Principles of Value-Based Competition
Redefining Health Care: Creating Value-Based Competition on Results
Michael E. Porter and Elizabeth Olmstead Teisberg
Information is fundamental to competition in any well-functioning market. It enables buyers
to shop for the best value and allows sellers to compare themselves to rivals. Without
relevant information, doctors cannot compare their results to best practices and to other
providers. And without appropriate information, patient choice has little meaning.
The benefits of better information and advice, coupled with the right kind of
competition, will be striking. Even given the current state of information,
value improvement opportunities are substantial. Companies such as Honeywell,
for example, have added services to assist their employees in obtaining s
pecific medical information when they need it. Honeywell estimates that it
has cut more than $2 of health care expenditures for every $1 spent on a
program that enabled employees to call a medical information company,
Consumer’s Medical Resource, for up-to-date, practical information on forty
specific diseases. The information helps employees learn which treatments and
drugs are most effective. Of the Honeywell employees who used the service, one
in thirty discovered they were misdiagnosed; one in ten discontinued a
treatment considered unnecessary, ineffective, or unproven; and one in five
Consumer's Medical Resource: Helping Consumers Evaluate Medical Treatment Options
Consumer-Driven Health Care: Implications for Providers, Payers, and Policymakers
Regina E. Herzlinger
Escalating costs. Varying quality. Increased dissatisfaction. The U.S. health care system has
fallen into severe decline over the last decade, dramatically bringing into question the future
of this trillion-dollar industry. Is a revolution around the corner? Consumer’s Medical Resource
(CMR), of which I am founder and president, sees an inflection point in the current health care
delivery system, in which the process is becoming consumer, not provider, driven.
CMR sees three key forces accelerating this transformation to a consumer-driven health care
Renewed escalation of health care costs. Costs are growing at an estimated 15 percent
a year. Double-digit inflation has shown no sign of subsiding. A company employing 20,000
workers may spend $80 million or more per year on health care.
Perceived lack of quality and dissatisfaction with the managed care system. The current managed
care system has proven to be a failure. It hasn’t demonstrated better quality and efficiencies.
Consumer lack of trust is rooted in the fact that many medical decisions have been driven by cost
factors not necessarily resulting in the best care. The perception by Americans that managed care
will not provide for them in times of need has given rise to consumers who are taking a more
proactive, aggressive role in managing their own care. In addition, there is a growing consensus
that quality, the Holy Grail of health care, cannot be achieved without input, active participation,
and decision-making by patients.
The impact of Internet connectivity. The Internet has fueled an exponential increase in medical
information availability, and with it a unique opportunity for consumers to access this
information. The advent of consumers who are involved with their own care is a significant,
positive development for the U.S. health care system. However, the proliferation of Web sites
offering medical information that is inaccurate or out of date and that often conflicts with data
on other sites or from other sources impedes the ability of consumers to make well-informed health
care decisions. Despite these limitations, consumers have developed an appetite for the Internet as
a convenient, inexpensive, and easy-to-use medical information tool and will continue to use it,
for better or for worse, in their quest for more knowledge.
In response to these marketplace realities, CMR believes a consumer-driven approach is the best way to
ensure that high-quality, satisfactory, cost-efficient health care is delivered in the United States.
Services Provided By Consumer’s Medical Resource
Consumer’s Medical Resource provides Medical Decision Support (MDS) services to employees of Fortune
500 and other large organizations, which face serious, complicated, and chronic illness. MDS
is a decision support service that offers patients the latest in-depth, objective, and personalized information
on their diagnosis and available treatment options. The information is assembled and distributed by a physician-led team.
This approach enables patients to fully understand and evaluate their treatment options so that they can make the best
decisions possible with their doctors. Moreover, MDS helps patients avoid medical mistakes and unnecessary
procedures by equipping them to better question their prescribed care. In addition, MDS ensures that a
patient’s values and personal preferences are incorporated into a final decision.
Currently, patients can access MDS for serious and expensive medical conditions including cancer, heart
disease, diabetes, multiple sclerosis (MS), and attention deficit and hyperactivity disorder (ADHD). Given growing patient
and employer needs, CMR is developing modules for many other difficult and expensive conditions and medical procedures.
CMR has demonstrated that MDS adds value to today’s health care system through the improvements the program
has generated in medical decision-making. Using a detailed methodology, the company has been able to measure improvements
in the quality of decisions a patient and doctor ultimately make based on the information CMR provides.
America’s "provider-driven" health care system has not lived up to its promise of improving quality, satisfaction, and
lowering costs. Meanwhile consumers are increasingly resorting to information on the Internet which is, at times,
confusing, inaccurate, and outdated. CMR believes that to put the consumer at the center of the process and empower
them with high quality and timely information is a powerful way of generating improvements in all aspects of health
care delivery—quality, satisfaction, productivity, and costs. Based on CMR’s results to date, the company believes
"consumer-driven" health care will play an important and increasing role in the future health care system.