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Strategies and Value Chains in Health Care

Updated: Aug 6, 2019

This segment will discuss how the competitive strategy of a healthcare organization is related to the structure, features, and functions of the organization's information systems. It will explain the relationship between competitive strategies, value chains, business processes, and information systems. At the end of the module, the student will have a clear understanding of how information systems provide a competitive advantage in health care. Typically, planning for information systems is divided into five steps. We start with Porter’s five forces to analyze the industry’s structure and determine a competitive strategy. The strategy determines value chains, which determine business processes, which in turn determine the design of information systems.



Completive Strategies


In addition to Porter’s completive strategies described in our text, there are several other strategies that can help an organization achieve competitive advantage. Tan has categorized these strategies into three major groups: corporate, competitive, and functional



Value-Based Competition


The strategies described here assume that organizations are managed on a resource-based manner. They aim at reducing costs and maximizing profits. However, considering that the business of health care is to provide health, one would expect that competitive strategies should also aim at maximizing health outcomes.

To that end, there is a growing body of literature supporting that strategies and competition should also concentrate on patient value, besides minimizing costs and maximizing profits. This shift is essential for the success of the value-based care model that slowly replaces fee-for-service.

To leave behind costs and profits, we need to redefine the term value, as its original definition – “the amount of money a customer is willing to pay for a product or service” – is no longer valid in a value-based model. Instead, patient value is expressed in terms of benefits of outcomes of a service provided as they relate to the cost of the service, or health results per unit of cost. This shift forces organizations to compete on health results rather than costs. Therefore, the focus of a competitive strategy becomes to provide the best-value care to the patient.


Measuring Value and Value Chains in Health Care


In his book Redefining Health Care, Porter proposes that patient value is measured based on the full cycle of care of a certain disease or group of diseases. In other words, value should not be measured holistically throughout the hospital services. Rather, it should be based on a specific disease. To achieve this, Porter proposed the creation of Integrated Practice Units, or IPUs, representing specialty departments or other care entities within the hospital. Each IPU is responsible for the complete cycle of care of one or more diseases.


As with the classic value chain model, primary activities are direct value added, while supporting activities are indirect value added. Both types of activities must be aligned to the organization’s needs and create patient value.

Studying the value chain of the care cycle can enable decision makers to detect weaknesses and strengths of organizations as well as opportunities for improvement and growth. According to Porter, value

chains are the “basic framework for structuring IPUs, coordinating the care cycle, designing facilities, configuring the process of care, developing practice standards, defining and collecting the right information, and accumulating costs.”

Watch Professor Porter presenting value based healthcare at SVEUS



Value Chain Model Examples 


1. Chronic Kidney Disease




2. Breast Cancer




3. HIV/AIDS



4. Glaucoma



5. Senile Cataract


Value Chain and Information Systems


Reviewing the value chain examples presented, one can identify different information systems that could facilitate each of the primary and supporting activities shown. For example:

Mobile Health Solutions could be used to support parts of the monitoring activitiesDecision support systems could be used to assist in the diagnosing and intervening activitiesPatient portals could assist with recovering and rehabilitating, etc.


Strategies vs. Information Systems


A conversation that we lightly touched upon already is whether strategies precede information systems or information systems are used to form strategies. The textbook extension of Chapter 18 provides a lengthy, inconclusive discussion on the matter.

Both actions are acceptable. However, it is imperative to define a clear relationship between technology investments and the organization’s overall strategies, and thus goals and objectives. For example, if an organization decides to invest in a new claims adjudication system, it should be clear that the organization aims at improving effectiveness of the claims-processing process.

The main reason that technology investments must align with the organization’s strategic planning is waste of resources. If an investment is defined incorrectly, resources allocated to the investment are engaged into activities that do not foster the organization’s competitive advantage.

There is a lot of literature describing methods for aligning technology investments with the organization’s strategies that I encourage you to review. Typical keywords include: Health IT strategic planning.


Conclusion


In summary, planning for information systems necessitates the formation of a competitive strategy that encompasses the organization’s goals and objectives. Organizational strategies can be classified as corporate, competitive, and functional.

Strategies determine value chains; value chains determine business processes; business processes define information systems. In the modern healthcare setting, organizations need to consider patient value in their strategies. Patient value is expressed as benefit of intervention over cost of intervention. To measure patient value, we use value chains representing the entire care life cycle for a disease or group of diseases.

Information systems can facilitate each of the primary and supporting activities presented in the value chain. Studying the value chain of the care cycle can enable decision makers to detect weaknesses and strengths of organizations as well as opportunities for improvement and growth.


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