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BUSINESS OF
MEDICINE
Porter’s value chain provides a model of how health organizations ACOs are actions taken to improve or enhance the ability of health-
or systems generate value by the interconnected elements of service care organizations and systems to generate value matched against
and support systems. Service systems include pre-service, point of current and expected resource exchanges. In many cases, principles
service, and after-service elements which correspond to each incre- of quality management, economies of scale and economies of scope
mental step of how a patient receives service. Similarly, support sys- are driving business decisions in reshaping value chains.
tems including culture, structure, and resources drive each of the
service systems. In essence, an organization or system’s value chain Going forward, patients and providers may be well-served to con-
represents the potential capacity for value generation. Organizations sider each of the value elements associated with the exchange of re-
or systems that have well-integrated services and comparatively rich sources in healthcare markets. Healthcare organizations and systems
support elements have greater value-generating capacity. On the will naturally seek to provide services and products that are needed
other hand, ill-developed service systems or resource-constrained and/or wanted, but should consider that the costs to meet market
organizations or systems can be expected to have diminished value- demand may substantially decrement evaluations of value. Similarly,
generating capabilities. 4,5 patients, beneficiaries and other stakeholders may be well-served to
consider expected outcomes and associated costs necessary to gen-
Finally, the fundamental theorem of exchange illustrates how erate healthcare products and services in consideration for pay-
goods, services and resource consideration interact in markets. The ments, insurance premiums, and taxes provided to facilitate the
basic point of this principle is that individuals and groups of people exchange of resources.
seek to be “better off ” or to enjoy some incremental level of benefit
or satisfaction in life which provides a basis for resources to be ex- REFERENCES
changed to achieve those outcomes. Exchanges of resources should
be expected to occur naturally between parties in a market provided 1. Centers for Medicare and Medicaid Services (2015). National Health Expen-
the estimation of what is given and received are judged to be mu- ditures Highlights. Available at: http://www.cms.gov/Research-Statistics-Data-and-
tually beneficial. 6 Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/high
lights.pdf
MEETING THE THRESHOLD
To understand current and forward-looking healthcare develop- 2. Reinhardt, Uwe (2013). Waste versus Value in American Health Care. New
York Times. Economix Blog. Available at: http://economix.blogs.nytimes.com
ments associated with the value-based market system, consider the /2013/09/13/waste-vs-value-in-american-health-care/?_r=0
elements of the model. The center element, exchange of resources,
is predicated on the principles of the fundamental theorem of ex- 3. Gamble, Molly and Herman, Bob (2013). Becker’s Hospital Review. Three Years
change and holds that healthcare consumers, third-party payers, of PPACA: The 5 Biggest Changes in Healthcare Since the Law’s Passage. Available
government institutions and taxpayers will provide financial re- at: http://www.beckershospitalreview.com/hospital-management-administration/3-
sources to fund value-generating healthcare activities if the exchange years-of-ppaca-the-5-biggest-changes-in-healthcare-since-the-laws-passage.html
is mutually beneficial. These individuals and groups will use value
(ratio of health outcomes to cost) to assess whether current or on- 4. Porter, Michael (2010). What is the Value of Health Care? New England Jour-
going resource exchanges meet the beneficial threshold. Healthcare nal of Medicine. Volume 363. 2477 – 2481.
organizations and systems must consider and shape their own ca-
pacity to generate value within their value chain in a manner that 5. Ginter, Peter, Duncan, Jack, Swanye, Linda (2013). Strategic Management of
favorably corresponds with estimates and/or perceptions of value in Healthcare Organizations (7th edition). Jossey-Bass. San Francisco, California
order to remain a going concern.
6. Getzen, Thomas (2010). Health Economics and Financing (4th Edition).
Consider changes in the current healthcare market within this Wiley Publications. Hoboken, New Jersey.
framework. When Centers for Medicare and Medicaid Services ad-
just reimbursement for readmissions after surgical procedures, re- Lee W. Bewley, PhD, FACHE, is a retired Army offi-
source exchanges are being adjusted to match “what is given” and cer, associate professor of healthcare management, and a
“what is received” in the market. Healthcare organizational mergers, board-certified healthcare executive. He is a faculty mem-
increased integration of providers and organizations, and the rise of ber in the Walker School of Business at Webster University
in St. Louis. He has served as the program director of the
Army-Baylor University MHA/MBA program and as an adjunct fac-
ulty member at the University of Texas at San Antonio, Trinity Uni-
versity and University of the Incarnate Word.
visit us at www.bcms.org 35
