COMMENTARY

Value Chain Management to Implement

Post–Covid-19 Health Care Strategy
Michael E. Porter, PhD, MBA, Junaid Nabi, MD, MPH, Thomas H. Lee, MD, MSc
DOI: 10.1056/CAT.21.0302

Health care organizations must learn from what has worked during the Covid-19 crisis.
Leaders have found that while they cannot do everything, they must define and manage
the sequence of activities required to deliver high-value care.

Over the last 2 decades, U.S. health care has slowly increased its orientation toward improving
value (i.e., health outcomes achieved per dollars spent) as opposed to volume of services alone —
and this progress has accelerated with the onset of the Covid-19 pandemic. Faced with crisis, the
major health care stakeholders (including care delivery organizations, insurers, and government)
put aside preoccupation with policies on how to pay providers and organized instead around the
primary goals of keeping patients safe and meeting their needs.

This period of intense focus on meeting the medical needs of customers gave health care
organizations insight into the power of configuring and managing the value chain — i.e., the set
of activities essential to delivering its strategy. “Strategy” begins with clarity on the “what” and
the “whom.” The “whom” is the organization’s target customers or patients, and the “what” is
the value to be created for each customer. “Value chains” in health care are the sets of activities
required to create that value for customers with particular medical needs.

The threat of Covid-19 has been great enough to cause health care stakeholders to collaborate
in addressing the value chain relevant to the Covid-19–specific needs of patients. Government,
insurers, and providers endorsed the principle that every American should have access to Covid-19–
related care without financial barriers. The logical extension of that principle is the broader, long-
term goal of delivering universal access to excellent care at an affordable cost.

To meet this challenge, health care organizations must learn from what has worked during the
Covid-19 crisis, when the need for strategy and clear value chains became so compelling. During

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the pandemic, organizations learned that while they could not do everything, they need to define
and manage the sequence of activities required to deliver high-value care.

How Covid-19 Drove Value Chain Thinking

Health care organizations have traditionally concentrated their management work on the activities
for which they are reimbursed (e.g., office visits, tests, and procedures). Managers may give
attention to the phases immediately before and after these activities (i.e., getting patients in and
getting them out), but generally do not take responsibility for meeting the needs of patients over the
entire cycle of care.

The lack of “value chain thinking” is reflected in the jumbled layout of the sites where activities
are carried out. Elaborate signage and ubiquitous information desks are required to keep patients
from getting lost, because these facilities are not designed to enable efficient coordination of
patient care. The architecture reflects a view of health care in which individual clinicians perform
individual activities, without consideration of how each activity fits in the overall process of
delivering care.

“ Value chain management served providers and patients well during

the worst moments of the Covid-19 crisis. The question now is how to
apply this approach when the urgency seems less intense."

In other business sectors, the way in which managers viewed their work began to change late in
the last century, influenced by the concept of “value chains” first described in depth in Porter’s
Competitive Advantage.1 Porter observed that aseries of activities are required to create value for
customers; rarely, if ever, does creation of value happen through performing just one thing in health
care and other complex work. Successful implementation of strategy requires a grasp ofall the
activities required for value creation, with management to ensure that all are being performed with
effectiveness and efficiency.

For example, effective Covid-19 vaccination campaigns only began with research, clinical
trials, and manufacturing efforts. Other key activities included distribution systems (including
prioritization), education, administration, and follow-up surveillance. Failure in any activity
compromises the impact of all of them.

Value chains enable managers to focus the activities that generate costs and create value for
the users of their work. If the activity does not add value for the customer, then it should not be
included in the value chain (nor should its costs). This requires that managers have a very clear
idea of whose needs they are trying to serve and the set of activities they must perform to serve
those needs. Management must concentrate on the most basic units of competitive advantage.
Essentially, this is a systems optimization approach.

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For complex pursuits such as health care, these activities are inevitably intertwined. The critical
activities do not necessarily occur in the same sequence for every patient, but they must occur,
ideally concurrently. Management should work to organize the set of activities so they reinforce
each other rather than conflict or cancel each other out. An example: having patients with newly
diagnosed malignancies simultaneously see a team including oncologist, surgeon, and radiation
therapist, rather than seeing them separately and receiving advice that can be conflicting.

This approach forces managers to look beyond the boundaries of their own unit or organizations
and see themselves as part of a larger system. Managing interdependencies becomes as important
as managing within the organization’s walls.

During the Covid-19 pandemic, providers in many regions worked with competitors in ways
unimaginable in ordinary times, sharing supplies and moving patients and personnel among
them. “Incident command” offices were created in almost every organization to enable a single
site of information gathering and decision-making. In some cities, such as St. Louis, the regional
equivalents of incident command centers were set up.2

Value chain management served providers and patients well during the worst moments of the
Covid-19 crisis. The question now is how to apply this approach when the urgency seems less
intense.

Value Chains and Innovation

Throughout the Covid-19 pandemic, business-as-usual became impossible in almost every health
care organization. Care delivery teams had to step back and figure out what activities must be
performed to serve their patients. The results were innovations in the sites and means through
which care was delivered, and some of these innovations soon spilled over from Covid-19 care to
other populations.

