Redefining Health Care

1. Health care competition is failing, driving up costs and reducing quality

The fundamental problem in the U.S. health care system is that the structure of health care delivery is broken.

Current state of health care. The U.S. health care system is plagued by high and rising costs, uneven quality, frequent errors, and limited access to care. Despite spending far more per capita than other developed nations, the U.S. lags behind on key health indicators like life expectancy. Studies show that Americans receive only about 55% of recommended care, and preventable medical errors cause up to 98,000 deaths annually.

Root causes of dysfunction. The core issue is that competition in health care operates at the wrong level and focuses on the wrong things:

• Competition to shift costs between stakeholders rather than reduce overall costs
• Competition to increase bargaining power rather than improve patient value
• Competition to capture patients and restrict choice rather than demonstrate superior results
• Competition to reduce costs by restricting services rather than improving efficiency

This zero-sum competition erodes quality, fosters inefficiency, creates excess capacity, and drives up administrative costs, ultimately undermining value for patients.

2. Value-based competition on results is the solution to health care's woes

The only way to truly reform health care is to reform the nature of competition itself.

Principles of value-based competition. To transform health care, competition must be realigned with value for patients. Key principles include:

• Focus on value (health outcomes per dollar spent), not just costs
• Competition based on results, not inputs or processes
• Competition centered on medical conditions over the full cycle of care
• High-quality care should be less costly
• Value driven by provider experience, scale, and learning
• Competition should be regional and national, not just local
• Results information widely available
• Innovations that increase value strongly rewarded

Benefits of value-based competition. When providers compete on value:

• Quality and efficiency improve simultaneously
• Errors and inappropriate care decline
• Innovation accelerates
• Results variations across providers diminish
• Overall health care value increases dramatically

3. Care delivery must be reorganized around medical conditions, not specialties

The relevant business in health care delivery, then, is a medical condition seen over the full cycle of care.

Integrated practice units. Care delivery should be reorganized around integrated practice units (IPUs) focused on medical conditions over the full care cycle. Key features:

• Organized around patient medical conditions, not physician specialties
• Encompass full cycle of care - prevention, diagnosis, treatment, management
• Dedicated, multidisciplinary team of clinicians
• Co-located in tailored facilities
• Measured on outcomes and costs for the full care cycle

Benefits of IPUs:

• Better coordination and integration of care
• Deeper expertise in treating specific conditions
• More efficient care delivery and use of resources
• Accelerated innovation and learning
• Improved patient convenience and experience
• Enhanced ability to measure and improve outcomes

This reorganization represents a fundamental shift from the current fragmented, specialty-centric model of care delivery.

4. Results measurement and transparency are critical for improving health care value

The universal development and reporting of results information at the medical condition level may well be the single highest priority to improve the performance of the health care system.

Types of information needed. A hierarchy of information is required:

1. Results (risk-adjusted outcomes and costs)
2. Patient experience/volume
3. Methods/processes
4. Patient attributes

Benefits of results measurement:

• Enables informed choice by patients and referring physicians
• Motivates providers to improve performance
• Accelerates innovation and learning
• Reduces inappropriate care and medical errors
• Allows payers to reward excellent providers

Overcoming barriers. Despite resistance from some providers, experience shows that results measurement is feasible and drives major improvements. Early efforts in areas like transplants, cardiac surgery, and cystic fibrosis care demonstrate the power of results transparency. Health plans and policymakers must prioritize the development of comprehensive, condition-specific results measures.

5. Health plans must transform to enable informed choice and reward excellence

Health plans must become health organizations, not just insurance organizations.

New roles for health plans:

• Enable choice of excellent providers based on results
• Measure and reward providers based on outcomes and efficiency
• Structure coverage to align with value
• Assist patients in managing their health
• Grow subscriber value over time

Key changes required:

• Shift from restricting choice to enabling informed choice
• Move from micromanaging providers to measuring results
• Restructure benefits around medical conditions and care cycles
• Develop capabilities to analyze and share results information
• Build expertise in coordinating care and managing population health

By embracing these new roles, health plans can become true partners in value creation for patients rather than adversaries focused on limiting care and shifting costs.

