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Value-Based Health Care Deliveryand the Role of Outcome MeasurementProfessor Michael E. PorterWorking Party on Health Care Quality and Outcomes (HCQO)OECD Conference CenterParis, FranceThursday, May 17, 2018This presentation draws heavily on Professor Porter’s research in health care delivery including Redefining Health Care (with Elizabeth Teisberg), What is Value in Health Care, NEJM, and The Strategy That Will Fix Health Care, HBR (with Thomas Lee).A fuller bibliography is attached. 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 MichaelE. Porter. For further background and references on value-based health care, see the website of the Institute for Strategy and Competitiveness.

Incremental “Solutions” Have Had Limited Impact Evidence-based medicine Safety/eliminating errors Prior authorization for expensive services Patients as paying customers Electronic medical records Introducing “lean” process improvements Care coordinators Retail clinics/urgent care Programs to address generic high cost areas(e.g. readmissions, post acute) Mergers and consolidation Restructuring health care delivery is needed,not incremental improvements2Copyright 2018 Professor Michael E. Porter

Value-Based Health Care is Rapidly DiffusingPeer Reviewed Literature 1990-2017140020171200JournalArticlesRelatedTo 990199520002005201020152020YearFrom: Science Direct; accessed October 2016, Patrick Clapp, Baker Research Services and Meredith Alger, Institute for Strategy andCompetiveness, Harvard Business School3Copyright 2018 Professor Michael E. Porter

Solving the Health Care Problem The fundamental goal and purpose of health care is toimprove value for patientsValue Health outcomes that matter to patientsCosts of delivering these outcomes Delivering high value health care is the definition ofsuccess Value is the only goal that can unite the interests of allsystem participants Improving value is the only real solution The question is how to design a health care delivery systemthat substantially improves patient value4Copyright 2018 Professor Michael E. Porter

Principles of Value-Based Health Care Delivery Value cannot be understood at the level of a hospital, a care site,a specialty, an intervention, a primary care practice or a broadpopulation Value is created in caring for a patient’s medical condition (acute,chronic) over the full cycle of careValue The set of outcomes that matter for the conditionThe total costs of delivering these outcomes over the full care cycle In primary and preventive care, value is created in servingsegments of patients with similar primary and preventive needs The most powerful single lever for reducing cost and improvingvalue is improving outcomes5Copyright 2018 Professor Michael E. Porter

Creating Value-Based Health Care DeliveryThe Strategic Agenda1. Re-organize care around patient conditions, into integratedpractice units (IPUs) For primary and preventive care, IPUs serve distinct patientsegments2. Measure outcomes and costs for every patient3. Move to value-based reimbursement models, and ultimatelybundled payments for conditions and primary care segments4. Integrate multi-site care delivery systems5. Expand or affiliate across geography to reinforce excellence6. Build an enabling information technology platform6Copyright 2018 Professor Michael E. Porter

Re-organize Care Around Patient Medical ConditionsHeadache Care in GermanyOrganize by Specialtyand Discrete ServiceIntegrated Practice Unitfor the ConditionAffiliatedImaging reatmentand DetoxUnitsPrimaryCarePhysiciansWest GermanHeadache CenterNeurologistsPsychologistsPhysical Therapists“Day ed “Network”NeurologistsOutpatientPsychologists IPUs include care for common comorbidities and complicationsSource: Porter, Michael E., Clemens Guth, and Elisa Dannemiller, The West German Headache Center: IntegratedMigraine Care, Harvard Business School Case 9-707-559, September 13, 20077Copyright 2018 Professor Michael E. Porter

The Emerging Playbook for Integrated Practice Units (IPUs)1.Organized around a medical condition, or group ofclosely related conditions. And defined patient segments for primary care2.Care is delivered by a dedicated, multidisciplinary teamdevoting a significant portion of their time to the condition In-house staff as well as affiliated staff with strong working relationships3.͏Co-located in dedicated facilities. Hub and spoke structure coveringmultiple or affiliated sites, and incorporating telemedicine where appropriate4.Takes responsibility for the full cycle of care5.͏ atient education, engagement, adherence, follow-up, and preventionPare integrated into the care process6.The unit has a clear clinical leader, a common scheduling and intakeprocess, and unified financial structure (single P L)7.A physician team captain, clinical care manager or bothoversees each patient’s care8.The IPU routinely measures outcomes, costs, care processes,and patient experience using a common platform9.The team accepts joint accountability for outcomes and costs10. The team regularly meets formally and informally to discuss individual10.patient care plans, process improvement, and how to improve results8Copyright 2018 Professor Michael E. Porter

The Journey to Value Based Primary Care1. Segment the population based on primary care needs2. Develop primary care teams around patientsegments (IPUs)3. Create shared infrastructure across primary careIPUs to increase efficiency and enhance value4. Measure outcomes and costs by segment5. Integrate primary care and with specialty care6. Move toward value based payments by segment‒ Risk adjustment will differ by segment9Copyright 2018 Professor Michael E. Porter