For example, like many health care organizations, Geisinger Health set up drive-through sites first
for Covid-19 testing and later vaccination. Before long, Geisinger offered no-cost, drive-through
flu shot clinics. Then, in January 2021, Geisinger began using its drive-through tent adjacent to the
emergency department to provide injections of denosumab (Prolia) for patients with osteoporosis.

The idea came from clinicians who did not want their patients to miss their scheduled osteoporosis
treatments, but also did not want to expose them to possible Covid-19 infection. It was immediately
obvious that this approach also shortened appointment times and improved clinic flow and use of
space. Now, leaders at Geisinger and other health care organizations are exploring what other care
activities can be performed without patients or clinicians getting into their cars at all (e.g., virtual
mental health care and chronic disease management, and hospital-at-home programs).

Many key innovations occurred by devising ways to perform activities without requiring in-person
interactions. For example, before the pandemic, it is fair to say that many clinicians considered
the work required to coordinate care with other clinicians and to communicate their thinking to
patients’ families as a “nice to have,” rather than one of their core activities. With the onset of the

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pandemic, however, the frightening effects of isolation of patients from their families and clinicians
from each other made clear that communication among these individuals was a critical activity.

“ This approach forces managers to look beyond the boundaries of

their own unit or organizations and see themselves as part of a larger
system. Managing interdependencies becomes as important as
managing within the organization’s walls."

So, clinicians in health care organizations everywhere started meeting with families on Zoom,
since families could not visit hospitalized patients. These “family meetings” typically start with
pre-meetings among clinicians before patients and families are “admitted” to the room. These
“face-to-face” meetings among clinicians give them a chance to coordinate their care beyond what
traditionally occurred before Zoom became a dominant mechanism of interaction.

It would be a mistake to view these areas of innovation as merely endearing memories created
by a crisis. Instead, they should be seen as the result of a deepening sense of the need for an
overall strategy, embraced by providers because of an existential threat to their patients and their
workforces, and enabled by technology. Now “coordination among clinicians” has become an
essential part of the value chain of care.

Creating Differentiating Value

Examples of health care organizations creating differentiating competitive advantage by
understanding value chains relevant to their work were in fact emerging before the Covid-19
pandemic. For example, Oak Street Health has grown rapidly since 2013, providing comprehensive
team-based care to elderly patients in underserved settings. From the start, leaders at Oak Street
Health understood that transportation of patients was an important activity that was erratically
available in underserved neighborhoods. To address this critical unmet need, Oak Street Health
acquired distinctively marked green vans that pick up patients for appointments, thus reducing
no-show rates, but more importantly, improving patients’ care. When Covid-19 arrived, these vans
were “turned around” and used to help patients stay at home — bringing them food, toilet paper,
medical supplies, and other necessities.3

In other circumstances, provider organizations have recognized that they can be disrupted by
issues that seem far removed from their core function — e.g., drug prices and shortages. In earlier
times, organizations might have ignored the consequences of health care being compromised
by drug shortages or price manipulations. After all, their competitors were also hamstrung by
the same shortages. However, more forward-looking organizations collaborated to form Civica
Rx, a nonprofit organization created to reduce and prevent drug shortages and price spikes via
contracting and manufacturing.4

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Overcoming Barriers to Value Chain Thinking
A major historical barrier to value chain thinking in health care has been the fee-for-service
system, under which physicians and facilities are paid not for the entire chain of needed activities
of care delivery, but for one element of care. Such payment dysfunction was less problematic when
clinicians had a limited ability to change the natural history of disease. Because no value was being
created, the operating process did not matter.

Now, however, health care organizations are increasingly being rewarded through value-based
payment models. These models vary widely in structure and effectiveness, but the aggregate
impact is directionally correct. Managers are now focusing on a broader range of activities, many
outside their direct control — and thus grasping the necessity of applying care delivery value chain
strategy.

The first step for such managers is understanding who can best lead the value chain implementation
— i.e., play the role analogous to incident command centers during the worst moments of the
Covid-19 crisis. Integrated practice units (IPUs) are dedicated multidisciplinary teams that are
organized around the needs of patients with a specific medical condition over the full cycle of
care, and they are particularly well suited to overseeing the implementation of care delivery value
chains.5 The IPU model highlights the importance of designing care delivery around medical
conditions (as opposed to specialties or traditional structures of authority). An IPU organized
around patients with a specific condition (e.g., breast cancer) can develop an integrated sequence of
activities and identify the right mechanisms to facilitate the care process. Organizations attempting
to implement care delivery value chains also need to create management structures that hold
clinicians accountable for outcomes and costs and empower leaders to lead this change.

“ In the value chain model, leaders need to coordinate whatactions

need to be accomplished,whichpeople and facilities need to be
involved, andwheresuch actions can be best executed."