6. Providers need to develop distinctive strategies in focused practice areas

There is no reason that rural institutions, through medical integration and careful choice of partnerships in complex practice units, cannot offer truly world-class care at high levels of efficiency to their communities.

Strategic imperatives for providers:

• Define the business around medical conditions over care cycles
• Choose a focused set of services to excel in
• Organize into integrated practice units
• Create distinctive strategies in each practice area
• Measure results, experience, methods, and patient attributes
• Move to single bills and new approaches to pricing
• Market services based on excellence and results
• Grow locally and geographically in areas of strength

Benefits of focused strategies:

• Deeper expertise and better results in chosen areas
• More efficient use of resources and facilities
• Accelerated innovation and learning
• Enhanced ability to attract patients regionally/nationally
• Improved coordination across the care cycle

This approach applies to all provider types - academic medical centers, community hospitals, and rural providers can all benefit from strategic focus and partnerships.

7. Geographic expansion in areas of excellence can drive value improvement

Geographic expansion should be focused on medical conditions in which a provider can offer truly excellent care in an integrated structure.

Models for geographic expansion:

• Feeder locations for diagnostics and follow-up
• Full-service facilities in new locations
• Partnerships with existing institutions
• Management of practice units within other facilities
• Telemedicine and remote consultation networks

Benefits of geographic expansion:

• Increased patient volume drives learning and efficiency
• Enables subspecialization and division of labor
• Leverages expertise and reputation across locations
• Improves access to excellent care for more patients
• Accelerates innovation and best practice diffusion

Geographic expansion allows excellent providers to serve more patients while pressuring local providers to improve or exit underperforming services.

8. Information technology and knowledge development are key enablers of value-based care

IT is not the end in itself, but an enabler for value-based competition.

Role of information technology:

• Enables collection and analysis of results data
• Supports coordination across the care cycle
• Facilitates sharing of information across providers
• Enhances patient communication and engagement
• Enables more efficient administrative processes

Principles for IT implementation:

• Patient as fundamental unit for information
• Integration of clinical, administrative, and financial data
• Interoperability and data sharing across providers
• Tailored to practice unit needs
• Phased implementation based on long-term plan

Knowledge development. Providers need systematic processes to:

• Measure and analyze results
• Identify process improvements
• Train staff on best practices
• Continuously innovate care delivery methods

Effective use of IT and knowledge development accelerates the virtuous cycle of value improvement in health care delivery.

9. Medical education and physician practices need significant reform

Both the content and the culture of medical education need to be realigned around achieving excellence in patient value.

Key changes needed in medical education:

• Train students at centers demonstrating excellence in results
• Emphasize working in integrated, multidisciplinary teams
• Teach management of full care cycles, not just interventions
• Focus on competency in clinical practice, not just exams
• Train in results measurement and process improvement
• Develop new models of continuing education focused on care delivery

Reforms to physician practices:

• Move away from the "free agent" model toward integrated teams
• Align incentives with patient value, not volume
• Develop management and leadership skills
• Embrace results measurement and accountability
• Participate actively in care delivery improvement efforts

These changes are essential to equip physicians for their role in a value-driven health care system and to overcome barriers to implementing new care delivery models.

10. Overcoming barriers to change requires leadership from all stakeholders

There is no need to wait for dramatic policy changes or leadership from government to redefine health care. The system can, and will, change largely from within.

Key barriers to overcome:

• Misaligned incentives in reimbursement and regulation
• Outdated governance structures and attitudes
• Limited management capabilities in health care organizations
• Resistance to results measurement and accountability
• Fragmented structure of physician practices

Leadership required from:

• Providers - redesign care delivery and measure results
• Health plans - enable choice and reward excellence
• Employers - demand value and support employee health
• Suppliers - align innovations with patient value
• Government - enable value-based competition through policy
• Medical schools - reform education and training
• Professional societies - support new care delivery models

Early movers in each stakeholder group will gain significant advantages as the system shifts toward value-based competition. The transformation of health care is already underway - those who embrace change will thrive, while those who resist will fall behind.

Last updated: April 23, 2025