Skip to main content

A Complex Adaptive Health System Redesign Based on “First Principles”

  • 1552 Accesses


Redesign of a complex adaptive health system needs to be based on “first principles”—a focus on health, equity, and sustainability. A complex adaptive health system will:

  • Have the person and his health experience as its central focus—this will achieve person-centredness

  • Provide all those services required to achieve the person’s desired health experiences—this will achieve equity

  • Put equal emphasis on treating the person’s dis-ease and his diseases as well as the context in which his dis-ease and his diseases occur—this will achieve sustainability

A complex adaptive health system is the umbrella system that contains the many diverse subsystems, subsubsytems, and so forth of a health system. The health system maintaining the focus on the core principles, as outlined above, allows the emergence of a seamlessly integrated health system, both within and across its multiple organisational levels.

Importantly, the healthcare system is only ONE of many subsystems of a complex adaptive health system. It is that part of the health system that delivers a wide range of health professional—colloquially known as medical—care. Primary care, secondary care, and tertiary care are some of the subsystems of the healthcare system. Each of these subsystems has a particular focus and role in the care of a person/patient.

Health systems are organisational systems. The design of a complex adaptive organisation needs to embrace three key principles:

  • The definition of its purpose and goals

  • The definition of its value and “simple (operating) rules

  • The alignment of its subsystems with the system’s overarching purpose, goals, and values framework

In a complex adaptive health system:

  • Purpose, goals, values, and “simple (operating) rules” are explicit and known to everyone involved in the system—this will achieve person-centredness and sustainability

  • Leaders help their staff to be creative in finding local solutions for local problems. They ensure that these solutions are compatible with the organisation’s overarching purpose, goals, and values—this will achieve sustainability, equity, and sustainability

  • Health professionals focus on the needs (needs have to be separated from demands) of their patients and work in partnership with others to ensure those needs are met—this will achieve person-centredness, equity, and sustainability


  • Sustainable Health Systems
  • Complex Adaptive Organization
  • Finding Local Solutions
  • Multiple Organizational Levels
  • Umbrella System

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

This is a preview of subscription content, access via your institution.

Buying options

USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1007/978-3-319-64605-3_5
  • Chapter length: 22 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
USD   84.99
Price excludes VAT (USA)
  • ISBN: 978-3-319-64605-3
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   109.99
Price excludes VAT (USA)
Hardcover Book
USD   149.99
Price excludes VAT (USA)
Fig. 5.1


  1. 1.

    Walter Cronkite (1916–2009), American journalist and broadcaster.

  2. 2.

    The frustration with the healthcare system has let Andrew Weil (American physician, proponent of holistic health and integrative medicine) to state: I have argued for years that we do not have a health care system in America. We have a disease-management system—one that depends on routinely expensive drugs and surgeries that treat health conditions after they manifest rather than giving our citizens simple diet, lifestyle and therapeutic tools to keep them healthy.

  3. 3.

    The importance of health experience on morbidity and mortality has been demonstrated by self-rated health researchers like Idler & Benyamini and Jylhä (see Chap. 4). Self-rated health must be distinguished from patient satisfaction, an entirely unrelated concept.

  4. 4.

    [What are core values?, How will core values be used?]. Together they provide the foundation for solving emerging problems and conflict.

  5. 5.

    Care Redesign: Creating the Future of Health Care Delivery. They explicitly state: What does the transition “from volume to value” mean for health care and the organisation that deliver it? The redesign of care around value—meeting patient’s needs and doing so as efficiently as possible—has begun in earnest in the U.S. and around the world.

  6. 6.

    Arguing the economic perspective, he states: Arguably, they are the industry’s most important constituent.

  7. 7.

    Responding to people’s needs may go beyond that of direct medical care. Berry and Seltman describe how a needs-focused complex adaptive health system (Mayo Clinic) responded to the need of a woman dying from cancer—to see her daughter getting married before passing on. In response the clinic staff adapted their priorities and within hours organised her daughter’s wedding ceremony in the hospital atrium (Berry L, Seltman K. Management Lessons from Mayo Clinic: Inside One of the World’s Most Admired Service Organizations [8, p. 57]).

