June 13, 2004

800-pound gorilla opines on healthcare

Hey, I don't know what gorilla you were thinking of, but I'm talking about Michael E. Porter, the Harvard Business School professor.

Porter has written an article (via HealthLawBlog) claiming that the health care system in this country suffers from too much of the wrong kind of competition. His solution? More competition, but of the right kind. Porter firmly believes in the power of competition to compel improvements in health care delivery. This, and his track record in promoting effective management strategies in other industries, will almost guarantee Porter a careful hearing in the boardrooms of the largest corporations and among most influential policymakers.

Perhaps most interesting, then, is that Porter, the competition maven, buries the following in the middle of his article: "the larger, more controversial step would be for the government to require health coverage for all, with subsidies for low-income people." That this sensible proposal should be advanced in the context of an argument for the competitive marketplace reveals, at the very least, that Porter's not another run-of-the-mill ideologue.

According to Porter, competition in the health care industry is between the wrong players, over the wrong objectives. Currently, health plans, hospitals, and networks are competing to shift costs onto other parties, and this drives costs up without creating any value in terms of better medical care. Porter would like to see competition among providers and health plans not to shift costs but to prevent, diagnose, and treat specific diseases. After all, notes Porter, this is what happens in other well-functioning industries: the participants compete to create value, and this competition leads to innovations and lower costs.

The health care industry is dysfunctional because there's little accountability, prices are opaque (see my earlier post on transparent drug pricing), and the "winner" is the plan or provider who most successfully shifts costs to someone else, instead of offering the best service at the best price.

Although it's too early to be sure, Porter, unlike a disappointing majority of pro-market reform advocates, seems to have recognized that so long as there is no universal health insurance coverage, the strongest short-term incentive for providers and payers will always be to avoid the uninsured and to push the sick out of the insurance pool. The efforts to do this are the purest form of waste--they drive costs up and retard innovation. (Which leads me to wonder whether the implacable opponents of universal coverage are motivated more by a love of the market, or by an overweening and irrational fear of the state.)

One question the article raised for me is this: Porter talks about health as a "value" much as the products of other industries is a value. To the extent that participants in the health care market can capture this value, it makes sense that they will compete fiercely to provide it. But can employers or health plans really capture the "value" provided by, for example, long-term nursing home care? If, as I suspect, they can't, Porter's prescriptions for change would seem to provide no ready solution to the quaint social problem of taking care of economically valueless people.

But this problem aside, I think Porter is on the right track. At least he's willing to rethink the health care system from the bottom up.

Posted by Carey at June 13, 2004 11:03 PM

Maybe the worth of this approach is in the details, but from your capsule review, and from the Globe's, I'm not impressed. Clinton was openly wondering, ten years ago, why market forces so well for some products and so poorly in healthcare and education. Even after hearing from Porter, I'm still wondering.

Transparency, and publishing outcomes? Fine. The best docs and hospitals will get waiting lists, the worst will cut prices a little. Maybe a few innovations will be disseminated, but I don't see a revolution springing from this alone.

How will "better competition" keep the system from shunning the poor, the sick, the old? They'll always be a drag on the bottom line.

The trouble is, as you suggest, that "value" is not so easily determined for health or education, at least compared to a nice car or computer. Until Porter finds a way to the dollar value of specific health interventions on humanity, I'll reserve my praise for his achievement.

Posted by: Nick G. at June 14, 2004 06:31 PM