How Reform Went Wrong Porter and Teisberg on Redefining Health CareHarvard Business School

How Reform Went Wrong

Scoping the Problem | Identifying the Root Causes | How Reform Went Wrong | Value–Based Competition

The problems with the U.S. health care system are not the result of inattention. Well-intended reformers have long recognized that the system has been on a collision course with demographic and economic reality. However, reform efforts have failed because the diagnosis of the problem was wrong. With the wrong diagnosis, the attempts to treat the system have addressed the wrong issues or offered piecemeal, ultimately ineffective solutions aimed at symptoms rather than causes.

Redefining Health Care reviews the history of the U.S. health care system and the many attempts to improve it.  The book examines why the major reform movements have failed despite the concerted efforts of countless dedicated, intelligent, and knowledgeable groups and individuals. These reform movements have overlapped in time, in repeated waves of actions and reactions. Fortunately, a few of the newer initiatives show promise of moving the system in the right direction, but none of the proposed reforms will, by themselves, fix the system.

The evolution of reform models

Past Objective: Reduce costs, avoid costs

Focus was on costs, bargaining power, and rationing.

System characterized by:

  • Cost shifting among patients, providers, physicians, payers, employers, and the government
  • Limits on access to services
  • Bargained-down prices for drugs and services
  • Prices unrelated to the economics of delivering care

Focus was on legal recourse and regulation.

System characterized by:

  • Patient’s rights
  • Detailed rules for system participants
  • Increased reliance on the legal system

Present Objective: Enable choice, reduce errors

Focus is on choice of health plan.

System characterized by:

  • Competition among health plans
  • Information on health plans
  • Financial incentives for patients

Focus is on provider and hospital practices.

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

Future Objective: Increase value

Focus should be on the nature of 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

Source: Porter, M., and E. Teisberg, “Redefining Competition in Health Care,” Harvard Business Review, June 2004, 64–77. Copyright © 2004 Harvard Business School Publishing Corporation. All rights reserved.

The Institute for Strategy and Competitiveness at HBS