  8. 8.

    The argument here is the policy making perspective, predetermined outcomes may or may not be the ones that patients, families, and communities need.


  1. Sturmberg JP, O’Halloran DM, Martin CM (2010) People at the centre of complex adaptive health systems reform. Med J Aust 193(8):474–478

    PubMed  Google Scholar 

  2. Sturmberg JP, O’Halloran DM, Martin CM (2013) Health care reform - the need for a complex adaptive systems approach. In: Sturmberg JP, Martin CM (eds) Handbook of systems and complexity in health. Springer, New York, pp 827–853

    CrossRef  Google Scholar 

  3. Heifetz R (1994) Leadership without easy answers. Harvard University Press, Cambridge, MA

    Google Scholar 

  4. Mayo Clinic (2007) Our shared commitment - Mayo Clinic 2007 annual report

    Google Scholar 

  5. Gerteis M, Edgman-Levitan S, Daley J, Delbanco T (1993) Through the patient’s eyes. Jossey-Bass, San Francisco

    Google Scholar 

  6. Institute of Medicine (2001) Crossing the quality chasm: a new health system for the 21st century.

  7. Gottlieb K (2013) The Nuka system of care: improving health through ownership and relationships. Int J Circumpolar Health 72. doi:10.3402/ijch.v72i0.21118

    Google Scholar 

  8. Barry MJ, Edgman-Levitan S (2012) Shared decision making - the pinnacle of patient-centered care. N Engl J Med 366(9):780–781

    CAS  CrossRef  PubMed  Google Scholar 

  9. Sturmberg JP, O’Halloran DM, Martin CM (2013) Health care reform - the need for a complex adaptive systems approach. In: Sturmberg JP, Martin CM (eds) Handbook of systems and complexity in health. Springer, New York, pp 827–853

    CrossRef  Google Scholar 

  10. Cloninger CR, Salvador-Carulla L, Kirmayer LJ, Schwartz MA, Appleyard J, Goodwin N et al (2014) A time for action on health inequities: foundations of the 2014 Geneva declaration on person- and people-centered integrated health care for all. Int J Person Centered Med 4(2):69–89

    Google Scholar 

  11. Keckly P (2015) The healthcare blog [Internet]. Available from:

  12. Dolan SL, García S, Diegoli S, Auerbach A (2000) Organisational values as “attractors of chaos”: an emerging cultural change to manage organisational complexity. Department of Economics and Business, Universitat Pompeu Fabra

    Google Scholar 

  13. Rouse WB (2008) Health care as a complex adaptive system: implications for design and management. The Bridge 38(1):17–25

    Google Scholar 

  14. Ham C, Dixon A, Brooke B (2012) Transforming the delivery of health and social care. The case for fundamental change. King’s Fund, London

    Google Scholar 

  15. Seelos C, Mair J (2012) Innovation is not the holy grail. Stanf. Soc Innov Rev 10(4):44–49

    Google Scholar 

  16. Pecoraro N, Dallman MF, Warne JP, Ginsberg AB, Laugero KD, la Fleur SE et al (2006) From Malthus to motive: how the HPA axis engineers the phenotype, yoking needs to wants. Prog Neurobiol 79(5–6):247–340

    CAS  CrossRef  PubMed  Google Scholar 

  17. Raiklin E, Uyar B (1996) On the relativity of the concepts of needs, wants, scarcity and opportunity cost. Int J Soc Econ 23(7):49–56

    CrossRef  Google Scholar 

  18. Doyal L, Gough I (1984) A theory of human needs. Crit Soc Policy 4(10):6–38

    CrossRef  Google Scholar 

  19. Sturmberg JP (2009) The personal nature of health. J Eval Clin Pract 15(4):766–769

    CrossRef  PubMed  Google Scholar 

  20. Sturmberg JP (2013) Health: a personal complex-adaptive state. In: Sturmberg JP, Martin CM (eds) Handbook of systems and complexity in health. Springer, New York, pp 231–242

