Thursday, October 27, 2011

Kaplan and Porter: How to Solve the Cost Crisis in Health Care

This commentary is particularly relevant now in light of the ONC revision of the federal Health Information Technology Strategy:

Commentary : R. Kaplan and M. Porter, “How to Solve the Cost Crisis in Health Care”, Harvard Business Review, September, 2011,  47-64. (See the article at

In this important publication Kaplan and Porter develop a methodology for measuring the “right” things in the “right” way to ascertain an account of costs and outcomes in health care service delivery to individual patients in the care delivery value chain (CDVC).  The authors argue that most health care costs are not fixed, and therefore accessible to managerial control.  (In my opinion, this argument is symptomatic of the absence of a health care “system”, as is the “rule of one” applied to costing expensive equipment in the context of a single health care enterprise competing with others.) In other commentaries on my blog at - I have discussed Porter’s work on conceptualizing and measuring “value” in health care “per dollar expended”, and some of the pitfalls of reliance on this common denominator.  

The methodology proposed here addresses the critical need to manage cost associated with health care services. However, some implicit ideological assumptions should be examined.  First, the method of process mapping is framed in a for-profit health care services market, assuming that competition to control costs at the enterprise level will result in financial return on investments as well as system-level savings.  This approach may result in unnecessary and costly process duplication at the system level as illustrated in the case of McAllen, Texas: .  Such costly duplication is all the more critical in the increasingly resource poor U.S. health care context.

The second apparent assumption is that health care services can effectively be conceptualized and mapped in the same way as manufacturing systems.  Kaplan’s “Time-Driven Activity-Based Costing” (TDABC) as described in earlier HBR publications also aims specifically to augment enterprise profits in competitive markets.  Many health economists reject these perspectives on service production, profitability and the efficacy of market dynamics in the health care sector.

Health care process mapping is not a new idea; it has been practiced in other national systems, including the NHS (UK- See the Institute for Innovation and Improvement at, Canada and Australia.  Lack of reference to other national experiences leaves the HBR article reader with the impression that such methods have not been used in the health care sector.    

Review of some of the recent literature suggests that the results of the process mapping methodology vary, for example, according to the choice of hierarchical vs. sequential mapping, as well as selection of participating stakeholders and the overall process perspective.  (See Colligan, Anderson et al., Does the process map influence the outcome of quality improvement work? A comparison of a sequential flow diagram and a hierarchical task analysis diagram,  BMC Health Services Research, 2010, 10:7doi:10.1186/1472-6963-10-7:

Evidence based clinical pathways also offer an approach to link evidence to multi-disciplinary care plans for specific clinical conditions. (See Rotter, Kinsman et al., Clinical pathways:  Effects on Professional practice, patient outcomes, length of stay and hospital costs (Review), The Cochran Library, Issue 7, 2010, ).  The Map of Medicine at (associated with the NHS) illustrates the development and use of clinical pathways in patient diagnosis and treatment.  The clinical pathway methodology is designed to integrate high quality evidence from research in medicine with practice-based knowledge. 

The NHS emphasizes the importance of a culture supporting performance improvement, and a focus on the patient experience.  While Kaplan and Porter apply their method at the individual level of analysis, their objective is to map those activities related to a specific medical condition that can be “costed”, thus introducing an activity selection bias in the process map.  The resulting focus is the cost of individual disease treatment cycles rather than a holistic view of the patient’s health care experience aggregated in the larger population perspective.

Kaplan and Porter seem to address more effectively the interests of private insurers, to “reinvent reimbursement” by measuring costs at the individual level of analysis – with increasing granularity (including…“consumable supplies such as medications, syringes, catheters, and bandages used directly in the process.”  p. 54).  The authors do not address the costs of such granular data collection and analysis.  Furthermore, they do not demonstrate HOW the TDABC process should be informed by health care “value” or research evidence on health care outcomes – with the result that the managerial values driving the process are not adequately subordinate to the science of medicine or the care of patients and populations.