A system that’s sick. That’s what Bob S. Kaplan, Ph.D., the world’s leading authority on strategic performance measurement, sees when he looks at the U.S. health care system. We spend $3 trillion a year, 50 percent more per capita than anyone else in the world, and yet we have worse outcomes, says Kaplan, Marvin Bower Professor of Leadership Development Emeritus at Harvard Business School (HBS). We don’t know our costs. We don’t measure outcomes. Moreover, we don’t even agree on what the goal of our health care system is.
Kaplan’s Harvard Business School colleague Michael Porter, Ph.D., Bishop William Lawrence University Professor at HBS, who founded the field of strategy, was also fascinated by how such an inefficient system could survive. Several years ago, the two teamed up and defined what they believe should be the goal of health care—value. “For each medical condition, the goal should be how do we improve the outcomes that are delivered and experienced by the patient and how do we lower the cost of delivering those outcomes,” says Kaplan. The idea is to move from a fee-for-service environment that rewards volume, to a system that makes payment contingent on good outcomes and rewards value. “In every other industry that’s straight forward,” says Kaplan. “In health care this is revolutionary.”
By applying to health care a technology that Kaplan developed for measuring costs called Time-Driven, Activity-Based Costing (TDABC) and combining that with an approach that Porter has developed for measuring outcomes, they’ve developed a framework to transform the ailing U.S. health care delivery into a value-based system.
Knowing that many good theories don’t work in practice, they needed to find clinical partners to test their ideas. “We wanted to work with leading providers who were already excellent but wanted to be better,” says Kaplan. They chose systems that were proactively thinking about a constrained economic landscape when this very forgiving fee-for-service environment is phased out over the next five years. So far, they’ve established pilot projects with more than 20 organizations, including the Mayo Clinic, the Cleveland Clinic, and MD Anderson.
In January, Kaplan’s team launched a new collaboration with University of Utah Health Care (UUHC). What’s unique about this collaboration is that Utah has already developed its own costing model, called Value Driven Outcomes (VDO). “It’s been a great place to collaborate because we can build upon the Value Driven Outcomes approach already implemented,” says Kaplan.
The collaboration includes five teams comprised of business strategists, health care practitioners and administrators who are working together to meticulously identify processes and costs associated with the different projects. The teams are applying both methodologies (TDABC and VDO) to their projects as they also identify opportunities for more efficiency and better care processes. “We should all be data driven,” says Kaplan, whose team will write about the results. “So let’s run the experiment in five places and see what we find out.”
In addition to measuring cost and outcomes, the Utah value equation includes a third measure—the patient experience. “We’re looking to change the value proposition altogether, so we can deliver the best outcomes at the lowest possible cost and the greatest patient satisfaction,” says Vivian Lee, M.D., Ph.D., M.B.A., senior vice president, dean of the School of Medicine and CEO of University of Utah Health Care.
Kaplan is encouraged with what he sees. “I think that UUHC has the opportunity to really be one of the national leaders in implementing this value-based health care delivery approach,” he says. “So we can use this as a shining example that this can be done—that this really is a successful way for transforming the way that we’re delivering health care in the United States.”
Amy Albo is a director for special initiatives and projects for University of Utah Health Sciences.