    CrossRef  Google Scholar 

  21. Pellegrino E, Thomasma D (1981) A philosophical basis of medical practice. Towards a philosophy and ethic of the healing professions. Oxford University Press, New York/Oxford

    Google Scholar 

  22. Young PL, Olsen LA, McGinnis JM (2010) Value in health care: accounting for cost, quality, safety, outcomes, and innovation. Institute of Medicine. Washington DC, National Academies Press

    Google Scholar 

  23. Porter ME, Teisberg EO (2006) Redefining health care: creating value-based competition on results. Harvard Business School Press, Boston

    Google Scholar 

  24. Medtronic. Value and innovation: today’s definitions are not tomorrow’s reality.

  25. Leemore SD, Christopher JO, Schmitt MA (2016) Undermining value-based purchasing - lessons from the pharmaceutical industry. N Engl J Med 375(21):2013–2015

    CrossRef  Google Scholar 

Download references

Author information

Authors and Affiliations



Addendum 1

Medicine and Philosophy - Edmund Pellegrino and David Thomasma [ 21 ]

When medicine and philosophy converge, they can greatly advance man’s search for a unified image of himself and the world; when they diverge, that image becomes fragmented, puzzling, and even absurd. …The philosophical threat to medicine today is not excessive and unrestrained system building but an excessive faith in reductionistic and positivistic modes of thought and explanation.

Philosophy of Medicine - Discipline or Philosophical Mélange?

…Medicine does, in fact, derive much of its method, logic, and theory from the physical and biological sciences, so it is to a certain extent a branch of those sciences. But medicine is also a praxis in the Aristotelian sense—knowledge applied for human ends and purposes. In this sense, medicine can be classed among the technologies. But medicine also sets out to modify the behaviour of individuals and societies, and thus has roots in the behavioural sciences. Finally, medicine operates through a personal, and therefore an ethical, relationship intended to “help” the person to “better” health. It is a value-laden activity, with roots in ethics and the humanities.

Medicine, even as science, must encompass the special complexities of man as subject interacting with man as object of science. Physiology, unlike the clinical science of medicine, studies physical processes while ignoring the lived reality of the experimental subject—his or her self-perceived history, uniqueness, and individuality. Thus even when it functions as clinical science, medicine must correlate the explanatory modes of the physical sciences with those of the social and behavioural.

But neither the basic sciences nor the clinical sciences can be properly considered as medicine until they are used in a particular clinical context, in a particular individual, and for a particular purpose to effect the attainment of health. The purpose of medicine qua medicine, then, transcends that of medical science per se—which is primarily to know. Medical science, basic or clinical, becomes medicine only when it is used to promote health and healing—that is, only when it is an intervention in an individual human life to alter the human condition. Medicine, thus construed, has a telos which distinguishes it from its component sciences, whose telosis to understand physical processes in as general a way as possible, and certainly not to particularise that knowledge in an individual human life. For medicine qua medicine cannot deal with general scientific laws as such, but must locate them in a time, place, and person. …

Medicine is, in short, a practical theory of human reality. It is a moral activity, since it operates through a personal interrelationship in which physician and patient are co-participants in defining the goal and achieving it—cure of illness or promotion of health. …It is the unravelling of that nexus for this patient, here and now, that constitutes medicine. The resultant synthesis is more than the sum total of the component sciences—physical, social, and moral—which contribute to that unraveling.

…The patient presents himself in a state of wounded humanity. He has lost some of his freedom since he must come to the physician; he must give consent when he is in pain and discomfort, and he does so in the presence of an information gap which can never be closed fully. Medical science, therefore, becomes medicine only when it is modulated and constrained in unique ways by the humanity of physician and patient. Its telos takes it out of the realm of theoria and puts it into the realm of praxis.

