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On
Strategy
for
Healthcare
HARVARD BUSINESS REVIEW PRESS
Boston, Massachusetts
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Copyright
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Copyright 2018 Harvard Business School Publishing Corporation
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First eBook Edition: Jun 2018
ISBN: 9781633694309
eISBN: 9781633694316
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Contents
Title Page
Copyright
Introduction
by Thomas H. Lee, MD
What Is Strategy?
by Michael E. Porter
The Five Competitive Forces That Shape Strategy
by Michael E. Porter
Health Care Needs Real Competition
by Leemore S. Dafny and Thomas H. Lee
Building Your Companyâs Vision
by Jim Collins and Jerry I. Porras
Reinventing Your Business Model
by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann
Will Disruptive Innovations Cure Health Care?
by Clayton M. Christensen, Richard Bohmer, and John Kenagy
Blue Ocean Strategy
by W. Chan Kim and Renée Mauborgne
Rediscovering Market Segmentation
by Daniel Yankelovich and David Meer
The Office of Strategy Management
by Robert S. Kaplan and David P. Norton
The Strategy That Will Fix Health Care
by Michael E. Porter and Thomas H. Lee
About the Contributors
Index
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Introduction
Rediscovering Strategy
by Thomas H. Lee, MD
Health care leaders are facing pressures for performance that demand departures from business as usual. In the United States, patients and their employers are becoming more sensitive to service costs and quality. Meanwhile, reimbursements are decreasing, yielding flat or declining revenues for health care providers. As Michael E. Porter and I argued in our 2015 New England Journal of Medicine article âWhy Strategy Matters Now,â these factors mean that health care organizations need to start making more and smarter choices about how to differentiate themselves. These kinds of decisions lie at the heart of classic business strategy, and it is incumbent on health care leaders to approach strategy development and execution with the same ferocity as do their counterparts in other sectors.
Until recently, the U.S. health care marketplace frequently allowed leaders of health care organizations to get by without a real strategy as it is understood in most other business sectors. The amount of money pouring into health care was growing rapidly. Commercial insurance payment increases made up for shortfalls for Medicare, Medicaid, and uninsured patients, so that, overall, fee-for-service contracts usually covered the providerâs costs plus a modest margin. Meanwhile, quality was considered difficult or impossible to measure, so competition was based on organizationsâ brands. Patients could go to almost any provider, so as long as provider brands brought patients in the door; organizations could thrive by focusing on operational effectivenessâdisciplined adoption of best practices, hiring good people, and working hard.
Operational effectiveness remains critical to health care providersâ success; indeed, the most brilliant strategy cannot save an organization with poor management. However, the changes in the health care marketplace over the last decade made operational effectiveness table stakes, requiring providers to find other sources of differentiation.
The most conspicuous of these changes are economic. Arguments about how much of the economy can be devoted to health care now seem moot; the practical reality is that taxpayers and employers are simply unable and unwilling to support payment rates that rise faster than general inflation. In the past, health care providers could argue that their costs should be covered as long as their work was noble and good, and some still do. Today, however, no one is really listening, as company and personal budgets are stretched to their limits. For example, 43% of Americans with health insurance report having difficulty affording their deductible expenses, and one-third report difficulty affording their premiumsâand both of these rates increased from 2015 to 2017.
A less obvious changeâbut one that, in the long run, may prove more compellingâis that quality of care is no longer considered unmeasurable. The 1999 and 2001 reports from the Institute of Medicine To Err Is Human and Crossing the Quality Chasm made explicit that health care had serious problems in safety, technical quality, access, and patient experience. Those reports created a true sense of urgency about improving quality in health care, and efforts to develop and use measures of quality moved into a new, higher gear. Government and private payers first provided modest financial incentives for organizations to collect and report these data, then reporting became mandatory, and then financial consequences emerged, either in direct incentives or through threats to market share.
As a result of these changes, the meaning of âperformanceâ for health care organizations is being redefined: Measures of quality are being considered in that evaluation as well as traditional financial outcomes. And the particular quality measures used are shifting from those that gauge process (for example, how reliably did providers perform an action that was supported by guidelines, such as screening patients for various types of cancer) to those that assess outcomes that matter most to patients. Forward-looking providers like the Cleveland Clinic are collecting a wide array of outcomes data and publishing it online. For example, patients considering radiation therapy for prostate cancer can see data on not only survival rates at this institution, but also what proportion of patients had urinary incontinence, fatigue, and diarrhea.
Combine this with patientsâ and their employersâ pressure for higher-quality care and lower prices, and the pieces are now in place for a health care marketplace driven by competition on value for patients. The prospect of such a marketplace may not immediately seem good news to all health care stakeholders, since competition is always less comfortable than no competition. But the alternative to such a marketplace is one in which purchasers focus on price, and price alone, and provide no direct reward for improvement in safety, outcomes, or the disutility of care. Such a marketplace will not be good for patients or the rest of health careâs stakeholders.
But to achieve differentiation, health care leaders must make choices about their unique approach to creating value for patients. Each health care provider cannot be all things to all patients: A hospital must choose to be a trauma center or a cancer specialist, to serve a local population or a full region. Indeed, in our New England Journal of Medicine article, we suggested six strategic questions that health care leaders should ask themselves:
What is our fundamental goal?
What businesses are we in?
What scope of businesses should we compete in?
How will we be different in each business?
What synergies can we create across business units and sites?
What should be our geographic density and scope?
Another common challenge in todayâs health care world is change man...
