Literature week 1 – Financial Management
Porter, M.E. (2008) Value-based health care delivery. Annals of Surgery
248(4)
Value: the health outcomes achieved per dollar spent. Universal coverage is essential for
equity and efficiency. It’s necessary yet still not sufficient. We still use 19 th century
structures and process to deliver 21 st century medicine. Need fundamental change instead
of incremental improvements. Consumers alone cannot be expected to select the best
providers and integrate their own care in a fractured system. Physicians must transform
health care delivery.
Value should be the goal. Improving value requires improving outcomes per unity of cost. A
narrow focus on cost reduction fails in hc because the best way to contain costs is to
improve quality. Earlier detection, correct diagnosis, appropriate treatment, less invasive
treatment methods, and other steps that improve outcomes can also dramatically lower
direct costs, not to mention the indirect costs of poor health, such as lost work time,
immobility, and others. Therefore quality improvement is the best way to produce
fundamental cost reduction.
Competition in health care should focus on matching patients to providers who produce the
best outcomes, not on process bonuses.
Value-based delivery should be organized around the way value is actually created. Care for
a medical condition should be organized into integrated practice units (IPUs), which include
all the necessary skills and specialties, including those needed for co-occuring problems.
High-value care is organized not by intervention and specialty, but around each medical
condition (e.g. diabetes). All specialties and services needed for a condition are grouped
together into a true team. Value is created by the collective activity of a whole team. In an
IPU care does not occur sequentially but involves parallel processing. There’s a common
administrative structure, and facilities are designed so that all necessary facilities and
technology are in one place, and everyone’s time is used efficiently. All the info involved in a
care cycle is captured and stored in one place and is transparent to everyone.
1
, The IPU model involves integration across the specialties and across time. However, the
current hc system is not organized around care cycles, but individual and discrete
interventions. Everything is separate.
Unless the organization, management and reimbursement of providers are restructured
around medical conditions, value improvement will be severely constrained. In IPU patients
with multiple conditions will need just one point of coordination for each condition. In the
current system there are numerous individual specialists who coordinate with each other
and in different ways for every patient.
In reducing care fragmentation currently separate facilities should be geographically linked
together.
It is important to measure value, because if it isn’t done it is difficult to improve. Only by
measuring patient outcomes over the cycle of care for each medical condition will it be
possible to optimize overall value for the patient and to drive value improvement. There is a
set of outcome measures which need to be taken into account.
Reimbursement should be aligned with value (creation) and reward innovation. So paying
for the entire cycle not just parts of it. Providers need to be far more proactive in driving
new reimbursement models instead of waiting for health plans and Medicare to take the
lead. Value-based delivery will be enabled by harnessing the power of information
technology to integrate care within IPUs and measure results. Data should be organized
around the patient. Patient information should be accessible to all parties involved in the
care cycle.
Koller, T. (1994) What is value-based management?
Value-based management (VBM) focuses on clear performance targets that are properly
aligned with the ultimate goal of creating value. The value of a company is determined by its
discounted future cash flows. Value is created only when companies invest capital at returns
that exceed the cost of that capital. It is not staff-driven, but focuses on better decision-
making at all levels of an organization. Top-down doesn’t work well. Managers handle the
balance sheet as well as the income statement, and balance long- and short-term
perspectives. Has huge economic benefits. But pitfalls: can become a staff-captured exercise
that has no effect on operating managers at the front line or on the decisions that they
make.
Focus of VBM shouldn’t be on methodology but on the why and how of changing the
corporate culture. When VBM works well, the management processes provide decision-
makers at all levels with the right information and incentives to make value-creating
decisions (e.g. comparing the value of alternative strategies and incentivizing choosing the
value-maximizing strategy).
At the middle/bottom line managers and supervisors can have targets and performance
measures that are tailored to their circumstances but driven by the overall strategy. At the
top VBM informs the board of directors and corporate center about the value of the
strategies and helps to evaluate mergers, acquisitions and divestitures.
