The Strategy That Will FixHealth Care

In health care, the days of business as usual are over. Around the world, every health care system is struggling with rising costs
and uneven quality despite the hard work of well-intentioned, well-trained clinicians. Health care leaders and policy makers have
tried countless incremental fixes—attacking fraud, reducing errors, enforcing practice guidelines, making patients better
“consumers,” implementing electronic medical records—but none have had much impact.
It’s time for a fundamentally new strategy.
At its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost. We must move away from a
supply-driven health care system organized around what physicians do and toward a patient-centered system organized around
what patients need. We must shift the focus from the volume and profitability of services provided—physician visits,
hospitalizations, procedures, and tests—to the patient outcomes achieved. And we must replace today’s fragmented system, in
which every local provider offers a full range of services, with a system in which services for particular medical conditions are
concentrated in health-delivery organizations and in the right locations to deliver high-value care.
Making this transformation is not a single step but an overarching strategy. We call it the “value agenda.” It will require
restructuring how health care delivery is organized, measured, and reimbursed. In 2006, Michael Porter and Elizabeth Teisberg
introduced the value agenda in their book Redefining Health Care. Since then, through our research and the work of thousands
of health care leaders and academic researchers around the world, the tools to implement the agenda have been developed, and
their deployment by providers and other organizations is rapidly spreading.
The transformation to value-based health care is well under way. Some organizations are still at the stage of pilots and initiatives
in individual practice areas. Other organizations, such as the Cleveland Clinic and Germany’s Schön Klinik, have undertaken largescale changes involving multiple components of the value agenda. The result has been striking improvements in outcomes and
efficiency, and growth in market share.
There is no longer any doubt about how to increase the value of care. The question is, which organizations will lead the way and
how quickly can others follow? The challenge of becoming a value-based organization should not be underestimated, given the
entrenched interests and practices of many decades. This transformation must come from within. Only physicians and provider
organizations can put in place the set of interdependent steps needed to improve value, because ultimately value is determined
by how medicine is practiced. Yet every other stakeholder in the health care system has a role to play. Patients, health plans,
employers, and suppliers can hasten the transformation—and all will benefit greatly from doing so.
Defining the Goal
The first step in solving any problem is to define the proper goal. Efforts to reform health care have been hobbled by lack of
clarity about the goal, or even by the pursuit of the wrong goal. Narrow goals such as improving access to care, containing costs,
and boosting profits have been a distraction. Access to poor care is not the objective, nor is reducing cost at the expense of
quality. Increasing profits is today misaligned with the interests of patients, because profits depend on increasing the volume of
services, not delivering good results.
In health care, 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.
Improving value requires either improving one or more outcomes without raising costs or lowering costs without compromising
outcomes, or both. Failure to improve value means, well, failure.
Embracing the goal of value at the senior management and board levels is essential, because the value agenda requires a
fundamental departure from the past. While health care organizations have never been against improving outcomes, their central
focus has been on growing volumes and maintaining margins. Despite noble mission statements, the real work of improving
value is left undone. Legacy delivery approaches and payment structures, which have remained largely unchanged for decades,
have reinforced the problem and produced a system with erratic quality and unsustainable costs.
All this is now changing. Facing severe pressure to contain costs, payors are aggressively reducing reimbursements and finally
moving away from fee-for-service and toward performance-based reimbursement. In the U.S., an increasing percentage of
patients are being covered by Medicare and Medicaid, which reimburse at a fraction of private-plan levels. These pressures are
leading more independent hospitals to join health systems and more physicians to move out of private practice and become
salaried employees of hospitals. (For more, see the sidebar “Why Change Now?”) The transition will be neither linear nor swift,
and we are entering a prolonged period during which providers will work under multiple payment models with varying exposure
to risk