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Strategic Positioning in Health Care Management

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PERCEIVED PATIEN VALUE is often not aligned with the emerging expenses for health care services. In other words, the costs are often supposed as rising faster than the actual value for the patients. This fact is causing major concerns to governments, health plans, and individuals. Attempts to solve the problem have habitually been on the operational effectiveness side: increasing patient volume, minimizing costs, rationing, or closing hospitals, usually resulting in a zero-sum game. Only few approaches come from the strategic positioning side and "competition" among hospitals is still perceived rather as a danger than as a chance to create a positive-sum game and stimulate patient value. In their 2006 book, Redefining Health Care1, the renowned Harvard strategy professor Michael E. Porter and hospital management expert Professor Elizabeth Olmsted Teisberg approach the challenge from the positive-sum perspective: they propose to form Integrated Practice Units (IPUs) and manage hospitals in a modern, patient value oriented way. They argue that creating value-based competition on results should have the same effect on the health care sector like transparency and competition turned other industries with out-dated management models (like recently the inert telecommunication industry) into highly competitive and customer value creating businesses
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Mémoire n° 126
Janvier 2009





CARE DELIVERY VALUE CHAINS FOR
OPHTHALMIC CLINICS IN
SWITZERLAND


Samuel Bühlmann

Ce mémoire a été réalisé dans le cadre
du Master of Advanced Studies en
économie et management de la santé /
Master of Advanced Studies in Health
Economics and Management (MASHEM)






Care Delivery Value Chains for
Ophthalmic Clinics in Switzerland


Samuel Bühlmann
JANVIER 2009
MÉMOIRE N° 126








DIRECTEUR DE MÉMOIRE :
EDUARD PORTELLA :
DR EN MÉDECINE, MASTER EN SANTÉ
PUBLIQUE, PRÉSIDENT DE L’ENTREPRISE
ANTARES CONSULTING, BARCELONA.

EXPERT:
MIKE DOMENGHINO:
DR. RER. POL., PROFESSOR OF MARKETING AND
STRATEGY AT FHNW, AFFILIATE FACULTY
MEMBER OF PROFESSOR MICHAEL PORTER'S
WORLDWIDE HARVARD MICROECONOMICS OF
COMPETITIVENESS COURSE.




MASTER PROJECT

MASTER OF ADVANCED STUDIES IN
HEALTH ECONOMICS AND MANAGEMENT

HEC UNIVERSITY OF LAUSANNE
JANUARY 2009
 
 


 
 







 
 
 

 
 
 
2


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve years ago, Nestlé was organized like a heavy oil-tanker…
Today, we are a fleet of speedboats!
 
Peter Brabeck, CEO and President,
announcing record earnings at Nestlé’s
general assembly on February 21, 2008.
 
 

3

TABLE OF CONTENTS
 
EXECUTIVE SUMMARY ........................................................................................................................ 6 
1. 
INTRODUCTION .............................................................................................................................. 7 
1.1 
PROBLEM IDENTIFICATION ............................................................................................................ 7 
1.1.1 
What is Patient Value? ......................................................................................................... 8 
1.1.2 
The Integrated Practice Unit (IPU) ................................................................................... 10 
1.1.3 
Competitiveness of Health Care Services in Switzerland ................................................... 11 
1.2 
RESEARCH QUESTION ................................................................................................................. 14 
1.3 
METHODOLOGY .......................................................................................................................... 14 
2. 
THE CARE DELIVERY VALUE CHAIN IN THEORY ............................................................ 15 
2.1 
PRIMARY ACTIVITIES .................................................................................................................. 16 
2.1.1 
Monitoring and Preventing ................................................................................................ 16 
2.1.2 
Diagnosing ......................................................................................................................... 17 
2.1.3 
Preparing ........................................................................................................................... 17 
2.1.4 
Intervening ......................................................................................................................... 17 
2.1.5 
Recovering and Rehabilitating ........................................................................................... 18 
2.1.6 
Monitoring and Managing ................................................................................................. 18 
2.2 
SUPPORT ACTIVITIES ................................................................................................................... 18 
2.2.1 
Knowledge Management .................................................................................................... 18 
2.2.2 
Informing ............................................................................................................................ 19 
2.2.3 
Measuring .......................................................................................................................... 19 
2.2.4 
Accessing ............................................................................................................................ 19 
3. 
PRACTICE EXAMPLES ................................................................................................................ 20 
3.1 
THE INTEGRATED PRACTICE UNIT FOR GLAUCOMA ................................................................... 20 
3.2 
THE INTEGRATED PRACTICE UNIT FOR SENILE CATARACT ......................................................... 21 
3.3 
THE INTEGRATED PRACTICE UNIT FOR REFRACTIVE SURGERY .................................................. 24 
4. 
CARE DELIVERY VALUE CHAIN SURVEY ............................................................................ 26 
4.1 
STRATEGIC MANAGEMENT ......................................................................................................... 27 
4.2 
VALUE CHAIN ANALYSIS FOR EYE CLINICS ................................................................................ 28 
4.3 
COMPETITION IN HEALTH CARE ................................................................................................. 29 
5. 
RECOMMENDATIONS AND CONCLUSIONS ......................................................................... 31 
5.1 
HOW TO MANAGE THE CARE DELIVERY VALUE CHAIN ............................................................. 31 
5.2 
LIMITATIONS OF THE CARE DELIVERY VALUE CHAIN CONCEPT ................................................ 33 
5.3 
ALTERNATIVE MODELS .............................................................................................................. 34 
5.3.1 
The European Foundation for Quality Management (EFQM) Excellence Model ............. 34 
5.3.2 
The Baldrige Health Care Criteria for Performance Excellence Framework ................... 35 
6. 
BIBLIOGRAPHY ............................................................................................................................ 37 
6.1 
PERSONAL INTERVIEWS .............................................................................................................. 37 
APPENDIX I: FACT SHEET ................................................................................................................. 38 
APPENDIX II: QUESTIONNAIRE ....................................................................................................... 42 
APPENDIX III: PATIENT VALUE ASSESSMENT FOR PHYSICIANS AND PATIENTS .......... 44 

