Most healthcare leaders know in their gut that the industry has to make a fundamental shift in the way care is paid for and delivered. But they worry – What will our business be like in the new future? How do we get there? What’s the path forward? 

By creating a unique collaborative approach to leading dialogue about such healthcare questions, McKesson recently held its first in a series of “Better Health” events in Portland. While our time in Portland didn’t net absolute answers to these big questions, it certainly generated some phenomenal insights and kick-started a new conversation.  

Lessons from Portland

Portland is the biggest city in a state where governor and former physician John Kitzhaber shared a story that went viral a year ago. This single story illustrated everything that’s wrong with the U.S. healthcare system. It went like this: A 90-year-old woman with heart disease is suffering through a hot summer day. Feeling unwell, she calls 911 and takes an ambulance to the emergency room. There it takes about $50,000 to pay for the ambulance and get her stabilized. (In a more severe scenario you could add about $750,000 to the tab for a full-blown surgical procedure — according to the National Business Group on Health). 

Kitzhaber asked why we couldn’t simply shell out $200 for air conditioners that would prevent the incident from occurring in the first place. Not only is this story about how broken the system is, but it also shows how easy it could be to start fixing it. The story’s point is that you can be really good at providing treatment without improving health. 

Prevention sounds so reasonable as to be obvious, but the fact is that the nation’s healthcare system lacks the basic incentives to deliver care this way. Hospitals generate revenue when patients are admitted. Ambulances charge fees for transporting patients to the emergency room. Drug companies make money manufacturing medication. 

In a world in which no one is responsible for the entire spectrum of healthcare and patient costs, something as simple as a $200 air conditioner doesn’t get much play. In fact the U.S. spends far more per capita on healthcare than any other country, yet it was ranked number 17 of 17 industrial countries in overall health. If you compare the cost of care from city to city in this country, the differences in spending have virtually nothing to do with quality of care or the health of a given community. 

New models aimed at putting the primary care of the patient at the center promise to change that, and Portland is gaining a reputation for becoming healthcare’s “test kitchen.” While much of the national media coverage of healthcare is still mired in the debate over the Affordable Care Act, there are places around the country moving forward with population risk models and coordinated care models — including the launch of accountable care organizations where providers take on both the risk and reward of lowering costs while improving care. The result is a business model shift from paying for products and services to paying for outcomes.

Disruptive Innovation Starts Small

In Portland and at upcoming Better Health Tour stops in Boston and the Twin Cities, the objective is to break down the complexity of the problem by bringing together people from across the healthcare ecosystem to think about system-wide transformation. This can be viewed through two different lenses: 1) the dynamics of the local healthcare environment and homegrown innovators and 2) through disruptive innovation (a model first formulated by Innosight co-founder Clay Christensen).

One of the key tenets of disruptive innovation is that it often starts small. In Portland, a great example is a small group within Providence Health & Services, a not-for-profit health system that pioneered a new kind of pregnancy program.  

Pregnancies are expensive and no one really knows the cost ahead of time. Pricing is a la carte. Different doctors, labs and hospitals charge the insurance company fees without trying to coordinate care with other entities. And patients don’t always get the best or most coordinated care.  

Launched by Providence at the start of 2013, the Pregnancy Care Package sets a transparent fixed fee for a “bundled package” of services. Families get pre-natal care, a physician, mid-wife, doula and plenty of support after birth. The new payment model uses evidence-based innovations that have lowered total cost and resulted in healthier babies, happier moms and fewer C-sections. 

Key Takeaways from the Dialogue

Beyond facing up to the cultural challenges associated with innovation, the biggest worry we heard in Portland was about money. “We know it’s coming, we know its the right thing to do,” one participant said, “but how do we make money in a world where we get paid for outcomes rather than services before we actually live in that world.” 

This was a serious dilemma for many in the audience in Portland. It stoked a lively debate at a coffee break and later resurfaced during a final group discussion. Opinion was split. A number of local leaders argued that the best strategy was for healthcare businesses to keep one foot on the dock and another in the boat. Build a business model that works for the present, this line of thinking went, but prepare for a value-based payment model tomorrow. Another participant noted that trying to run a model that straddles these two worlds diminished your ability to do either effectively. You just have to take the leap. 

This of course is the classic innovator’s dilemma. How do you build for the future that doesn’t reward in the present? Providence’s pregnancy bundle certainly shows that the shift can be made. But is it generalizable?

Next we’re in Boston. Let’s see how healthcare leaders there handle this issue. 

Chatham Sullivan

About the author

Chatham Sullivan is a partner at Innosight. An organizational psychologist by training, Chatham is an expert on the role that senior executives play in strategy and innovation. Chatham has a rich history working closely with CEOs, boards, and senior leaders in organizations as diverse as Fortune 100 corporations, owner-led businesses, elite universities, and cultural institutions.

Evan Schwartz

About the author

Evan Schwartz is the Director of Storytelling at Innosight, where he develops insights, case studies, videos and articles for publication. He is a former editor at BusinessWeek and at MIT's Technology Review as well as a contributing writer at Wired. He spent four years as the Chief Story Officer at Walker Digital, a Stamford, CT-based business R&D lab that launches new products and companies and is best known for creating