VBM is a value creation mindset combined with management process and systems
necessary to put that mindset into action. VC mindset: senior managers are aware the
2
Porter, M.E. (2008) Value-based health care delivery. Annals of Surgery
248(4)
Value: the health outcomes achieved per dollar spent. Universal coverage is essential for
equity and efficiency. It’s necessary yet still not sufficient. We still use 19 th century
structures and process to deliver 21 st century medicine. Need fundamental change instead
of incremental improvements. Consumers alone cannot be expected to select the best
providers and integrate their own care in a fractured system. Physicians must transform
health care delivery.
Value should be the goal. Improving value requires improving outcomes per unity of cost. A
narrow focus on cost reduction fails in hc because the best way to contain costs is to
improve quality. Earlier detection, correct diagnosis, appropriate treatment, less invasive
treatment methods, and other steps that improve outcomes can also dramatically lower
direct costs, not to mention the indirect costs of poor health, such as lost work time,
immobility, and others. Therefore quality improvement is the best way to produce
fundamental cost reduction.
Competition in health care should focus on matching patients to providers who produce the
best outcomes, not on process bonuses.
Value-based delivery should be organized around the way value is actually created. Care for
a medical condition should be organized into integrated practice units (IPUs), which include
all the necessary skills and specialties, including those needed for co-occuring problems.
High-value care is organized not by intervention and specialty, but around each medical
condition (e.g. diabetes). All specialties and services needed for a condition are grouped
together into a true team. Value is created by the collective activity of a whole team. In an
IPU care does not occur sequentially but involves parallel processing. There’s a common
administrative structure, and facilities are designed so that all necessary facilities and
technology are in one place, and everyone’s time is used efficiently. All the info involved in a
care cycle is captured and stored in one place and is transparent to everyone.
1
, The IPU model involves integration across the specialties and across time. However, the
current hc system is not organized around care cycles, but individual and discrete
interventions. Everything is separate.
Unless the organization, management and reimbursement of providers are restructured
around medical conditions, value improvement will be severely constrained. In IPU patients
with multiple conditions will need just one point of coordination for each condition. In the
current system there are numerous individual specialists who coordinate with each other
and in different ways for every patient.
In reducing care fragmentation currently separate facilities should be geographically linked
together.
It is important to measure value, because if it isn’t done it is difficult to improve. Only by
measuring patient outcomes over the cycle of care for each medical condition will it be
possible to optimize overall value for the patient and to drive value improvement. There is a
set of outcome measures which need to be taken into account.
Reimbursement should be aligned with value (creation) and reward innovation. So paying
for the entire cycle not just parts of it. Providers need to be far more proactive in driving
new reimbursement models instead of waiting for health plans and Medicare to take the
lead. Value-based delivery will be enabled by harnessing the power of information
technology to integrate care within IPUs and measure results. Data should be organized
around the patient. Patient information should be accessible to all parties involved in the
care cycle.
Koller, T. (1994) What is value-based management?
Value-based management (VBM) focuses on clear performance targets that are properly
aligned with the ultimate goal of creating value. The value of a company is determined by its
discounted future cash flows. Value is created only when companies invest capital at returns
that exceed the cost of that capital. It is not staff-driven, but focuses on better decision-
making at all levels of an organization. Top-down doesn’t work well. Managers handle the
balance sheet as well as the income statement, and balance long- and short-term
perspectives. Has huge economic benefits. But pitfalls: can become a staff-captured exercise
that has no effect on operating managers at the front line or on the decisions that they
make.
Focus of VBM shouldn’t be on methodology but on the why and how of changing the
corporate culture. When VBM works well, the management processes provide decision-
makers at all levels with the right information and incentives to make value-creating
decisions (e.g. comparing the value of alternative strategies and incentivizing choosing the
value-maximizing strategy).
At the middle/bottom line managers and supervisors can have targets and performance
measures that are tailored to their circumstances but driven by the overall strategy. At the
top VBM informs the board of directors and corporate center about the value of the
strategies and helps to evaluate mergers, acquisitions and divestitures.
VBM is a value creation mindset combined with management process and systems
necessary to put that mindset into action. VC mindset: senior managers are aware the
2