4


TABLE OF FIGURES
Figure 1: Resource-based functional organization chart (simplified example) ............................................. 8 
Figure 2: From Kotler’s Determinants of Customer-Delivered Value to Patient-Delivered Value .............. 9 
Figure 3: Integrated Practice Units are patient oriented and cover the whole cycle of care. ...................... 10 
Figure 4: Competitiveness of Hospitals: Operational Effectiveness and Strategic Positioning. ................. 11 
Figure 5: Sources of Competitive Advantage: Activities and the Value Chain .......................................... 15 
Figure 6: Care Delivery Value Chain Template ......................................................................................... 16 
Figure 7: Care Delivery Value Chain for Glaucoma .................................................................................. 20 
Figure 8: Offer Induced Demand ................................................................................................................ 23 
Figure 9: Care Delivery Value Chain for Senile Cataract ........................................................................... 22 
Figure 10: Care Delivery Value Chain for Refractive Surgery ................................................................... 24 
Figure 11: The EFQM Model ..................................................................................................................... 34 
Figure 12: The Baldrige Performance Framework ..................................................................................... 35 





5

EXECUTIVE SUMMARY

PERCEIVED PATIEN VALUE is often not aligned with the emerging expenses for health care
services. In other words, the costs are often supposed as rising faster than the actual value for the
patients. This fact is causing major concerns to governments, health plans, and individuals.
Attempts to solve the problem have habitually been on the operational effectiveness side:
increasing patient volume, minimizing costs, rationing, or closing hospitals, usually resulting in a
zero-sum game. Only few approaches come from the strategic positioning side and “competition”
among hospitals is still perceived rather as a danger than as a chance to create a positive-sum game
and stimulate patient value.

In their 2006 book, Redefining Health Care1, the renowned Harvard strategy professor Michael E.
Porter and hospital management expert Professor Elizabeth Olmsted Teisberg approach the
challenge from the positive-sum perspective: they propose to form Integrated Practice Units (IPUs)
and manage hospitals in a modern, patient value oriented way. They argue that creating value-based
competition on results should have the same effect on the health care sector like transparency and
competition turned other industries with out-dated management models (like recently the inert
telecommunication industry) into highly competitive and customer value creating businesses.

The objective of this paper is to elaborate Care Delivery Value Chains for Integrated Practice
Units in ophthalmic clinics and gather a first feedback from Swiss hospital managers,
ophthalmologists, and patients, if such an approach could be a realistic way to improve health care
management. First, Porter’s definition of competitiveness (distinction between operational
effectiveness and strategic positioning) is explained. Then, the Care Delivery Value Chain is
introduced as a key element for understanding value-based management, followed by three practice
examples for ophthalmic clinics. Finally, recommendations are given how the Care Delivery Value
Chain can be managed efficiently and how the obstacles of becoming a patient-oriented
organization can be overcome. The conclusion is that increased transparency and value-based
competition on results has the potential to change the mindset of hospital managers—which will
align patient value with the emerging health care expenses. Early adapters of this management
approach will gain a competitive advantage.



