Value-enabled Strategy: Implications of Value-based Healthcare Model for Competitive Strategies of Diagnostic Imaging Companies

Abstract

This paper covers the issue of an ongoing transformation of healthcare from the valuebased to value-based model. Value-based healthcare is a framework primarily developed by Michael Porter and Elizabeth Teisberg in their 2006 book “Redefining Healhtcare: Creating Value-based Competition on Results”. The main premise of the book is that the healthcare delivery should center around the patients and focus on the maximization of their outcomes relative to costs. Since 2006, value-based healthcare gained increasing interest of policymakers and businesses. Despite its popularity and huge potential transformative effect on the whole healthcare delivery value chain, studies evaluating its impacts for business engaged in healthcare are largely missing. This paper aims to address that knowledge gap by focusing on the evaluation of value-based healthcare implications for the competitive strategies of the diagnostic imaging firms. The starting premise is that current volume-based healthcare disincentivizes adoption of other strategies besides the cost-leadership. The second premise is that value-based healthcare has a potential to negate this effect and allow diagnostic imaging firms to utilize other strategies. These premises are tested by the means of the game-tehoric modeling, and analysis of the firms themselves. Specifically, the paper focuses on how the value-based healthcare is translated from a theory to direct outcomes for the firms. It was identified that the main link between the value-based healthcare and diagnostic imaging companies is the procurement process. For this reason, the paper studies difference between traditional procurement based on lowest price criterion and the value-based procurement based on price/quality ratio. Finally, both procurement methods are evaluated in terms of their outcomes for the competitive strategies of the diagnostic imaging firms. It is concluded that the traditional procurement indeed incentivizes adoption of cost-leadership strategy and that the valuebased procurement allows for the successful use of multiple strategies.