The OBH bookshelf is home to a range of titles, and over half of them are inexplicably copies of ‘Redefining Health Care’ by Michael Porter and Elizabeth Teisberg. I was delighted to have the opportunity to learn from the authors themselves earlier this year.
A rite of passage here at OBH, the Value-Based Healthcare (VBHC) Intensive Seminar is an annual week-long course at Harvard Business School. I couldn’t wait for a sunny holiday to relax and sit back while learning more about the world of VBHC.

Unfortunately my dreams of a warm, laid-back trip were shattered when I arrived in Boston mid-blizzard with a foot of snow beneath me. I realised that the mammoth pile of pre-course reading I had put off could be delayed no more.

The concept of VBHC is, on paper, incredibly simple. Value in healthcare can be defined as the patient outcomes achieved, divided by the cost to deliver care. Michael Porter and Thomas Lee outlined this nicely in their article ‘The Strategy That Will Fix Health Care’: “at its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost.”

“You can’t improve what you don’t measure”

While this may sound straightforward, very few health systems have had a rigorous approach to both measuring patient-centred outcomes and measuring the cost of care. “You can’t improve what you don’t measure” is – I’m told, taught in Management 101.

The course was taught in an incredibly interactive and engaging way, the same style used for MBA students – where the lecturer asks an open-ended question and a discussion opens up amongst the room. Working through two or three case studies each day, we explored how health systems around the world had innovated in this space.

Going into the course I had a few questions to address:

Firstly, how can we implement a philosophy that has been developed around an American health system in the NHS?

Secondly, if this really is the ‘Strategy to fix health care’ why isn’t everyone doing it already?

Finally, VBHC sounds great on paper – but how do we actually implement it?

A close-to-home case study was that of stroke care in North Central London. We discovered how using a rigorous approach to maximising value, outcomes in stroke care improved remarkably. In 2006 there was a more than two-fold variability in ‘acute stroke mortality’ (the chance a person with a new stroke dies within 30 days) between the best and worst performing hospitals in London. This was in part due to patients being treated by teams and on wards that were not specialist stroke units. Again – there was a huge amount of variability. In some centres almost everyone was managed in a specialist stroke unit and in others, only 15% were.
By moving from 34 highly variable centres across London that managed acute strokes to just 8 high-volume specialist units – London went from having the worst stroke outcomes in the UK to the best.

Across all the case studies, a common theme was the importance of rigorously measuring outcomes. Not just measuring any outcomes, but firstly – using true outcomes rather than processes and secondly, outcomes that actually matter to people.

“Let’s get ready to bundle!”
We learnt from the infectiously enthusiastic Bob Kaplan about how neither of the most commonly used payment models – fee-for service and global capitation directly improved the value of patient care.
Fee-for service models – where a provider is paid for each service they deliver, incentivises providers to increase the volume of work they do. This means more investigations, more operations, more drugs – not necessarily improving value. In other words: a focus on quantity rather than quality.

“Let’s get ready to bundle!” Kaplan proclaims as he argues that a bundled payment for the full cycle of care is the solution.

What is a bundled payment? A single payment to cover all the care for a person’s condition(s). The payment is risk-adjusted based on patient mix and is contingent on delivering good outcomes.

This model incentivises providers to focus on improving patient-centred outcomes. Providers would be paid to look after the full care pathway. For example in osteoarthritis: the painkillers, investigations, physiotherapy, surgery (and complications), post-op care and rehab.

Something that struck me when learning about cost accounting in healthcare – is that despite being a clinician making decisions daily, I have no idea how much things cost.
Being taught about TDABC (Time-Driven Activity Based Costing) made me aware of the importance of knowing the answer to this question when making decisions in healthcare. It’s impossible to know the value of a service if we don’t know the cost.

A great example is Boston Children’s Hospital. The plastic surgery department looked after a range of conditions from simple problems that could be dealt with in primary care, to highly specialised surgery. Each condition was charged with the same fee for an initial clinic appointment despite the fact that more complex conditions required much more time and specialised input. Using existing accounting methods, each service was equally profitable – so increasing the volume of work done in any condition would be profitable. However using TDABC – they found that some services were indeed profitable, but they were losing money on complex appointments. This highlighted how existing methods of measuring cost did not capture the nuances of care pathways – and might cause departments to make the wrong choices in deciding where to cut/expand services.

So back to my initial questions:

Is VBHC applicable to the NHS?
Yes – we covered case studies across a range of health systems including the UK’s, and while the intricacies might differ between countries, the principles are universal.

Why isn’t everyone doing it already?
It sounds simple – pick outcomes that matter, measure them and use financial incentives to improve them. But in the words of a certain political leader: “Nobody knew healthcare could be so complicated”. Many centres are doing some things well and VBHC is gaining traction.

How do we put it into practice?
The toughest bit. Every case we explored had one thing in common: a leader who had the determination, patience and vision to make real change. These were often, but not always, senior clinicians. Enacting change is difficult, and can seem impossible in the bureaucratic NHS-machine. Outstanding leadership will help drive success. We also need to get clinicians and managers on board, and most importantly – patients need to be shown why VBHC is a better way of delivering care.

What’s next?
Amongst a myriad of talk of cost, profits, volume and competition I felt something was missing. The principles taught on the course were based around maximising value for an individual rather than a population, perhaps a reflection of the US health system. In the States, if a patient arrives at a hospital – their insurance company and the hospital are responsible for that individual. They have no responsibility to improve value for someone in a different state with a different insurance company.
In the UK’s single-payer system, the state is responsible for everyone’s care. We need to also think about value at a national, population-based level. The care of a person with diabetes in London affects the care of someone with cancer in Manchester, as the resources come from the same pool. We need to consider the needs of society in addition to those of the individual. Oxford’s Sir Muir Gray promotes this view.

Nevertheless the ideas are still very relevant here and there are reasons to be optimistic. Firstly, there is now a real appetite in the UK for a focus on value. Brits were well-represented at the course, the largest cohort after Americans. Secondly, many of the 44 Sustainability and Transformation Plans outline plans for outcomes-based commissioning and a focus on improving value. Finally, it is often in the toughest of times that innovation happens. The NHS in its current form is unsustainable, VBHC will be part of the solution.

The Strategy That Will Fix Health Care
How to Pay for Healthcare