A Valuable Roadmap for Health Care Solutions

Published November 1, 2007

Redefining Health Care
By Michael E. Porter and Elizabeth Olmstead Teisberg
Boston: Harvard Business School Press, 2006
385 pages, hardcover, ISBN: 1-59139-778-2, $35

Redefining Health Care is both a rush and a relief.

It’s a rush in that it explains how to fix the U.S. health care system. I’m usually proud if I can change a set of batteries–now I know how to fix 16 percent of the U.S. economy!

It’s a relief in that it reconciled my understanding of how market capitalism works with the problems I’ve observed in the U.S. health care system.

A Rush

For competition to work its magic–namely, improving quality and lowering cost–it must focus on value, at the right level. In most American industries, it is doing just that. In the U.S. health care system, the authors explain, it isn’t. As a result, costs are shifted, rather than reduced. Quality varies greatly and is sometimes poor.

Value in health care is value for the patient, and the right level is whatever effectively treats the medical condition at hand, such as diabetes or pregnancy.

The primary reason competition in health care is not focused on patient value is that cost and outcome information are almost impossible to obtain. The reason it isn’t focused on the medical condition is more complex–several factors encourage siloed disciplines and organization around discrete services and interventions.

The keys to unlocking the power of competition in our heath care system, then, are (1) making objective, risk-adjusted medical outcome information widely available, and (2) changing the focus of health care delivery to focus on medical conditions.

A Relief

I’ve always admired the power of competition in a free market. But I was also puzzled by rising costs and spotty quality in the health care industry, where I knew there to be plenty of competition. Redefining, thankfully, explains that if the skewed incentives and limitations that hinder competition in health care can be removed, health care can benefit from competition at least as much as other industries.

Lasik and cosmetic surgery are cited as examples–exceptions within health care where competition has led to lower costs and improved quality.

Another fact of which I’ve always been certain is that American doctors and hospitals are the best in the world. But how does that fit in with World Health Organization lists and Michael Moore movies, which say other countries, even Cuba, are superior?

Porter and Teisberg say, “The problem is not that the state of the art in U.S. medical knowledge lags other nations. The best American health care is world-class. But the average quality leaves much to be desired.” A major reason for the chasm between the state of the art and average quality is that it’s often difficult to identify the state of the art so that it can be widely adopted (and improved upon).

The Rub

The authors are wholly committed to competition throughout the book–except in Chapter 8, which deals with the appropriate role for policymakers in helping to redefine health care. Here the authors state, “In any medical conditions for which there is not effective competition, price caps could be established during the transition period to value-based competition.”

A review of the reasons why price controls are worse than the “problems” they’re supposed to solve is beyond the scope of this review, but suffice it to say I was surprised to read this from the authors.

Although Redefining is long and academic, it is designed for readers to pick and choose the most applicable sections based on their respective roles in the health care system (consumer, employer, provider, etc.). Still, if you want a beach book, you should try something with the phrase “Chicken Soup” in the title.

“Competition on results,” Porter and Teisberg contend, “can and will trigger improvements in quality and efficiency that are unimaginable in the current system.” With the help of this inspiring book, you can help clear the way for competition and redefine health care.

William Snyder ([email protected]) is a policy advisor for The Heartland Institute.