It is the totality of this unique combination which constitutes the clinical moment and the clinical encounter, without which authentic medicine does not exist. …

Finally, we must add the social dimensions of medicine qua medicine—the applications of medical knowledge on an aggregate of humans rather than an individual. This “social encounter” is a parallel of the clinical encounter with an individual patient. Without taking the time to carry out a parallel analysis, it is clear that scientific knowledge can also be used to improve the health of the community. Here medicine is concerned with values, choices, and priorities which relate to the “good” of society. Such issues as the distribution of health services, the purposes for which medicine is used, for whom, who decides, and upon what principles, would constitute the elements of a social philosophy of medicine. …

Up to this point, we have tried to distinguish among three levels of meaning of the term “medicine”: (a) the basic sciences component, which seeks to understand physical processes in a living being, healthy or ill; (b) the clinical sciences component, which seeks to understand physical processes in a perceiving subject in whom mind and body are united; and (c) medicine per se, or medical praxis, in which the clinical and basic sciences are particularised in the clinical moment or encounter, with all the complexities outlined above. In medicine qua medicine, the sciences are not only means of understanding but also means to intervention in the lives of persons or societies. …

Medicine clearly is a domain of activity which is distinctive and distinguishable as science, art, and praxis. It comprises a set of legitimate philosophical issues and questions which derive from the unique nature of the clinical encounter. It is precisely the clinical encounter that constitutes the singular ordering concept which distinguishes medicine from the sciences and which is the ground for the logic, the epistemology, and the metaphysics of medical practice [emphasis added].

Some Urgent Philosophical Issues Arising in Medicine

…There is a growing need to weave together the numerous separate strands of information about human existence.

…Intimately related to the philosophical conception of man are the definitions of health and disease, of cure, and of disability. The definitions of health and disease, of cure, and of disability. The presuppositions physicians hold about these conceptions shape medical theory and practice. …

The process of modernisation is associated with bureaucratisation and technology, which have become values in themselves. They are prime shapers of the cognitive style of our culture and of modern medicine. They are part of what Foucault calls our epistemé—the aggregate history of a human endeavour which enables it to occupy a specific space in a given culture.58 Has the epistemé of medicine arising from its own bureaucratisation already determined what society seeks from medicine, and created a self-reinforcing cycle carrying man ever further from what is distinctly human? Will this distorted view contribute further to man’s philosophical infirmity?

58. Foucault, The Birth of the Clinic: An Archaeology of Medical Perception (New York: Random

 ​House, 1973).

Excerpts from pp 9–38

Addendum 2

Common Themes - Institute of Medicine [ 22 ]

During the workshop discussions, a number of converging issues emerged. These common themes explored the exigency and facets of the value proposition in health care, the diversity of perspectives on value, and the possibility of implementation and change. Themes touching on the need to improve value and the elements that have to be addressed in achieving this goal included the following:

  • Urgency: The urgency to achieve greater value from health care is clear and compelling. The persistent growth in healthcare costs at a rate greater than inflation is squeezing out employer healthcare coverage, adding to the uninsured, and doubling out-of-pocket payments—all without producing commensurate health improvements. We have heard that perhaps one-third to one-half of health expenditures are unnecessary for targeted health outcomes. The long-term consequences for federal budget obligations driven by the growth in Medicare costs have been described as nearly unfathomable, amounting to an estimated $34 trillion in unfunded obligations, about two-thirds of the total of $53 trillion as yet unfunded for all mandatory federal entitlements (including Social Security and other civilian and military benefits)

  • Perceptions: Value means different things to different stakeholders, so clarity of concepts is key. We have heard that for patients, perceived value in health care is often described in terms of the quality of their relationship with their physician. It has been highlighted that value improvement means helping them better meet their personal goals or living lives that are as normal as possible. It does not necessarily mean more services or more expensive services, since it was stated patients are more likely driven by sensitivity to the value of time and ensuring that out-of-pocket payments are targeted to their goals. Provider representatives suggest that value improvement means developing diagnostic and treatment tools and approaches that offer them increased confidence in the effectiveness of the services they offer. Employers discuss value improvement in terms of keeping workers and their families healthier and more productive at lower costs. Health insurers assert that value improvement means emphasising interventions that are crisply and coherently defined and supported by a high level of evidence as to effectiveness and efficiency. Representatives from health product innovators and manufacturers have spoken of value improvement as products that are better for the individual patient, are more profitable, and contribute to product differentiation and innovation

