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The Health Care Value Chain: producers, purchasers, providers, by Lawton R. Burns and Wharton School colleagues, Jossey-Bass, 2002, £40.95/$55.00. Reviewed by Michael Tremblay PhD, Tremblay Consulting (health policy and strategy consultancy), UK. Mike@tremblay-consulting.biz. +44-1233-770710. Considering that most countries spend something between six and 12 per cent of their national wealth on health, and it employs perhaps 5 per cent of the workforce, it is worrying that so little is really understood about the structure of the health care industry. It is, therefore, perhaps no surprise that research in the US should be in the forefront of trying to make sense of this, not just because the US accounts for perhaps 42 per cent of global spending on health services. Burns and colleagues' study of the US health care value chain is the culmination of a three-year research initiative involving both industry and academe, funded by the US National Science Foundation, and anchored at the Wharton School, University of Pennsylvania. The book is addressed to both academic researchers and industry executives. It exposes to scrutiny the structure of upstream and downstream relationships within the US health industry (comprising in US terms, providers, mainly hospitals, producers of goods, and purchasers of health services, such as Group Purchasing Organisations GPOs), with a particular focus on the strategies of manufacturers in three product areas: pharmaceuticals, medical devices, and medical-surgical products – these account for 70-80 per cent of hospital supplies. The conclusion is that the health value chain does not work very well. Sources of problems may lie, they say, in key structural features of health service itself. These include a provider industry based largely on non–profit ownership which does not emphasise budgeting, and process improvement, and the role of federal and state governments as a key source of revenues which may create a welfare mentality, rather than a strong profit-and-loss one. The general fragmentation of the value chain reflects the lack of leadership, either in the form of industry integrators who standardise formats and content of business transactions, or through innovators who challenge the prevailing business model. The natural tension, of course, is between investment in patient care and in business systems and infrastructure, which marginalises efforts to create sensible business relationships to produce gains for patients. But the authors note, more practically than ideologically, that the non-profit status and government regulation do more than ensure the integrity of the health system, but have actually "retarded flows of capital, recruitment of business-trained professionals, and investments in IT…" The importance of this research is not just in identifying how the health care value chain does (or does not) create value and the sources of competitive advantage, but in sign-posting how to improve operations, reduce costs, and deliver greater service quality. In the end, patients and consumers, taxpayers and regulators should benefit. For business executives in other industry areas, understanding the structure of their industry value chain is fundamental. In health, surprisingly little is understood. Perhaps health is seen as so important its commercial imperatives are unexamined. It may also be that national health policies have failed to address these issues, and that is the fault of governments. The authors write: ''Within healthcare, information on the value or cost added at each link is severely lacking. Indeed, the current state of knowledge on product value/cost among producers may be so low that meaningful knowledge sharing is impossible. Moreover, there is some consensus that multiple links may perform duplicative functions or wasteful, non-value adding functions due to this lack of information or reluctance to share information.'' The fear is that if this is a true description of the US – founded on more commercial imperatives than many countries would be prepared to accept – what must the situation be in other countries? Can we assume that in the ignorance of health value chain insights, governments in these countries have got it right? Clearly, if nothing else, each country needs to understand its own health value chain, and perhaps more tellingly, understand the impact of national health policies. The fear, too, is that in our ignorance we think we are doing well. Burns and colleagues suggest: "…healthcare supply chain characteristics and practices resemble those of industry from the 1960s and 1970s rather than 1990s and 2000s." More critically, they compare health to other areas of the economy and health is found seriously lacking: "In healthcare, the business focus is unit cost, whereas in industry it has shifted to total supply chain cost. In healthcare, the supply chain is managed through budgets; in industry it is managed through measurable process and quality improvements. In healthcare, the supply chain is viewed as a cost center, whereas in industry it is viewed as an opportunity for innovation. In healthcare, the organizational structure is oriented around independent, functional department silos, whereas in industry it is oriented around an extended enterprise with trading partners; that is, both upstream (supplier) and downstream (customer) integration. In healthcare, the information system strategy is lacking or departmentally focused, whereas in industry it is oriented toward both internal and external visibility with one's value chain partners. Finally, in healthcare, planning capability is reactive and historical, whereas in industry it is synchronized with end-user demand.'' Of particular importance is the chapter on e-commerce, comprising over 100 pages of this book. While e-commerce was supposed to deliver great change, it has been noted by others that IT has generally failed to deliver benefits into health care that translate into productivity gains, cost reductions and service improvements. This is particularly troublesome, not just because health systems are important, or increasingly costly, but because they seem to be immune to productivity improvements. Hospitals, as the end of the process, are criticised in particular. The failure to benefit from e-commerce throughout the value chain reveal weaknesses which come home to roost in the hospitals which fail in ''logistics, procurement, utilization, pricing, and support for the materials management role.'' If we think health care is so important, why are health systems often so bad? Understanding fundamental commercial, service and value-creation relationships between key partners in such a major segment of the economy gives us additional knowledge to tackle this question. The challenge to national governments will be the extent to which they, too, will understand their role in these fundamental relationship, in particular whether they have an adequate understanding of their own health economies. The value of this book is clear for health care companies operating into the US market with lessons and insights coming fast and furious. For non-US companies, the book is a guide to focus strategic energies into better understanding their own value chain relationships. For governments and health policy makers, the scope of a responsible health policy has now been widened. Burns and Colleagues have done us all a service, as we now know what to do.
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