Value-Based Health Care Delivery: Creating an Action-Research Agenda Professor Michael E. Porter Harvard Business School www.isc.hbs.edu START July 15, 2014 This presentation draws on Porter, Michael E. and Thomas H. Lee. “The Strategy that Will Fix Health Care,” Harvard Business Review, October 2013; Porter, Michael E. with Thomas H. Lee and Erika A. Pabo. “Redesigning Primary Care: A Strategic Vision to Improve Value by Organizing Around Patients’ Needs,” Health Affairs, March 2013; Porter, Michael E. and Robert Kaplan. “How to Solve the Cost Crisis in Health Care,” Harvard Business Review, September 2011; Porter, Michael E. “What is Value in Health Care” and supplementary papers, New England Journal of Medicine, December 2010; Porter, Michael E. “A Strategy for Health Care Reform—Toward a Value-Based System,” New England Journal of Medicine, June 2009; Porter, Michael E. and Elizabeth Olmsted Teisberg. Redefining Health Care: Creating Value-Based Competition on Results. (2006) Additional information about these ideas, as well as case studies, can be found at the Institute for Strategy and Competitiveness Redefining Health Care website at http://www.hbs.edu/rhc/index.html. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Michael E. Porter and Elizabeth O.Teisberg.

Timeline 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) Slide created 7/15/2014

Competition in U.S. Health Care Competition to shift costs or capture greater revenue Competition to capture patients and restrict choice Competition to increase bargaining power to secure discounts or price premiums Competition to exclude less healthy individuals Competition on the wrong things leads to a zero-sum competition with no or negative value Notes adjusted 5/22/14 Health care costs continue to rise much faster than GDP. There is the ongoing fear that health care is and will continue to threaten American businesses, reduce our wages, and cripple our government Elizabeth and I studied the system, thinking that the underlying problem was a lack of competition But what we found was not a lack of competition, but the wrong kind of competition For 20 years, HC costs have continued to rise, and a larger and larger share of our government debt is focused on health care Now, we face even more competition from firms globally who have cheaper health care and cheaper wages 3

Timeline Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) Slide created 7/15/2014

2012.11.21 - Value Measurement Core Concepts 4/22/2017 9:58 PM Solving the Health Care Problem The core issue in health care is value for patients Value = Health outcomes that matter to patients Costs of delivering the outcomes Delivering high and improving value is the fundamental purpose of health care Value is the only goal that can unite the interests of all system participants Improving value is the only real solution versus further cost shifting, restricting services, or dramatically reducing the compensation of health care professionals (Slide revised 5/17/14 (Revised 11.28.12) Framing: Can solve healthcare problem without a big pay cut. Journey to get started on HC companies can no longer succeed at expense of patient Difference from past reforms: Value as compass Value is not cost-effectiveness. Cost-effectiveness is only narrowly focused solution. Value framework needed to appreciate big picture. Improving value is the best means to social justice- every patient’s results counts You must move from the ideas of access, volume, and equity to value as the key goal Delivery issues are universal across the world Best way to equity is focus on value; access isn’t value Aging population will lead to even more demand for services, even if we do achieve universal coverage Now more than ever, have to get more for the dollars we’re spending If not, based on other countries’ experiences, we’ll start rationing care one way or another This is a universal problem, not US problem (Germany same issues) What kind of a health care system do we want, vs. how to make the current system a little better In a random sample of 1,004 U.S. adults, 8 of 10 respondents agreed that the nation's health care system needs either fundamental change or complete rebuilding. Source: "Public Views on U.S. Health System Organization: A Call for New Directions", The Commonwealth Fund Commission on a High Performance Health System, August 7, 2008/ Volume 11http://www.commonwealthfund.org/publications/publications_show.htm?doc_id=698138 

