DaCHE discussion papers,
University of Southern Denmark, Dache - Danish Centre for Health Economics

Abstract: The current fashion in health policy is value based health care in the sense that Michael Porter has introduced, starting with his 2006-book on Redefining Health Care – Creating Value-based competition on results. The question is: Is it a genuine innovation, or is it a quasi-innovation that is easily misunderstood or misapplied and will fade away in a very few years to be substituted by a new fad? Surprisingly, value based health care has not yet been subject to critical scrutiny. This working paper has three aims: A rather critical appraisal along with a very rare undertaking in health policy analysis: The tracing of how an idea/concept has been spread and promoted (who, where, how) internationally and in Denmark. The third aim is to look at relevance for Danish health care by asking: Is it an alternative to the current activity based reimbursement regime: DRG-based reimbursement, and will the outcome-focused approach put the patient first and in the center (patient-focused health care)? The brief answers to the two questions are: No and yes respectively. Value based health care has three main components: 1. Focus on outcome (health status changes), 2. Value based reimbursement, and 3. The organization of health care along diagnostic/disease lines (Integrated Practice Units). To this can be added, for instance, the need for an IT infrastructure. Only 1 and 2 are addressed here. The promotion of the concept has been located in two cities: Boston and Stockholm. In Boston, Porter’s Institute for Strategy and Competitiveness, Boston Consulting Group along with the New England Journal of Medicine have been instrumental in spreading the thinking, and tireless promotion by Porter himself, occasionally in tandem with Robert Kaplan. In Stockholm, the consulting house IVBAR with good ties to Porter and the Karolinska Institute/Hospital has been instrumental and the consortium Sveus (7 counties that to varying degrees experiment with some of the ideas), essentially supported and managed by IVBAR which manages the homepage of Sveus. In Denmark, the idea has been promoted by Danish Regions with support from IVBAR – though, in fairness it should be noted that the 2011-pampflet on Quality Based Health Care was the independent starting point by establishing an agenda of ‘quality – not quantity’. One particular challenge posed by an essentially American developed concept is to distinguish purely American issues from the more universal relevance. For instance, the idea of bundling of services in a US context is marred by the fact that the Medicare DRG rates do not include physicianpayment, which for instance is the case in Denmark – where DRG is hence (possibly along the DAGS for ambulatory hospital treatment) essentially bundled services in a hospital context – hence to a considerable degree diminishing the novelty of bundling. Examples like these abound – requiring the reader to have a good understanding of both the US and the national context. Value based reimbursement has three components (at least judging from the Swedish examples within eight diagnoses – with spine surgery, hip and knee replacement as the most frequently promoted, also by Porter): Bundled payment; a warranty component and a P4P-component, with the last two components making up less than 10% of the total reimbursement – and lacking arguments for how to calculate these two components. The costing of the bundled payment apparently ought to be done using time based ABC a la modum Kaplan. Claims about savings using bundled payment are not substantiated in a causal sense. Six Danish pilot studies of value based health care are discussed briefly noting that the relationship to the concept is very weak. A recent working paper from Danish Regions looks in some detail at value based reimbursement – with P4P being the link to ‘value based’. The outcome dimension is addressed in a Danish context by reference to an ongoing promising project about PRO and PROM data. However, many loose ends remain – in particular with regard to the applicability at the population level. In addition, there is a need for coupling this patient centered outcome approach to the existing clinical quality databases and the recently introduced eight national objectives for the Danish health system.

Keywords: Value based health care; value based payment; reimbursement; outcome

JEL-codes: I11; I18

41 pages, February 7, 2017

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