Keywords
Hospital organization; ophthalmic clinic; strategic positioning; value-based competition.


1 (Porter und Olmsted Teisberg, Redefining Health Care)

6


1. INTRODUCTION
In their 2006 book, Redefining Health Care2, Professor Michael Porter and Professor Elizabeth
Olmsted Teisberg propose that creating “value-based competition on results” would be a solution
to problems in today’s health care management. They observe that many hospitals are still managed
in functional organization structures—resource-based, like industry was managed 20-30 years ago.
They suggest that, in order to create better patient value, hospitals should create Integrated Practice
Units (IPUs). An IPU would represent a specialized unit within a hospital. The IPU is given the
responsibility over the full cycle of care of a certain disease or group of diseases.

Like a “business unit” in modern industry, the IPU would manage the key activities over the full
cycle of care. In health care, the Value Chain starts with “Monitoring and Preventing”, and goes
over “Diagnosing” to “Preparing” and “Intervening” and “Recovering and Rehabilitating” and
again to “Monitoring and Managing” of a certain disease. Using the concept of the Care Delivery
Value Chain, the objectives of such entities in a hospital would be “redefined”. This means that
special emphasis would be made on the “Support Activities”, which are “Knowledge
Management”, “Informing”, “Measuring”, and “Accessing” this specific health care services.

A special focus would be on “Feedback Loops” to increase the quality of communication within
the organization, with patients, and with third parties. Finally, a hospital organized in such
Integrated Practice Units is more flexible to perform strategic positioning. It should offer an
inspiring environment and would be more flexible to align with patient value. The processes of
continuous learning, improving overall quality would be encouraged. After all, optimized Care
Delivery Value Chains should reduce total costs per patient.

In an e-mail with the author3, Professor Porter’s assistant Jennifer F. Baron put emphasis on the
issues that the Value Chain aims to maximize value, defined as health outcomes per unit of cost. In
Professor Porter and Teisberg's view, processes of care, while important, are not a direct proxy for
health outcomes. Improved processes can lead to better health outcomes and therefore drive value,
but to truly understand value of care one would have to measure health outcomes directly (e.g.,
improvement in vision, complications from cataract surgery, time to recovery, etc.), not just
processes (e.g., did a patient receive a particular medication following surgery).

1.1 PROBLEM IDENTIFICATION
Traditional organization charts are functional and show a resources-based picture of a company or
a hospital. There is a risk that managers focus their controlling instruments too much on measuring
internal performance and forget about the real purpose of their organization. If a hospital’s cost
accounting system measures the performance of health care professionals mainly according to their
function within such a diagram, their willingness to see the “big picture” decreases and they tend to
focus their efforts just on the issues where they get measured. Much patient value can get lost due
to structural inefficiencies and the attitude of health care professionals to shift the responsibility on

2 (Porter und Olmsted Teisberg, Redefining Health Care)
3 E-Mail with Jennifer F. Baron, assistant to Professor Michael E. at Harvard Business School, Boston, MA,
Juily 10, 2007

7

to other departments. In order to be conforming to the hospital’s performance measurement
system, the manager of the surgery department will minimize his own costs and maximize his profit
for example by sending patients to go home earlier, sometimes too early. If patients get
complications within a few days, they will come to the emergency department and count as “new”
patients and new benefit there. There is little incentive to make the best decisions to obtain patient
value within a functional system based on internal resources; it can even be contra productive.
Hospital Director Remy Rouge stated in an interview4 with the author that the introduction of the
1990ies cost accounting systems reduced willingness of health care professionals to act over their
own field of responsibility—and synergies got lost.




Figure 1: Resource-based functional organization chart (simplified example)


1.1.1 What is Patient Value?
Over 40 years ago, Peter Drucker observed that a company’s first task is “to create customers”.5
This mindset can be compared with the hospital director who thinks that his hospital’s first task is
“to create patients”. However, customers face a vast array of product and brand choices, prices,
and suppliers. This is also becoming an issue in the health care sector, where quality indicators
become more transparent. How do customers and/or patients make their choices?

Philip Kotler believes that customers estimate which offer will deliver the most value.
Customers are value-maximizers, within the bounds of search costs and limited knowledge,
mobility, and income. They form an expectation of value and act on it. Whether or not the offer
lives up to the value expectation affects both satisfaction and repurchase probability.6


4 Interview with Remy Rouge, Hospital Director Regionalspital Bern-Belp, February 20, 2008
5 Peter Drucker (1909-2005) quotation: “The purpose of business is to create and keep a customer.”
6 (Kotler 60)
8


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