The Harvard Business School guru's book Redefining Healthcareis a fascinating but flawed study of reform from which the NHS could learn, says McKinsey's head of global health systems

Nicolaus Henke

The central thesis of Michael Porter's book is that healthcare can be made better by defining medical conditions across the continuum of care and enabling competition to be about value versus price per episode.

The main points are generally well established principles of thinking about a healthcare system and its players:

  • The need for much better information about outcomes, and better information technology to collect and connect.
  • The need to think more carefully about specialisation and critical mass for provision.
  • The need to integrate care for a full cycle of care.
  • The need for health plans to inform patients about providers.
  • The need for patients/consumers to engage in their care and self-care.
  • The need to deal with dysfunctional competition and the underinsured problem in the United States.

While these themes are a fair and refreshingly exposed summary, this does not mean all the prescriptions and conclusions are to be supported. I would suggest it worth debating five key points - particularly when reflecting on the book's prescriptions for the UK context.

Medical condition is not a practical unit for compensation

The idea of a medical condition as a full treatment cycle breaks down in most healthcare systems for a number of reasons.

First, payments to providers and doctors often need to be made quite close to activities incurring the costs because they want to get paid. In practice it is very hard to compensate a provider for taking a lifetime risk for a type 2 diabetes patient, and it is very hard for all but the largest integrated multi-specialty inpatient and outpatient providers to assume all the activities needed.

Second, activity expressed in 80 countries as diagnosis related groups (and in the UK as healthcare resource groups) is only a proxy but most systems feel as if they are better proxy for what a provider can control than item charges (the old system) or the proposed condition charges. Moreover, most patients have multiple conditions making it very hard to define an 'episode'. For example, are patients being treated for pneumonia, congestive heart failure or diabetes complications since many patients are treated for all of these simultaneously over an episode of care (inpatient and outpatient treatment over the course of a few weeks).

Finally, it is even harder to make the idea work in a system with competing payers. When discussing these issues with 60 leading chief executive officers from around the world, the majority clearly felt that DRGs are not perfect (and certainly HRGs aren't) but that they are the best tool in existence, particularly in mature systems if best practices are observed, and commissioners have strong controls and demand management strategies in place.

Commissioning will have a place, as will competition

Competition is the mantra of the book, and Porter rightly says competition in healthcare is not always about the right things. Therefore, regulation and commissioning functions need to guide competition to the areas and parameters in which it is powerful. Unless that is understood, free entry and exit will not produce outcomes needed. Page 119 illustrates a perfect case: stroke. In this case, ambulances should not go to the nearest hospital but to a stroke unit within less than 30-45 minutes driving time.

Also, a good acute stroke unit should, for many reasons, have 500-1,000 cases per year and not 50-100 as in many UK cases. But I doubt that the most efficient way to get to 500-1,000 cases is by letting everybody invest in stroke units and equipment that need high volumes to pay off. One way for England to get there would be a smart commissioner who, for example, determines 40 stroke units for England or three to five per Strategic Health Authority, as leading stroke practitioners suggest.

Uncontrolled competition has a tendency to create demand - particularly outpatient capacity. A major problem facing the US is unmitigated outpatient demand fuelled by rapidly growing numbers of outpatient procedure centres. While these centres cost less than inpatient hospitals they frequently increase demand.

Provider strategy and specialisation is key, but the answer is not always to do everything as a medical condition

I applaud Porter's suggestion that providers need to plan strategically for the longer term. There is a tremendous quality and productivity mandate towards specialisation. Future medical developments are likely to push this trend further: in 20 years we may have three to four globally leading cancer players run as a franchise that master complex and ever-changing protocols.

In fact, some hospitals in the UK are beginning to put together ambitious plans to revolutionize some care delivery, and that various groups are benchmarking each other in certain services to ascertain clinical best practice.

Also, there is a strong appetite within the leading foundation trusts to understand much better, service by service, what outcomes, patient value and the profits and losses amount to - for service, education and research. But all of that does not mean that the only play in town is about offering total care across an entire medical condition, and the need to have emergency medicine and chronic disease management coverage at the same time as high-end secondary and tertiary care specialisation may mean we have demerging providers.

This said, specialisation is a key opportunity. Why not have Great Ormond Street run pediatrics on a franchise basis at 100 sites or Royal Marsden with 20 sites across the country? And beyond?

Health plans: how about fewer of them, or one?

Some criticism appears plausible of current medical management practices of US health plans as being overly focused on shifting cost and not enough on patient value. But the book's prescriptions read like a summary of what a some health plans are doing already: profiling and selecting providers based on quality and value, providing patients/consumers with health information like Humana's health accounts, reducing administrative burdens and moving payments to larger blocks of care activity wherever possible.

However, what is not addressed is that some big levers are missing: what about reducing the numbers of paymasters to one or only few. This would simplify the huge administrative burden for providers to deal with dozens of different invoicing and protocol systems. Is choice of health plan really a value driver? What about the time bomb of health and social care due to increasing numbers of older people?

Health policy: focus on sick system or health system?

The proposal to find solutions to insure the uninsured in the US is likely to be strongly supported by most in Europe. But is the policy chapter missing a bigger point? Why is the US spending 17 per cent of gross domestic product on healthcare while Singapore is spending 4.7 per cent to achieve similar and, in many cases better, outcomes? How about Japan or New Zealand? If all the recommendations of the book were carried out, would the US get anywhere close to the value versus cost balance of Singapore or even Europe? Surely many norms and demographics of Singapore are not transportable.

Recent McKinsey analysis shows that some of the overall causes of difference of healthcare spends are indeed rooted in the health system. The US has higher input costs for drugs, device, and labour; higher inpatient acuity and activity levels; and lower inpatient and outpatient utilisation than other systems. It also has significantly higher administrative costs driven by independent insurance regulation and Medicaid programmes in all 50 states as well as a commercial often for-profit, industry structure.

Nicolaus Henke is head of global health systems for McKinsey. For the full debate about Michael Porter's book see the issue of HSJ published on 7 December.