Creating a Value-Based Health Care Delivery System The Strategic Agenda Organize Care into Integrated Practice Units (IPUs) around Patient Medical Conditions For primary and preventive care, organize to serve distinct patient segments Measure Outcomes and Costs for Every Patient Move to Bundled Payments for Care Cycles Integrate Care Delivery Systems Expand Geographic Reach and Serve Populations Build an Enabling Information Technology Platform Slide revised 5/16/2014 General Notes: Transform and restructure delivery of care Everything is already happening! Somewhere Someplace In multiple organizations The strategic agenda applies to every advanced economy system, and to developing countries with some additions BM NOTES: IPU is a new word: On a small scale the acute stroke care developed in North London. Hyperacute stroke care units to manage the initial presentation of strokes. In these units there were collection of allied healthcare personnel who were highly skilled in giving care to stroke patients. In the USA, MD Anderson cancer center has a good example of an IPU centered around head and neck cancer care, and of note they had psychologists and social worker as an integral part of the team Outcomes and cost: Outcomes based costing is being developed in Oxford with the COBIC (Capitated and Outcome-Based Incentivized Contract) project focused on mental halth, maternity services and frail elderly. Another example is the COBIC in Bedford which is working for musculoskeletal services Bundle payments and geographic reach is not quite present in the UK, in the USA the Cleveland clinics do well with geaographic outreach. In terms of integrated care delivery systems, the Greenwich example may be used Encourage services to work together effectively and provide better support at home and earlier treatment in the community Goal – managing demand on emergency services in hospital or care homes. Example Greenwich Nurses, social workers, OTs and PTs working together Multidisciplinary response to emergencies arising within the community 2.5 yr. period 2000 admissions AVIOIDED and estimated 1million pounds saved IT is contentious topic in terms of great tax payer expense for a failed system…on the positive side the GP’s have a good system, but the important issue with IT is that has to be enabling, designed for the value based agenda. The University Hospitals of Birmingham (UHB) is a good example of an enabling system for its use. UHB Developed a decision support tool for frontline clinicians looking at Prescribing Information and Communication System (PICS). Results were that all errors were reduced by 66%, number of missed doses were reduced.

Value-Based System Agenda Getting Unstuck Legacy System Value-Based System Agenda 1 Organized Around Specialties and Departments, with Private Practice Physicians 2 Measures Process Compliance and Charges 3 Fee-For-Service Payments Based on Volume of Services Delivered 4 Each Hospital or Service Offers a Full Line of Services 5 Providers Limited to Serving their Immediate Geographic Area 6 Siloed IT Services for Functions, Services, and Departments 1 Organize into Integrated Practice Units (IPUs) 2 Measure Outcomes and Cost For Every Patient 3 Move to Bundled Payments for Care Cycles 4 Integrate Care Delivery Systems 5 Expand Geographic Reach 6 Build an Integrated Information Technology Platform Slide Updated 5/22/14 – Formatting updated

Timeline Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Slide created 7/15/2014

Value Based Health Care Case Studies Case Study Medical Condition Location Specialty IPUs Primary Care Outcome Measure-ment TDABC Bundled Pricing System Integration Geographic Expansion Role of Payors MD Anderson Cancer Center: Interdisciplinary Cancer Care Head and Neck Cancer, Endocrine Cancer Houston X The West German Headache Center: Integrated Migraine Care Migraine Germany Commonwealth Care Alliance: Elderly and Disabled Care Primary/ Preventative Care Boston Pitney Bowes: Employer Health Strategy US Ledina Lushko: Navigating Health Care Delivery Adrenal Cortical Carcinoma Chicago Michelin Employee Health Strategy* Diabetes Care South Carolina The Joslin Diabetes Center Gastroenterology Care at Sweden’s Highland Hospital Inflammatory Bowel Disease Sweden Great Western Hospital: High-Risk Pregnancy Care High-Risk Pregnancy UK Brigham and Women's Shapiro Cardiovascular Center Cardiovascular Care Martini Klinik: Prostate Cancer Care Prostate Cancer Dartmouth-Hitchcock Medical Center: Spine Care Spine Care NH Schon Klinik Eating Disorder Care Eating Disorders The “Smartcard” is not used to its fullest ability to track and aggregate patient data * This case was prepared by Elizabeth O. Teisberg, Professor, The Geisel School of Medicine at Dartmouth and Scott Wallace, Visiting Professor,The Geisel School of Medicine at Dartmouth.

Value Based Health Care Case Studies – continued Case Study Medical Condition Location Specialty IPUs Primary Care Outcome Measure-ment TDABC Bundled Pricing System Integration Geographic Expansion Role of Payors UCLA: Kidney Transplantation ESRD, Kidney Transplantation Los Angeles X In-Vitro Fertilization: Outcomes Measurement Infertility, IVF US Boston Children’s Hospital TDABC Plastic, Oral and Orthopedic Surgery Boston Schon Klinik: Measuring Cost and Value Total Knee Replacement Germany Sun Yat-Sen Cancer Center: Breast Cancer Care in Taiwan Breast Cancer Taiwan Global Health Partner: Obesity Care Obesity, Bariatric Surgery Sweden The Cleveland Clinic: Growth Strategy Health System Cleveland ThedaCare: System Strategy Wisconsin Children's Hospital of Philadelphia: Network Strategy Philadelphia Region Reconfiguring Stroke Care in North Central London Stroke UK The “Smartcard” is not used to its fullest ability to track and aggregate patient data

Timeline Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS Slide created 7/15/2014

