Healthcare

HARVAKD bUSINtSS REVItW

fining Competition in Health Care

by Michael E. Porter and Elizabeth Olmsted Teisberg

The wrong kinds of competition have made a mess of the American health care system. The right kinds of competition can straighten it out.

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HE U.S. HEALTH CARE SYSTEM has registered unsatisfactory performance in both costs and quality over many years. While this might be expected in a state-controlled sector, it is nearly unimaginable in a competitive market-and in the United States, health care is largely private and subject to more competition than virtually anyplace else in the world. In healthy competition, relentless improvements in processes and methods drive down costs. Product and service quality rise steadily. Innovation leads to new and better approaches, which diffuse widely and rapidly. Uncompetitive providers are restructured or go out of business. Value-adjusted prices fall, and the market expands. This is the trajectory common to all well-functioning industries-computers, mobile communications, banking, and many others. Health care could not be more different. Costs are high and rising, despite efforts to reduce them, and these rising costs cannot be explained by improvements in quality. Quite the opposite: Medical services are restricted or rationed, many patients receive care that lags currently accepted procedures or standards, and high rates of preventable medical error persist. There are wide and inexplicable differences in costs and quality among providers and across geographic areas. Moreover, the differences in quality of care last for long periods because the diffusion of best practices is extraordinarily slow. It takes, on average, 17 years for the results of clinical trials to become 65

JUNE 2004

Redefining Competition in Health Care

Standard clinical practice. Important constituencies in health care view innovation as a problem rather than a crucial driver of success. Taken together, these outcomes are...