Value Transformation and Health Care Reform

by Samuel Metz, M.D.

In their recent paper in the Harvard Business Review, Messrs. Porter and Lee make an eloquent argument that their Value Transformation process will reduce health care costs and improve medical outcomes. They could be right. However, this strategy will certainly fail in the U.S. because it addresses delivery of health care, not financing of health care.

This distinction is crucial. Porter and Lee describe an ideal delivery system, addressing how providers are paid for patient care. Their proposal leaves untouched our financing system, which determines which patients participate, who pays, and how we collect.

If we look at successful health care systems, we find that none finance care with our American private insurance business model.

Delivery of health care in the U.S. is not much different from those in successful systems. What separates the U.S. from successful health care systems (i.e., those providing better to more people for less money than we do) is that millions of Americans lack access to any care at all—at least not until the acuity of their deteriorating health drives them to emergency rooms.

Successful health care systems within our country (there are too few) utilize a variety of delivery systems, and many utilize aspects of the authors’ Value Transformation process. However, all have three common financing characteristics not seen in our American financing model: (1) universal access to comprehensive care without discrimination against the sick, poor, or unemployed; (2) encouragement of patients to seek health care without financial penalty; and (3) financing by publicly accountable, transparent, not for profit agencies. 

A health care system containing all three characteristics but using only one publicly accountable, transparent, not for profit financing agency is called “single payer.” Many single payer systems apply Value Transformation processes in their delivery systems, and with good results.

In contrast, providers practicing in a health care system lacking these three financing characteristics are motivated primarily to avoid sick patients. We see this as private health insurance companies focus on selling policies to the working wealthy only, to the exclusion of the unemployed poor. Mark Bertolini, CEO of Aetna insurance, neatly summarized this strategy: “margins over market.” An insurance executive’s successful health care system starts by including only those patients sufficiently wealthy to afford policies and sufficiently healthy not to need care.

The Value Transformation process can potentially reduce costs and improve outcomes only for patients who gain access to care. Patients without access will continue to embarrass our public health record and inflate our costs by their desperate attempts to get care through emergency rooms; all this despite the Value Transformation process to which they have no access.

There are three rules to create a successful health care system:

1. If you want to provide comprehensive care to more people for less money, reform the financing system.

2. If you want to dramatically reduce costs without compromising quality, reform the delivery system.

3. If you want Rule #2 to work, you must first apply Rule #1.

The critical shortcoming of Porter and Lee’s Value Transformation process is that it reforms our dysfunctional delivery system without first reforming our dysfunctional financing system. There are no examples of any delivery system succeeding in the absence of a functional financing system.

The complete power of Porter and Lee’s Value Transformation process can be enjoyed when (and only when) a reformed financing system allows all Americans to enjoy access to comprehensive care.

Recommended Reading: 

1. Michael E. Porter and Thomas H. Lee. “The strategy that will fix health care” Harvard Business Review, October 2013.

2. Kenneth Arrow et al. Toward a 21st-Century Health Care System: Recommendations for Health Care Reform. Ann Intern Med 2009; 150:493-495.  

3. WC Hsiao et al. What Other States Can Learn From Vermont's Bold Experiment: Embracing A Single-Payer Health Care Financing System. Health Affairs 2011; 30:1232-1241.

4. Stephen Kemble. Why Competition Among Health Plans Can't Help Us. OpEd News, November 17, 2011.

5. Jim Kronenberg. A Conversation with David Lawrence. History of Medicine Project, Medicine in Oregon, Summer 2011, page 20.

6. T.R. Reid. The Healing of America, Penguin Press, New York, 2009. Chapters 10, 13.

7. Mark Stabile et al. Health Care Cost Containment Strategies Used In Four Other High-Income Countries Hold Lessons For The United States. Health Affairs 2013(4); 32:643-652.

729 words

One liner: “Value transformation” is another proposed panacea for health care reform, doomed from the start, based as it is on our private insurance industry’s business model. 

Abstract: Value Transformation is a new concept that its supporters tell us can reform U.S. health care, contain costs and improve the delivery of health care. But it perpetuates the flaws of the American private insurance business model without price controls in an unfettered marketplace. Health care reform requires financing reform before delivery reform will be possible. 

Tag lines: Value transformation,Harvard Business Review,health care financing,health care delivery,Aetna insurance,universal access,single-payer