Much Ado About Value

I was recently honored when Greg Scandlen took time to consider and write about some of the work I shared with him that has been produced by Michael Porter on value-based healthcare delivery. Mr. Scandlen is a regular contributor for the National Center for Policy Analysis’s Health Policy Blog, and in his article,  Value Based Payments, he argues that attempting to use the concept of value to drive systemic improvements in the US healthcare delivery system is misguided because of the inherently subjective and multidimensional nature of patient outcomes (Porter has used the equation of Value = Outcomes/Cost as the basis of arguing for industry transformation).

Michael Porter, “is generally recognized as the father of the modern strategy field, and has been identified in rankings and surveys as the world’s most influential thinker on management and competitiveness.” He has extensively researched and written on healthcare, establishing a comprehensive body of work that supports the need for reorganization of our healthcare system framed around value-based delivery.

After collaborating with Elizabeth Teisberg on their seminal work, Redefining Healthcare, in 2006 Porter wrote an article in 2010 for the New England Journal of Medicine: What is Value in Health Care? This is the article Mr. Scandlen references in his article. There are several additional contributions from Porter that add meaning and understanding to the value paradigm discussion, and these include:

Measuring Health Outcomes: The Outcome Hierarchy, a supplementary appendix to the above-referenced NEJM article;
How to Solve the Cost Crisis in Health Care (with Robert Kaplan) in the September 2011 edition of Harvard Business Review; and
The Strategy That Will Fix Health Care (with Thomas Lee) in the October 2013 edition of Harvard Business Review

There are a couple of areas where my perception of value as a catalyst for delivery transformation differs from Scandlen’s.

First, while I agree it’s true individual value is a subjective reality, my understanding of Porter’s work does not advocate for creating objective measures of value on behalf of the patient. In the October 2013 article referenced above Porter writes, “in healthcare, the overarching goal for providers, as well as for every other stakeholder, must be improving value for patients, where value is defined as the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes.”

Second, Scandlen takes issue with Porter’s claim that, “in any field, improving performance and accountability depends on having a shared goal that unites the interests and activities of all stakeholders,” arguing that is counterintuitive to how competitive markets function – which Porter himself advocates for and has written about extensively. But I think Scandlen has too narrowly applied this axiom. Using his own example of how difficult it would be to imagine IBM, Apple and Microsoft having a shared goal, I would argue the goal they shared was to develop and provide lower-cost personal computing capacity and technology to individual consumers.

This wasn’t a coordinated or collusive effort to limit competition or share profits – it was a market-driven opportunity that each corporation recognized independently to bring value to consumers and be rewarded accordingly. Porter recognizes that in healthcare, in order for providers and organizations to transform delivery models based on value they must all recognize – and act upon –  the perceived economic benefits of creating value for the patient.

The graphic accompanying this post provides the six steps outlined in the October 2013 HBR article that Porter argues healthcare organizational leadership, patients and health plans/employers must pursue to achieve a high-value care delivery system. The key concepts embodied include integrated care delivery, transparency, outcome-measurement, accountability and geographic expansion of specialized capabilities (e.g., what the Cleveland Clinic has been doing through affiliations such as their recent minority interest in Akron General Hospital).

Finally, I do not believe measuring outcomes (the ubiquitous challenge facing Porter’s value equation) is a long-term effort in futility. Porter’s outcome hierarchy was an attempt to recognize and address the multidimensional nature of outcomes that Scandlen identifies. Many other such similar efforts are ongoing across the world. With the continual advancement of Big Data, the ability to monitor, analyze and report on patient-related data and information across the full spectrum of an outcome will continue to become more and more useful: to providers, insurers – and most importantly, patients.

Where the concept of outcome measurement runs into its biggest theoretical challenge is when payment models such as ACOs and episodic payment bundling seek to use such data to objectify achievement of patient value as a measurable statistic (i.e, benchmarking) used as an incentive to influence provider behavior. But the old adage of not being able to manage what you cannot measure is a critical element of value-driven performance improvement that I believe Porter effectively argues is at the heart of transforming our delivery system.

Value-driven payment models are in their genesis. Any type of industry transformation at this juncture is going to endure understandable resistance and criticism.  The train has left the station. Industry transformation based upon value-driven performance is already well entrenched as represented by organizations such as St. Joseph Mercy Oakland Hospital (Pontiac, MI), Adirondack Medical Home Pilot (NY) and Dignity Health, Hill Physicians and CalPERS.

There is legitimate concern that data and analysis on outcomes will be used to supplant patient choice. I don’t believe that is what Porter and colleagues had in mind when writing about value-driven healthcare delivery. Of course that doesn’t mean their intentions won’t be bastardized in the interest of bureaucratic ignorance and expediency. This risk must be carefully guarded against, but it does not in and of itself change the important role value must play in transforming our healthcare delivery system.



  1. Good post. We’ve had decades of “value” being determined by different parties.

  2. Thank you, Scot. Interesting response to my post. As you and I have discussed, I would have a lot more confidence in Big Data saving the day if I thought the statisticians were using Little Data better. They are not. They completely dismiss important patient characteristics that influence the use of medical services, Just one example among many is the patient’s religious affiliation. I have written extensively about the effects this has on the demand for certain services, but it is completely ignored by secular statisticians.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: