Health Plans Porter and Teisberg on Redefining Health CareHarvard Business School

Health Plans

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Health plans have a unique and essential role in value-based competition. A few forward-looking plans are beginning to demonstrate tremendous potential for delivering value to their customers, but too many continue to act in ways that reinforce zero-sum competition FAQ. We purposely use the term “health plan” rather than “payer” because plans that operate chiefly from a payer mentality tend to exacerbate the problems of zero-sum competition in the current system. A “payer” mentality leads to a culture of denial which aims to restrict patient choice, micromanage provider activities, and minimize costs for individual services and procedures rather seeking better results per dollar cost over the full cycle of care. The old culture of denial actually increases costs and detracts from quality care by creating complex paperwork and administrative transactions that divert precious resources from the delivery of excellent, efficient care.

Instead, health plans need to shift to a new mind-set of enabling value-based competition by supporting informed patient and physician choice, measuring and rewarding providers based on results FAQ, maximizing patient value over the full cycle of care, minimizing paperwork, and competing for subscribers based on the ability to achieve positive health outcomes.

Adopting a single payer approach to health care coverage, as so many have advocated, cannot unleash the power of value-based competition — in fact, a move to a single payer would only exacerbate many problems of the current system over time FAQ.

To compete on value, health plans will require significant changes to their traditional mind-sets, attitudes, and ways of operating (see imperatives below). The old approaches have created an atmosphere of cynicism and mistrust, which health plans must work hard to overcome. In particular, they must eliminate reunderwriting and other cost-shifting practices that erode consumer confidence in plans’ intentions and willingness to create true value for patients.

Imperatives for health plans

Provide health information and support to patients and physicians

  • Organize around medical conditions, not geography or administrative functions
  • Develop measures and assemble results information on providers and treatments
  • Actively support provider and treatment choice with information and unbiased counseling
  • Organize information and patient support around the full cycle of care
  • Provide comprehensive 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 for episodes and cycles of care, and single prices
  • Simplify, standardize, and eliminate paperwork and transactions

Redefine the health plan–subscriber relationship

  • Move to multiyear subscriber contracts and shift the nature of plan contracting
  • End cost shifting practices, such as reunderwriting, that erode trust in health plans and breed cynicism
  • Assist in managing members’ medical records
The Institute for Strategy and Competitiveness at HBS