To deal with the epidemic of overuse in health care, patient preferences must be incorporated into the healthcare decision-making process, value creation must be calculated from a population health perspective, and a clear payment mechanism that provides incentives for value must be implemented.


In a recent article, Harvard University professor Michael E. Porter and Press Ganey CMO Thomas Lee outline a six-point strategy to improve healthcare value (“The Strategy that Will Fix Health Care,” Harvard Business Review, October 2013). Although they offer several excellent ideas, their argument fails to address the epidemic of overuse. 

Incorporating Patient Preferences

Porter and Lee emphasize that healthcare systems must focus on outcomes and cost but they fail to describe a fundamental criterion for health services excellence: that patients receive only the care they want and need. Numerous studies indicate that patients are not adequately informed about the services they receive and that—if they were—they would not necessarily choose to receive them. If providers do not consider patients’ wants and needs, the services they provide may appear to create value by virtue of having a low cost and good outcome (in that the goals of the intervention are achieved); however, we would argue that such service provision typifies waste and exposes the patient to unnecessary risk. 

Use of decision aids that clearly outline the risks and benefits of medical interventions and help patients make choices consistent with their values can substantially reduce the demand for healthcare interventions. Measurement of decision quality that captures patients’ understanding of their healthcare choices and the alignment of those choices with their values should be an integral part of healthcare delivery; its capture and reporting will identify organizations that incorporate patient preferences in the decision-making process, reduce costs by reducing unnecessary and unwanted care, and improve health outcomes by eliminating unnecessary risk exposure.

Calculating Value from a Population Health Perspective

Porter and Lee recommend strategies that focus on the individual patient as the arbiter of value. By contrast, we suggest that the entire service population should be the substrate for value creation. This approach requires more careful consideration of the supply of healthcare resources in a community. 

Greater supplies of beds and physicians promote discretionary admissions and visits; Dartmouth Atlas researchers have found that these result in higher cost and worse outcomes. Porter and Lee seem to recommend expansion of supply—building new service delivery sites with lower overhead costs to achieve lower per-unit costs and greater access to care that will result in more market share. But population-level value will be enhanced only if supply is reduced and extant overhead is eliminated. Without reductions in supply, increased per-capita service use will more than offset per-unit cost reductions, total population costs will rise while marginal population outcomes will decrease, and value will be destroyed from a population standpoint. Instead of promoting expansion of supply, policymakers should embrace payment strategies that curtail growth of fixed healthcare resources and encourage use that is efficient and consistent with patient preferences.

Creating Incentives for Value

Although Porter and Lee suggest that value will be created through payment for episodes of care (under a bundled payment mechanism) and resulting market expansion (as insurers drive patients to low-cost bundles), we believe this strategy will raise total expenditures without improving population outcomes. Although bundled payment should improve care coordination across the healthcare continuum, it will likely open up capacity as lengths of stay are shortened. Unless there are incentives to prevent use of this new capacity, the results will be more admissions, many of which will be unnecessary, as providers fight for market share. In contrast, capitation provides incentives to mitigate development of new capacity, curtail overuse of current capacity, and achieve the streamlined, coordinated care that bundles purport to produce. 

To be successful, implementation of a new capitation payment mechanism should initially include a shared savings component so providers can transition to these new incentives without losing all revenue that is currently attributable to unnecessary care. Additional incentives for removing supply would accelerate the rightsizing of healthcare resources. Such financial transitions would allow healthcare systems to implement some of the keen suggestions offered by Porter and Lee—such as integrated practice units, better IT, and alliances that promote coordinated care—while weaning them from fee-for-service production incentives. 

Moving Toward Capitation

The uncoordinated, fragmented, wasteful, and excessive features of the healthcare delivery system currently generate substantial revenues for providers. Without constraints on unnecessary care, attempts to competitively gain market share will encourage further expansion of healthcare resources, wasteful use of those resources, and value destruction from the population’s perspective. Capitation promotes waste reduction and aligns provider behavior with achievement of better population outcomes, particularly if it requires long-term relationships between providers and patients and create incentives for improved patient outcomes. Implementing intermediate payment mechanisms that promote rightsizing of healthcare resources in the community, discourage provision of unnecessary care, incorporate the goal of advancing population health, and promote patient engagement will improve health outcomes, reduce costs, and improve the likelihood that patients will receive the care they want and need. 

William B. Weeks, MD, MBA, is is senior research scientist, The Dartmouth Institute for Health Policy and Clinical Practice, Lebanon, N.H.; a professor, The Geisel School of Medicine, Hanover, N.H.; and a member of HFMA’s New Hampshire-Vermont Chapter.

James N. Weinstein, DO, MS, is president, Dartmouth-Hitchcock Health System, Lebanon, N.H..

Publication Date: Wednesday, January 01, 2014

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