  • Elements: Identifying value in health care is more than simply the right care for the right price as it requires determination of the additional elements of the applicability and circumstances of the benefits considered. We have heard that value in any endeavour is a reflection of what we gain relative to what we put in, and in health care, what is gained from any given diagnostic or treatment intervention will vary by individual. Participants believe that value determination begins with learning the benefits—what works best, for whom, and under what circumstances—as applied to individuals because value is not inherent to any service but rather specific to the individual. Value determination also means determining the right price, and we heard that, from the demand side, the right price is a function of perspective—societal, payer, and patient. From the supply side, the right price is a function of the cost of production, the cost of delivery, and the incentive to innovation

  • Basics: Improving value requires reliable information, sound decision principles, and appropriate incentives. Since the starting point for determining value is reliable information, workshop discussants underscored the importance of appropriate investment in the infrastructure and processes for initial determination and continuous improvement of insights on the safety, efficacy, effectiveness, and comparative effectiveness of interventions. Action to improve value, then, also requires the fashioning and use of sound decision principles tailored to the circumstances and adequate incentives to promote the desired outcome

  • Decisions: Sound decision principles centre on the patient, evidence, context, transparency, and learning. Currently, decision rules seem to many stakeholders to be vague and poorly tailored to the evidence. Workshop participants contended that the starting point for tailoring decisions to circumstances is with information on costs, outcomes, and strength of the information. They also discussed assessing value at the societal level using best available information and analytics to generate broad perspective and guidance for decision-making on availability, use, and pricing. Yet we also heard that value assessment at the individual patient level takes account of context and patient preferences, conditioned on openness of information exchange and formal learning from choices made under uncertainty. We also heard that an informed patient perspective that trumps a societal value determination can still be consistent with sound decision principles

  • Information: Information reliability derives from its sources, methods, transparency, interpretation, and clarity. We have heard about the importance of openness on the nature, strengths, and limitations of the evidence and the processes of analysis and interpretation—and of tailoring decision principles according to the features in that respect. Because the quality of evidence varies, as do the methods used to evaluate it, transparency as to source and process, care as to interpretation, and clarity in communication are paramount

  • Incentives: Appropriate incentives direct attention and rewards to outcomes, quality, and cost. Often noted in the workshop discussions was that the rewards and incentives prevalent in the American healthcare system are poorly aligned—and even oppositional—to effectiveness and efficiency, encouraging care that is procedure- and specialty-intensive and discouraging primary care and prevention. We heard that if emphases are placed on individual services that are often high cost and inadequately justified, rather than on outcomes, quality, and efficiency, the attainment of system-wide value is virtually precluded

  • Limits: The ability to attain system value is likely inversely related to the level of system fragmentation. Transforming health care to a more direct focus on value is frequently noted as an effort that requires broad organisational, financial, and cultural changes—changes ultimately not attainable with the level of fragmentation that currently characterises decision-making in the US healthcare system. We have heard that obtaining the value needed will continue to be elusive until better means are available to draw broadly on information as to services’ efficiency and effectiveness, to set priorities and streamline approaches to filling the evidence gaps, to ensure consistency in the ways evidence is interpreted and applied, and to marshal incentives to improve the delivery of high-value services while discouraging those of limited value

  • Communication: System-level value improvement requires more seamless communication among components. Related to system fragmentation, among the primary barriers to achieving better value are the communication gaps noted among virtually all parties involved. Patients and providers do not communicate well with each other about diagnosis and treatment options or cost implications, in part because in complex administrative and rapidly changing knowledge environments, the necessary information is not readily available to either party. Communication, voice or electronic, is often virtually absent between and among multiple providers and provider systems for a single patient, increasing the prospect of service gaps, duplications, confusion, and harm, according to discussants. Further, communication between scientific and professional organisations producing and evaluating evidence is often limited, resulting in inefficiencies, missed opportunities, and contradictions in the production of guidance. Accordingly, communication between the many groups involved in developing evidence and the practitioners applying it is often unstructured and may be conflicting

The diversity of stakeholder perspectives on value was highlighted from multiple vantage points.