A second step is to develop clarity on what value is sought and how it can be created. Achieving
superior outcomes for some segment of patients and reducing the costs requires detailed
understanding of the variation in clinical interventions as well as the right sequence of activities.
In the value chain model, leaders need to coordinate what actions need to be accomplished,which
people and facilities need to be involved, andwhere such actions can be best executed.

For example, some breast imaging teams have organized their care to minimize unnecessary fear
for women undergoing cancer screening. To do so, they have redesigned processes so that women
remain in the room where they undergo their initial imaging until a radiologist has reviewed them
— thus avoiding the anxiety created when women are told they must return because more images
are needed. These programs offer women with suspicious mammograms core needle biopsies the
same day (and about 95% of women go forward immediately) to minimize “sleepless nights.” To be
able to adapt to variation in demand (some days no biopsies are needed, but on other days several

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will be required), personnel must be cross-trained. In short, the whole team understands the goal
and the activities required to achieve it and is designed to perform them.6

The need for flexibility emphasizes that the concept of developing a care delivery value chain is
different from a “focused factory,” which describes an organization that performs one activity. The
classic example is the Shouldice Hernia Hospital, which is dedicated to repairing hernias. More
than 98% of their cases are performed with the same technique. For patients whose cases are
straightforward, the outcomes are excellent.

In most health care, however, almost every single activity is going to vary depending on the
patient’s medical conditions. When organizations think in terms of value chains, they must
configure the sequenced of activities so that these variations can be readily addressed. This will
require the capacity of the team to perform the varied activities and manage the transitions across
them.

***

In health care, operating processes are interrelated and must be executed in coordination to
achieve maximal efficiency and effectiveness. To meet the challenges of the post–Covid-19 era,
organizations must work to understand the entire value chain for their key patient populations and
optimize the entire process — not just the processes under their immediate control.

Health care organizations should understand that there are two ways to differentiate themselves
from competitors. One is to be more effective at performing the same configuration of activities as
everyone else — that is, to have greater operational effectiveness. Such best practice advantages are
rarely sustainable.

The second — and better — way to differentiate is to study the value chains for key patient
populations and choose a configuration of activities different from the competition and that
focuses on delivering higher value. This approach enables strategy to be a key step in addressing
the pressures of competition. Instead of doing the same thing the same way as everyone else for
all patients, resulting in a price war — or succumbing to the temptation to adopt anticompetitive
measures such as merging with competition — health care organizations should adopt value chain
thinking and apply innovative approaches as they did during the Covid-19 pandemic.

Michael E. Porter, PhD, MBA

Bishop William Lawrence University Professor, Institute for Strategy and Competitiveness,
Harvard Business School, Boston, Massachusetts, USA Co-Founder, International Consortium
for Health Outcomes Measurement, Boston, Massachusetts, USA Co-Chair, NEJM Catalyst
Innovations in Care Delivery

Junaid Nabi, MD, MPH

Senior Researcher, Harvard Business School, Boston, Massachusetts, USA

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Thomas H. Lee, MD, MSc
Editor-in-Chief, NEJM Catalyst Innovations in Care Delivery Co-Chair, NEJM Catalyst Innovations
in Care Delivery Chief Medical Officer, Press Ganey Associates, Inc., Boston, Massachusetts, USA
Member, Editorial Board, New England Journal of Medicine

Disclosures: Michael E. Porter has/had a financial relationship with the following companies within
the past 12 months: Ascent Biomedical Ventures (investment), BioPharma Credit (investment), Royalty
Pharma (investment), AZTherapies (advisor/investment), Merck (stock), Thermo Fisher Scientific (stock),
Molina Healthcare (stock), and Allscripts (stock). He and Thomas H. Lee are Editorial Board Co-Chairs
for NEJM Catalyst Innovations in Care Delivery. Thomas H. Lee is CMO of Press Ganey and Editor-in-
Chief of NEJM Catalyst Innovations in Care Delivery. Junaid Nabi has nothing to disclose.

References
1. Porter ME. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free
Press, 1985.

2. Garza AG, Dunagan WC, Starke K. The Covid-19 war: military lessons applied to a public health
campaign. NEJM Catalyst. February 9, 2021. Accessed October 25, 2021. https://catalyst.nejm.org/doi/
full/10.1056/CAT.20.0549.

3. Myers G, Price G, Pykosz M. A report from the Covid front lines of value-based primary care. NEJM
Catalyst. May 1, 2020. Accessed October 25, 2021. https://catalyst.nejm.org/doi/full/10.1056/
CAT.20.0148.

4. Dredge C, Scholtes S. The health care utility model: a novel approach to doing business. NEJM Catalyst.
July 8, 2021. Accessed October 25, 2021. https://catalyst.nejm.org/doi/full/10.1056/CAT.21.0189.

5. Porter ME, Lee TH. Integrated practice units: a playbook for health care leaders. NEJM Catal Innov Care
Deliv.

6. Sedgwick EL. How care redesign and process improvement can reduce patient fear. NEJM Catalyst.
October 16, 2018. Accessed October 25, 2021. https://catalyst.nejm.org/doi/abs/10.1056/CAT.18.0071.

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