health care interventions (e.g. office visits, treatments) sick days and lost time, absences, extent of disability, and progression of chronic conditions.

Employee health results per dollar of spending, controlling for employee demographics, health status and location.

Measures of health results for family members.

Health plan performance for each health plan Overall employee and family health results per dollar expended.

Employee and family health results by medical condition. Results measures compared to external benchmarks.

Employee health outcomes and results

Provider performance by condition Comparative results of providers serving employees and their

families, by medical condition.

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Standards for Coverage

Health Insurance and Access

Structure ofHealth Care

Delivery

Issues in health care reform

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Imperatives for Policy Makers:

Enact mandatory health coverage. Provide subsidies or vouchers for low-income individuals

and families. Create risk pools for high-risk individuals. Enable affordable insurance plans. Minimize distortions from uneven employer contributions. Eliminate unproductive insurance rules and billing practices:

Ban re-underwriting. Clarify legal responsibility for medical bills. Eliminate balance billing.

Improving health insurance and access

Health Insurance and Access

Issues in health care reform

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Imperatives for Policy Makers:

Establish a national standard for minimum required coverage:

Include primary care, preventive care, and essential coverage. Review minimum coverage standards periodically to update. Use Federal Employee Health Benefits as an initial standard.

Consider medical outcomes and patient preferences in covering end-of-life care:

Require a medical power of attorney and living will as a condition of health coverage.

Introduce individual accountability for participation in health care.

Setting standards for coverage

Standards for Coverage

Issues in health care reform

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Imperatives for Policy Makers:

Enable universal results information: Establish a process for defining outcome measures. Enact mandatory results reporting. Establish information collection and dissemination

infrastructure. Improve pricing practices:

Establish episode and care cycle pricing. Set limits on price discrimination.

Improving the structure of health care delivery

(Page I of III)Structure ofHealth Care

Delivery Issues in health care reform

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Imperatives for Policy Makers:

Open up competition at the right level: Reduce artificial barriers to practice area integration. Require value justification for captive referrals or treatment

involving an economic interest. Eliminate artificial restrictions to new entry. Institute results-based license renewal. Strictly enforce anti-trust policies. Curtail anticompetitive buying group practices. Eliminate barriers to competition across geography.

Improving the structure of health care delivery

Establish standards and rules that enable information technology and information sharing:

Develop standards for medical data (and hardware and software). Enhance identification and security procedures. Provide incentives for adoption of information technology.

(Page II of III)Structure ofHealth Care

Delivery Issues in health care reform

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Imperatives for Policy Makers:

Reform the malpractice system. Redesign Medicare policies and practices:

Make Medicare a health plan, not a payer or regulator. Modify counterproductive pricing practices. Improve Medicare pay for performance. Lead the move to bundled pricing models. Require results-based referrals. Allow providers to set prices.

Align Medicaid with Medicare. Invest in medical and clinical research.

Improving the structure of health care delivery

(Page III of III)Structure ofHealth Care

Delivery Issues in health care reform

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Conclusion

Value-based competition on results is a positive-sum competitionin which all participants can win, so long as they are dedicated andcapable. However, those participants that will enjoy the greatestrewards will be those that move early. For anyone in the health care system, the time to act is now.

The coming transformation will unleash the talent and energy of the many extraordinary individuals working in the health care system on a positive agenda of dramatic value improvements. Costs will be brought under control, and the health of citizens will advance significantly. As this happens, the benefits will accrue to every U.S. health care consumer & will spread to other countries as well. And all of this could happen sooner than now seems imaginable.

Michael E. PorterElizabeth Olmsted Teisberg

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Redefining Health Care

The focus should be on value for patients, not just lowering costs.

Competition must be based on results. Competition should center on medical conditions over the full

cycle of care.

High-quality care should be less costly. Value must be driven by provider experience, scale, and learning

at the medical condition level.

Competition should be regional and national, not just local. Results information to support value-based competition must be

widely available.

Innovations that increase value must be strongly rewarded.

Principles of value-based competitionPorter & Teisberg

p.98 RHC