  • Providers: Provider-level value improvement efforts depend on culture and rewards focused on outcomes. Workshop presentations identified several examples of some encouraging results from various programs in terms of progress to improve provider sensitivity to, and focus on, value from health care. These range from improving the analytic tools to evaluate the effectiveness and efficiency of individual providers, institutions, and interventions, to incentive programs such as pay-for-performance, the patient-centred medical home, and employer-based programs for wellness, disease prevention, and disease management. We heard, for example, that certain provider organisations, in effect, specialise in the care of the poorest and sickest patients and can provide services that in fact have better outcomes and lower costs because they are geared to focus on interprovider communication, continuity of care, and links with social welfare organisations. However, they have also negotiated the necessary flexibility with payers. We heard that the clearest barriers to provider-level value improvement appear to lie in the lack of economic incentives for a focus on outcomes (both an analytic and a structural issue) and also in cultural and structural disincentives to tend to the critical interfaces of the care process—the quality of the links in the chain of care elements

  • Patients: Patient-level value improvement stems from quality, communication, information, and transparency. It was noted that patients most often think of value in terms of their relationship with their provider—generally a physician—but ultimately the practical results of that relationship, in terms of costs and outcomes, hinge on the success of programs that improve practical, ongoing, and seamless access to information on best practices and costs and of payment structures that reward accordingly. Workshop discussants offered insights into the use of various financial approaches to sensitise and orient patient decisions on healthcare prices—individual diagnostics and treatments, providers, or health plans—according to the evidence of the value delivered. Successful broad-based application of such approaches will likely hinge on system-wide transformation in the availability of the information necessary and transparency as to its use

  • Manufacturers: Manufacturer-level regulatory and purchasing incentives can be better oriented to value added. Health product manufacturers and innovators naturally focus on their profitability—returning value to shareholders—but we are reminded that product demand is embedded in the ability to demonstrate advantage with respect to patient value—better outcomes with greater efficiency. Hence, manufacturers expressed an interest in exploring regulatory and payment approaches that enhance performance on outcomes related to product use

Pierre L. Young, Leigh Anne Olsen, and J. Michael McGinnis. Value in health care: accounting for cost, quality, safety, outcomes, and innovation, pp 3–7

Addendum 3

What Is Value in Health Care? - Michael Porter [ 23 ]

In any field, improving performance and accountability depends on having a shared goal that unites the interests and activities of all stakeholders. In health care, however, stakeholders have myriad, often conflicting goals, including access to services, profitability, high quality, cost containment, safety, convenience, patient-centredness, and satisfaction. Lack of clarity about goals has led to divergent approaches, gaming of the system, and slow progress in performance improvement.

Achieving high value for patients must become the overarching goal of health care delivery, with value defined as the health outcomes achieved per dollar spent.1 This goal is what matters for patients and unites the interests of all actors in the system. If value improves, patients, payers, providers, and suppliers can all benefit while the economic sustainability of the health care system increases.

Value—neither an abstract ideal nor a code word for cost reduction—should define the framework for performance improvement in health care. Rigorous, disciplined measurement and improvement of value is the best way to drive system progress. Yet value in health care remains largely unmeasured and misunderstood.

Value should always be defined around the customer, and in a well-functioning health care system, the creation of value for patients should determine the rewards for all other actors in the system. Since value depends on results, not inputs, value in health care is measured by the outcomes achieved, not the volume of services delivered, and shifting focus from volume to value is a central challenge. Nor is value measured by the process of care used; process measurement and improvement are important tactics but are no substitutes for measuring outcomes and costs.

Since value is defined as outcomes relative to costs, it encompasses efficiency. Cost reduction without regard to the outcomes achieved is dangerous and self-defeating, leading to false “savings” and potentially limiting effective care.