Value Based Health Care Delivery Courses and Lectures for Executives Harvard Courses 2008-2014 – Intensive Seminar in Value-Based Health Care Delivery (1 week full-time) Total of 602 participants 2009-2014 – Leadership Workshop on Strategy for Health Care Delivery (2 days) Total of 381 participants 2011-2014 – Partners HealthCare Value Based Health Care Seminar for Residents and Fellows (3 days) Total 200 participants 2012-2014 – Value Measurement in Health Care (2 days) Total of 333 participants External Courses 2006-2012 – Health Care Innovation (University of Virginia, ~450 total participants) 2006-2012 – Executive Workshops (Brigham and Women’s Hospital, St. Francis Hospital, Hoag Hospital, Baylor Health, G.E., Cigna, Humana… total of ~900 participants) 2008-2012 – Global Health Delivery (Harvard School of Public Health, ~80 participants) 2008-2011 – Medical Care and the Corporation (Dartmouth, ~150 participants) 2009-2011 – Health Care Management (University of Virginia, ~100 participants) 2010-2012 – UCLA Strategy for Health Care Delivery (~90 participants) 2010-2012 – Medicaid Leadership Institute (85 participants) June 2011 – Strategy for Health Care Delivery: United Kingdom (80 participants) March 2012 – AAOS Enhancing Value in Musculoskeletal Care Delivery (125 participants) Fall 2013 – Dartmouth Masters in Health Care Delivery Science (50 participants) Fall 2013 – Executive Workshop Philips Health Care (70 participants) Spring 2014 – Value Based Delivery Leadership Program: Texas Medical Center (83 participants) Revised 1/15/2014 at 12:09 pm Talking points: Look, we’ve done a lot so far. We’ve taught these cases to over 2,000 people, including nearly 200 this past week and a half. That’s a small army. But we need more like 2 million to make this transformation happen We can try to do this ourselves, but it’s going to be a lot easier if we have other “captains” out in the field marshaling new soldiers to the cause We really feel this is at the tipping point We know how to solve this problem You all have been here for a week, we’ve sufficiently brainwashed you Now we need you to go out and spread the word

Timeline Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS Slide created 7/15/2014

Timeline Collaboration with Bob Kaplan Begins, Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS Slide created 7/15/2014

Timeline Collaboration with Bob Kaplan Begins, Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 7/15/2014

Timeline Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 7/15/2014

Timeline Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 7/15/2014 Value Measurement Executive Course

Timeline Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 7/15/2014 Value Measurement Executive Course

Timeline “Redefining German Health-Care” (with Clemens Guth) Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 7/15/2014 Value Measurement Executive Course

Timeline “Redefining German Health-Care” (with Clemens Guth) Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 5/22/14 Value Measurement Executive Course “Redesigning Primary Care” (Health Affairs)

Timeline “Redefining German Health-Care” (with Clemens Guth) Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim “Redefining Global Health-Care Delivery,” (with Jim Yong Kim and Paul Farmer, The Lancet) Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 5/22/14 Value Measurement Executive Course “Redesigning Primary Care” (Health Affairs)

Timeline “Redefining German Health-Care” (with Clemens Guth) Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “The Strategy to Fix Health Care,” (with Thomas Lee, HBR) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim “Redefining Global Health-Care Delivery,” (with Jim Yong Kim and Paul Farmer, The Lancet) Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 5/22/14 Value Measurement Executive Course “Redesigning Primary Care” (Health Affairs)

Timeline “Redefining German Health-Care” (with Clemens Guth) Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “The Strategy to Fix Health Care,” (with Thomas Lee, HBR) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim “Redefining Global Health-Care Delivery,” (with Jim Yong Kim and Paul Farmer, The Lancet) Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 5/22/14 Value Measurement Executive Course “Redesigning Primary Care” (Health Affairs) “How to pay for Health Care” (with Bob Kaplan)

Timeline “Redefining German Health-Care” (with Clemens Guth) Collaboration with Bob Kaplan Begins, Value Based Health Care Seminar for Residents and Fellows Redefining Health Care: Creating Value-Based Competition on Results. (with Elizabeth Teisberg) “The Strategy to Fix Health Care,” (with Thomas Lee, HBR) “What is Value in Health Care?” (NEJM) VBHCD Intensive Seminar at HBS ICHOM is founded 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Redefining Competition in Health Care” (HBR) The Global Health Delivery Project is founded with Dr. Jim Yong Kim “Redefining Global Health-Care Delivery,” (with Jim Yong Kim and Paul Farmer, The Lancet) Health Care Leaders Strategy Course, HBS “How to Solve the Cost Crisis in Health Care,” (with Bob Kaplan, HBR) Slide created 5/22/14 Value Measurement Executive Course “Redesigning Primary Care” (Health Affairs) “How to pay for Health Care” (with Bob Kaplan)