Shared Primary Care InfrastructurePrimary Care Practices (Population Segmented)Sites for Low Cost,ConvenientRoutine ServicesAfter Hours Access Clinics in retailstores or otherconvenient, lowcost sites After hours clinicsin primary care oroutpatientspecialty sites Shared walk-inclinics in primarycare or specialtycare sites 24 hour nursehotlinesPrevention HubsSupport ServicesReflecting Socialand BehavioralEffects on Health Smokingcessation Housing Alcohol addiction Nutrition support Weight loss Domestic violence Other complexaddiction (e.g.opioids) Transportation Income support Close contact withsocial servicesorganizations10Copyright 2018 Professor Michael E. Porter

Integrating Primary With Specialty Care to Improve ValueSpecialty IPUsEmbeddedspecialists inareas prevalentin thepopulationSpecialistrotation ocols andtraining to shiftappropriatecare to lowercost settingsPCC teamrelationships withaffiliatedspecialists ts toefficientlyaccessspecialistsPrimary careembedded inspecialty IPUsfor complexconditionsPrimary Care Practices (Population Segmented)11Copyright 2018 Professor Michael E. Porter

Value-Based Primary CareOak Street Health Focuses low-income older adults living in under-served urbancommunities– Four severity tiers Multidisciplinary team covering the full care cycle: physicians, PAs,NPs, RNs, medical assistants, scribes, care managers, socialworkers, clinical informatics specialists, and others Co-located in dedicated facilities. 19 sites across the Midwest Explicit processes to engage patients and reduce obstaclesto accessing care such as free rides/home-visits, in-housepharmacy and selected events for community residents Selected in-house specialty services such as behavioral health andpodiatry. Close relationships with preferred outside specialistsand imaging partners Meet daily and weekly to discuss patient care plans and processimprovement Measure and accountable for outcomes, cost, and patientexperience Single risk-adjusted payment covering overall care– Includes specialty and post-acute care12Copyright 2018 Professor Michael E. Porter

Measure Outcomes for Every PatientThe Quality Measurement LandscapePatientExperience/Engagement/ AdherencePatient InitialConditions,Risk omesE.g., PSA, surgicalmarginStructureE.g., Staffcertification,facilities standards13Copyright 2018 Professor Michael E. Porter

Measure Cost for Every PatientPrinciples Properly measuring the cost of care requires different costaccounting methods than prevailing approaches such asdepartmental, charge-based, or RVU-based costing Cost should be measured for each patient over the full cycleof care for the condition, or by primary care segment Cost is the actual expense of patient care, not the sum ofcharges billed or collected Cost is driven by the use of all the resources involved in apatient’s care (personnel, facilities, supplies,and support services)– Time and actual costs, not arbitrary allocations Understanding costs requires mapping the care processSource: Kaplan, Robert and Michael E. Porter, “The Big Idea: How to Solve the Cost Crisis inHealth Care”, Harvard Business Review, September 1. 201114Copyright 2018 Professor Michael E. Porter

New Slide on Cost15Copyright 2018 Professor Michael E. Porter

Mapping Resource UtilizationMD Anderson Cancer Center – New Patient VisitRegistration and VerificationIntakeClinician VisitPlan of CareDiscussionReceptionist, Patient AccessSpecialist, InterpreterNurse,ReceptionistMD, mid-level provider, medicalassistant, patient servicecoordinator, RNRN/LVN, MD, midlevel provider, patientservice coordinatorPlan of CareSchedulingPatient ServiceCoordinatorDecision PointTime (minutes)Source: HBS, MD Anderson Cancer Center16Copyright 2018 Professor Michael E. Porter

Major Cost Reduction Opportunities in Health Care Utilize physicians and skilled staff at the top of their licensesEliminate low- or non-value added services or testsReduce process variation that increases complexity and raises costReduce cycle times across the care cycleInvest in additional services or higher costs inputs that will lower overallcare cycle costMove uncomplicated services out of highly-resourced facilitiesReduce service duplication and volume fragmentation across sitesRationalize redundant administrative and scheduling unitsIncrease cost awareness in clinical teamsDecrease cost of claims management process Our work reveals typical cost reduction opportunities of 20-30 %Many cost improvements also improve outcomes17Copyright 2018 Professor Michael E. Porter

Move to Value-Based Payment ModelsVolumeValueFee for ServiceCapitation/PopulationBased PaymentsPay for care for a lifeGlobal BudgetsBundled PaymentPay for care for conditions(acute, chronic) andprimary care segments Both approaches create positive incentives for reducing costsand separate payment from performing particular services Capitation at the hospital or system level can coexist withbundle payment at the condition level18Copyright 2018 Professor Michael E. Porter

Emerging Value-Based Payment ModelsBundled PaymentCapitation (Population-Based) A single risk-adjusted payment for theoverall care for a life A single risk adjusted payment for theoverall care for a condition Not for a specialty, procedure, or shortepisode Responsible for all needed care inthe covered population Covers the full set of services needed overan acute care cycle, or a defined timeperiod for chronic care or primary care Accountable for population levelquality metrics Contingent on condition-specificoutcomes Including responsibility for avoidablecomplications At risk for the difference between thesum of payments for the population andoverall spending At risk for the difference between thebundled price and the actual cost of allincluded services Limits of responsibility for unrelated careand outliersProviders take disease incidence risk,not just execution/outlier risk Accountable for costs and outcomes,patient by patient, and condition bycondition Accountable for overall cost andpopulation level quality measures19Copyright 2018 Professor Michael E. Porter