Hashed Health Resource Brief: Michael Porter Research on Value-Based Healthcare

The following is part of Hashed Health’s ongoing Resource Briefs explanation series. We have aggregated blockchain healthcare resources on our site that we believe are instrumental to understanding and designing the new future of health and wellness. Our past resource briefs have focused on the revolutionary Bitcoin and Ethereum white papers. Today’s brief explains why we look to Michael Porter for inspiration in redesigning our healthcare system. For more on Michael Porter’s background, click here.


The healthcare system in the United States has produced many miracles and scientific advancements in treating acute care injuries and sustaining life. Despite these advancements, we are not getting our money’s worth. Patients are faced with high and rising costs, restricted services, care that trails leading benchmarks, patient and quality cost discrepancies across the system, access issues, socioeconomic distress and many more concerning trends. How can this be possible in a country that spends $3.2 trillion on healthcare annually ([1]), more than any other country in the world?

Michael Porter, the renowned Harvard Business School Professor, has done extensive research in the healthcare field and has pioneered the “Value Based Healthcare Delivery” framework. Porter’s framework focuses on the idea that healthcare systems should strive to deliver maximum value for patients. To the uninitiated, this value-based assertion may seem obvious, but in fact, our current healthcare system is not designed to promote value. Today, the fundamental health infrastructure we have in the United States is designed around fee-for-service transaction-focused healthcare. This infrastructure is not aligned with what most would agree is the core purpose of healthcare, which Porter defines as “Value for Patients.” When you accept this basic principle, it becomes clear that healthcare must shift from volume to value. The following guide will brief you on the current state of the healthcare system, Porter’s framework for creating a value-based system and Hashed Health’s vision for a new infrastructure for healthcare.

Instead of approaching care as an individual site, specialty or intervention, Porter espouses an approach that considers the patient’s medical condition over the full episode of care. From both a clinical and a financial perspective, the focus is on addressing the full set of results that matter to the patient, instead of the more narrow interests of each participating entity. In this model, outcomes become the driver of reducing costs.

In 2015, Porter introduced his value-based strategic agenda, which includes detailed analysis of the following concepts:

1. Re-organize Care Around Patient Conditions Using the Concept of Integrated Practice Units

2. Measure Outcomes and Costs for Every Patient

3. Move to Bundled Payments for Care Cycles

4. Integrate Multi-Site Care Delivery Systems

5. Expand Geographic Reach To Drive Excellence

6. Build an Enabling Information Technology Platform ([2])

In earlier research, Porter offered the concept of “zero-sum competition” ― a specific type of competition between parties that results in no net benefit ― as the explanation for our healthcare system’s contradictions ([3]). In fact, according to Porter, zero-sum competition between healthcare system participants actually “divides value instead of increasing it.”

Healthcare companies and organizations are competing on vectors not aligned with the best interests of consumers; this drives the system away from fulfilling a patients’ actual needs. Instead of focusing on patient outcomes, healthcare competition revolves around shifting costs, creating bargaining power, attracting and retaining patients and restricting choices and services. This type of competition only leads to gains at the expense of another entity: or zero-sum competition.

When we talk about value-based care, we tend to focus on the U.S. system. However, in more recent research, Porter adds a global perspective to the conversation. The data shows that value-based conversations should not be limited to the U.S. ([4]).

Similarly, variability in outcomes is also a shared concern.

Around the globe, we share a common interest to ensure advances of the value-based agenda in healthcare.

Hashed Commentary

At Hashed Health, we are committed to building solutions that focus on patient outcomes throughout the entire cycle, and thus improve patient care and drive value-based care delivery. We believe that blockchain and distributed ledger solutions offer a once-in-a-generation opportunity to redesign the fundamental infrastructure in healthcare by embedding rational economics into health processes. This is a unique chance to align incentives and change behaviors that are central to the policies Porter describes.

Value is all about the relationship between cost and quality. The very concept of value-based care suggests a need to reconsider the technical infrastructure that has been created to support fee-for-service care. The merging of clinical and financial paradigms is challenging, especially to traditional for-profit health system CFOs who have built careers around the concept of “heads in beds” and systemic business incentives that pay more when patients return.

To make the shift from volume to value, we must consider the basic infrastructure that we are dealing with. One of a blockchain’s core concepts is that of programmed value exchange. Using the blockchain, we can design and embed economic systems in the patient’s full cycle of care. This will allow us to program value exchange based on behaviors, compliance to protocols and attestations from both sides of the “marketplace.” These mechanisms are not possible using fiat currency in today’s claims-based systems.

For example, today’s bundled payment programs have shown promise, but they are hamstrung by trust and administrative complexities that are a result of trying to force a value-based system on top of fee-for-service infrastructures. We believe there is an opportunity to demonstrate that with a new blockchain-based information-technology platform, we can advance Porter’s Strategic Value Agenda.

Several members of the Hashed Health team have a background in bundled payments: John at InVivoLink, Corey at Vanguard Health System, Les at Martin Ventures and Philip at Humm. We have had many productive discussions regarding these efforts; we now feel that while these ventures successfully innovated and improved how bundles are managed, they were intrinsically limited because they were developed or implemented on top of systems that were not designed for value-based care. Building applications on top of (or offering minor improvements to) traditional relational databases simply can’t address that core issue. Other examples of solutions that suffer from these limitations, as described by Porter himself, include:

● Prior authorization for expensive services

● Patient copayments and deductions

● Electronic medical records

● Evidence-based medicine

● Safety/eliminating errors

● Introducing “lean” process improvements

● Care coordinators

● Retail and urgent care clinics

● Programs to address generic high cost areas (e.g. readmissions, post-acute care)

● Mergers and consolidation

Restructuring health care delivery is necessary, not incremental improvements.We believe blockchain technology is the answer. We can now design our own economies and trust systems that support the value-based agenda. We can engage employers whose perspective on value is sorely needed. We can work to harness the power of outcomes and embed outcomes data directly in payment and incentive processes. We can use new IoT devices on the blockchain to understand what’s happening outside the clinic and between surveys (a current shortcoming for Porter’s Tier 2 and Tier 3 measures hierarchy). We can directly link payments and benefits. The possibilities are enormous, and great work is starting to bring about positive changes.

Hashed supports the work that leaders such as the Altarum Institute, the International Consortium for Health Outcomes Measurement (ICHOM), the Organization for Economic Co-operation and Development (OECD) and others are conducting to accelerate the value-based agenda. At Hashed, we are engaging in productive discussions with surgeons, providers, manufacturers, payers and other constituents around the world about how we can begin using the blockchain to advance the value agenda. This is truly a collaborative effort,t and we are immensely proud to be a part of it


[1]https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html
[2] http://www.healthforum-edu.com/summit/PDF/2015/SUM15michaelporter.pdf
[3] https://hbr.org/2004/06/redefining-competition-in-health-care
[4]https://www.oecd.org/health/ministerial/policy-forum/Michael-Porter-Presentation-OECD-Health-Forum-2017.pdf

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