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Literature Review: Creating Value in US Health Care Industry


By David Baek, VI Form

Literature Review: Creating Value in US Health Care Industry

Redefining Health Care, by Michael Porter, and Fixing Health Care From Inside & Out, by several Harvard Business School professors, will be the foundation upon which this review will be built. The two books differ in that the former centers its content on a general, abstract principle that can be applied to the whole industry while the latter provides practical business solutions to problems occurring inside each component of the industry. Many health care leaders today are provided with far too many solutions, such as these two, to decide which one is the best option. This review serves to combine the two seemingly complementary solutions to better the health care leaders’ vision for moving US health care forward.

The status quo of the health care industry is looking very dim. There have been reports of unhelpful pharmaceutical mergers, doctors charging patients unnecessary amounts, a decline in employer-based insurance, and private insurance companies unwilling to cover for low-income families and elders. Although Medicare and Medicaid fill in the role of providing coverage for low-income families and elders, these federally funded programs are facing dim prospects, too. The major problem that the industry faces is inefficiency. When the term inefficiency is mentioned, people usually think about the lack of healthcare providers’ ability to save patients with chronic and life threatening diseases. On the contrary, Dr. Porter provides us with a universal definition of health care inefficiency: a low ratio of patient health outcomes over cost. The problem with US health care system is not only how many patients are saved but also the exponentially growing cost of patient care.

In Redefining Health Care, Dr. Porter presents an abstract solution designed to redirect the goals of health care. He implies that the present health care industry in US is very much profit-motivated, and that this underlying influence has left out patient-centered goals, upon which health care was originally built. Thus, to realign the health care industry’s motives with the patients’, Dr. Porter suggests that the industry should reform itself to cut costs by changing the reimbursement system from fee-for-service to value-based. Value-Based Model targets improving value for patients, where value is defined as “the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes” (Porter and Lee, 2013). The model seeks to create a competitive environment through an open data-sharing platform, which will hold patient records including outcomes and costs from each hospital. Hospitals will then compete to provide the cheapest, most efficient care for each medical condition. Most of the hospitals will try to produce enticing results, or methods that save more lives with less cost, to attract more patients or gain larger market shares. With this plan, aligning the goals of profit-motivated hospitals and value-seeking patients, US health care is ripe for improvement both medically and financially. Fixing Health Care From Inside & Out provides practical ways in which each player in a hospital can participate in this endeavor.

Dr. Meliones, the author of Saving Money, Saving Lives in Fixing Health Care From Inside & Out, proposes that hospitals implement a balanced scorecard policy. The balanced scorecard consists of four goals that every team, a clinical business unit consisting of a leading physician, nurses, specialists, and financial officer, needs to achieve. These goals are “financial health, customer satisfaction, internal business procedures, and employee satisfaction” (Harvard Business Review, 2011). The key here is that every player in the team needs to empathize and collaborate with others to bring the most efficient care with the lowest possible cost, destroying the historically persistent atmosphere of physician autonomy and hegemony. The spread of this new culture will create competition among the teams, and force them to keep up with the most recent and efficient treatment methods at a daily basis. By implementing this new business model, patient outcomes from each multidisciplinary team will be constantly compared to their costs inside different organizations, and value will be created in a flailing industry.

Written in the previous article, Mixture of Three Substances, there is an ever-present problem of constantly rising healthcare spending. Dr. Porter explains the major source of this problem in Redefining Health Care. He explains that the federal government, since the first Medicare and Medicaid, has only reallocated the burden of healthcare cost, not decreased it. Dr. Christensen provides a framework with which biotechnology companies can help in this area. He explains that major innovations that disrupted the status quo were the ones that allowed “a larger population of less-skilled people to do in a more convenient, less expensive setting things that historically could be performed only by expensive specialists” (Harvard Business Reivew, 2011). Technology revolutions like the personal computer and mobile phones demonstrate this idea. Biotechnology companies have prodded for solutions to very special diseases that only specialists can treat, placing a huge financial burden on patients. A certain number of these companies must focus on creating devices that allow primary-care physicians to treat diseases that specialists could only have treated in the past on a daily basis. This will reduce the financial cost, and patients with complicated diseases will see their treatments faster than ever before.

Patient outcomes not only consist of the patient’s improved health record but also his/her satisfaction with the care delivered during the stay. Mr. McCreary in Harvard Business Review provides an excellent example of Kaiser Permanente dealing with this problem. Kaiser Permanente collaborated with another company called IDEO, a design firm that sought to “uncover the untold story” (Harvard Business Review, 2011). The central element of this approach is to empathize with the subjects in order to understand their underlying opinions and feelings. Kaiser Permanente hospitals had many cases of nurses providing wrong medications to inpatients. However, IDEO was able to discover this problem by having the nurses draw a picture of them working. The deeper problem that caused the medication error was the frequent distractions that nurses experienced when providing medications. The firm then solved this problem by having the nurses wear signs to communicate that they should be left alone during certain times. Learning from this whole process, other health care leaders need to be open to the idea that hospitals are not just centers of medical treatment for patients but also places for nurses, physicians, specialists, and other players in the organization to feel satisfied with their working conditions. After all, how can they comfort patients if they do not feel safe in their own organization?

photo 4Seung Hwan (David) Baek is a VI Form boarding student from Irvine, California. He is interested in computer programming, stock markets, investment strategies, and leadership ideas.






Harvard Business Review. (2011). Harvard business review on fixing healthcare from inside & out. Boston, MA: Harvard Business Review Press.

Krugman, P., & Wells, R. (2006, March 23). The health care crisis and what to do about it [Review of the book The Health Care Mess: How We Got Into It and What It Will Take to Get Out]. New York Times, Meicare and Medicaid, pp. 7-10.

Porter, M. E. (2006). Redefining health care. Boston, MA: Harvard Business Review Press.

Porter, M. E., & Lee, T. H. (2013, October). The strategy that will fix health care. Retrieved October 30, 2015, from Harvard Business Review website: https://hbr.org/2013/10/the-strategy-that-will-fix-health-care

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