How to Pay for Health Care

Michael E. Porter; Robert S. Kaplan

Article | Harvard Business Review | July–August 2016

How to Pay for Health Care

by Michael E. Porter and Robert S. Kaplan

Abstract

The United States stands at a crossroads in how to pay for health care. Fee for service, the dominant model in the United States and many other countries, is now widely recognized as perhaps the biggest obstacle to improving health care delivery. A battle is currently raging, outside of the public eye, between the advocates of two radically different payment approaches: capitation and bundled payments. The stakes are high, and the outcome will define the shape of the health care system for many years to come, for better or for worse. In this article, the authors argue that although capitation may deliver modest savings in the short run, it brings significant risks and will fail to fundamentally change the trajectory of a broken system. The bundled payment model, in contrast, triggers competition between providers to create value where it matters—at the individual patient level—and puts health care on the right path. The authors provide robust proof-of-concept examples of bundled payment initiatives in the United States and abroad, address the challenges of transitioning to bundled payments, and respond to critics' concerns about obstacles to implementation.

Keywords: Health Care and Treatment; Finance; Health Industry; United States;

Format: Print

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Citation:

Porter, Michael E., and Robert S. Kaplan. "How to Pay for Health Care." Harvard Business Review 94, nos. 7-8 (July–August 2016): 88–100.

Since its establishment in 2005, Hamburg’s Martini Klinik had single-mindedly focused on prostate cancer care with a commitment to measure long term health outcomes for every patient. A wholly owned subsidiary of the University Hospital Hamburg, Martini Klinik was a “hospital in a hospital” in close proximity to other medical departments and services. By 2019, Martini Klinik had become the largest prostate cancer treatment program in the world with 8,000 outpatient cases and more than 2,500 surgical cases annually. Patients came from all over Germany and from around the world. A new and expanded facility was under construction to have the capacity to manage more patients with prostate cancer.

Working Paper | HBS Working Paper Series | 2019

Intelligent Design of Inclusive Growth Strategies

Robert S. Kaplan, George Serafeim and Eduardo Tugendhat

Improving corporate engagement with society, as advocated in the Business Roundtable’s 2019 statement, should not be viewed as a zero-sum proposition where attention to new stakeholders detracts from delivering shareholder value. Corporate programs for sustainable and ethical sourcing practices, however, have fallen far short of solving the underlying causes of extreme poverty, extensive use of child labor, and threats to the environment and human health. We identify several causes to explain this disappointing shortfall in societal performance, including traditional company policies and incentives that inhibit the implementation of innovative, inclusive growth strategies. We propose the role for a new actor, a catalyst, to help companies forge new relationships with external funders, local intermediary companies, NGOs, and community leaders. The catalyst aligns the multiple stakeholders from multiple sectors into enduring, mutually beneficial relationships that produce more value than that currently produced when stakeholders connect only by transactional relationships. The catalyst attracts funding from public and private sources to invest in the new ecosystem, which can generate attractive financial returns while alleviating poverty and environmental degradation. Finally, the catalyst engages the multiple participants to collectively co-create explicit strategies and scorecards of metrics, which serve to motivate, create accountability, and enable an enduring governance model for a multi-stakeholder ecosystem.

Keywords: inclusion; sustainability; performance measures; Environmental Sustainability; Social Issues; Strategy; Governance; Corporate Social Responsibility and Impact; Business and Stakeholder Relations;

Citation:

Kaplan, Robert S., George Serafeim, and Eduardo Tugendhat. "Intelligent Design of Inclusive Growth Strategies." Harvard Business School Working Paper, No. 20-050, October 2019. View Details

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We are entering a new stage of understanding of the linkage between investment performance and social impact. Previous approaches, such as socially responsible investing and environmental, social, and governance (ESG) screening, have obscured the opportunities for higher growth, profitability, and competitive advantage that come from creating shared value: addressing social and environmental issues as integral to a company’s core strategic positioning. A shared value approach to investing can deliver superior shareholder returns, but capturing that value will require very different practices on the part of both corporate leaders and investors.

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How to Pay for Health Care

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