1. Porter ME, Teisberg EO. Redefining health care: creating value-based competition on results. Boston: Harvard Business School Press, 2006.

Addendum 4

Industry Approaches to Value

Metronic [ 24 ]

The good news is that the construct of value in healthcare is widely recognised. The US government has already approved reforms that focus on paying for better patient outcomes, not just for the number of services, products, and tests provided. But improving patient outcomes after diagnosis isn’t enough. We need to increase value in the healthcare system throughout the continuum of care.

At Medtronic, when we recognised this fact several years ago, we introduced a concept we call economic value and incorporated it as a cornerstone of our business strategy. In short, we saw a shift in what our customers expect from us. They don’t just need clinical value from our therapy innovations, they need economic value as well. The product or service we deliver must also provide an economic benefit such as making care delivery more efficient, minimising system waste, or expanding patient access to therapies.

As a leading medical technology company, we accepted this broader perspective of value. We shifted our business to address this challenge, and we haven’t looked back. Since embracing economic value, we identified an opportunity to increase value not only with our devices, but also through our clinical expertise and therapeutic knowledge. That’s one of the reasons we created the Medtronic Integrated Health SolutionsSM business—a new offering that moves beyond devices to focus on system-level services and solutions. Today, Medtronic Integrated Health Solutions is helping hospitals, public and private payers, and health systems align value within the care continuum by delivering more efficient and improved care to patients.

Pharmaceutical Industry [ 25 ]

Value-based plan design—a term that describes payers’ efforts to align consumer cost sharing with the value generated by a service or drug—may sound like a new development in health care, but it’s old news for prescription drugs. For years, insurers and pharmacy benefits managers have steered consumers towards generic and other high-value drugs by categorising drugs into “tiers” and requiring lower copayments for preferred drugs. …Tiering not only encourages consumers to use high-value drugs, it also gives insurers leverage during price negotiations with manufacturers.

Under tiering, insurers offer manufacturers favourable tier placement in exchange for better discounts. …Insurers can also negotiate lower prices for drugs that have therapeutic substitutes or questionable benefits by threatening to exclude them from their formularies entirely. …

In recent years, drug manufacturers have counterattacked by offering “copayment coupons.”2 These coupons or discount cards—distributed by physicians’ offices, through the mail, and online—enable the manufacturer to pay some or all of a consumer’s copayment for a prescription. By severing the link between cost sharing and the value generated by a drug, copayment coupons can undo the beneficial effects of tiering. With such coupons, consumers’ cost sharing may actually be lower for higher-tier brand-name drugs than for lower-tier therapeutic substitutes or generic bioequivalents. Since insurers typically cover about 80% of the total price of a prescription, however, the combined amount that the insurer and the consumer spend for higher-tier drugs remains substantially greater. If coupons shift spending towards these higher-priced drugs, the net effect will be higher pharmaceutical spending and, ultimately, higher health insurance premiums.

Not only do copayment coupons have the potential to pull consumers away from high-value drugs, they also greatly reduce the incentive for drug manufacturers to offer price concessions in exchange for preferred tier placement. In fact, the opposite strategy becomes profitable: charge insurers the highest price possible while remaining on the formulary, and then use a copayment coupon to promote use. The only recourse insurers have is to exclude a drug from their formulary entirely, and that may be much worse for patients than placing it in a high tier.

2. Ross JS, Kesselheim AS. Prescription drug coupons - no such thing as a free lunch. N Engl J Med 2013; 369: 1188–9.

Rights and permissions

Reprints and Permissions

Copyright information

© 2018 Springer International Publishing AG

About this chapter

Verify currency and authenticity via CrossMark

Cite this chapter

Sturmberg, J.P. (2018). A Complex Adaptive Health System Redesign Based on “First Principles”. In: Health System Redesign. Springer, Cham.

Download citation

  • DOI:

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-64604-6

  • Online ISBN: 978-3-319-64605-3

  • eBook Packages: MedicineMedicine (R0)