HJNO Jan/Feb 2026

HEALTHCARE JOURNAL OF NEW ORLEANS I  JAN / FEB 2026 19 on who can deliver the best value proposition to customers, distinguishing themselves from competitors in such a way as to earn more cus- tomers and drive higher profitability. In a well-functioning industry — such as com- puters, mobile communications, and consumer banking — quality-adjusted prices tend to fall, value improves, and the market expands to meet the needs of new consumers. Healthcare could not be more different. Costs are high de- spite fierce struggles to control them, quality problems are pervasive, and there is a failure of competition. As outlined in some of the prior articles in this series, the best providers are not necessarily rewarded with the highest possible income or the most patients, and weaker pro- viders do not necessarily go out of business. Technology has not been rapidly adopted in ways that drive ongoing improvements in value and provider experience. Why has there been a failure of competition in healthcare? Porter and Teisberg argue that it is not a failure of competition itself, but rather the wrong type of competition. Dysfunctional competition has evolved through a series of understandable but unfor- tunate events over the past century that have led to a zero-sum competition, whereby the gains of one actor come at the expense of others. In this zero-sum system the focus has been on minimizing short-term costs and bat- tling over who pays for what and for how much. The results have been malalignment on creat- ing value for patients as each player attempts to capture as much value as possible for them- selves. In other words, I believe we have gotten the customer value proposition wrong. What other customer value proposition in healthcare could possibly exist other than to improve health and health outcomes for the patients we serve? The best way to transform healthcare is to realign competition around creating value for patients. Value in healthcare is the quality of health and health outcomes achieved per dollar of cost expended. If all the system participants were realigned around creating value for patients, I believe that quality, cost, access, and service experience would all improve dramatically. To accomplish this realignment, commercial and government payers and providers, hospi- tals, and health systems would all have to come together and agree on how to best measure and manage health and health outcomes. Such measures would extend far beyond the rudi- mentary quality metrics that have been in place over the past decade or so. The real question is who would lead such a realignment? I recall a meeting several years ago with the CEO of commercial payer. As I was showing him infographics on what a restructured deliv- ery system could look like, he quickly interject- ed and reminded me that the payer is the real architect of the delivery system. He was right of course, because the entire structure of the de- livery system is built around prevailing transac- tion-based healthcare financing mechanisms. An essential feature of electronic health records is the ability to process transactions as part of revenue cycle management while concomitantly enabling the coding and docu- mentation support required to process these transactions. Most electronic health records available today were not specifically created to provide a smooth, user-friendly experience dedicated to helping providers enhance pa- tient health and outcomes. If the payers were to implement new financing mechanisms that would allow providers and health systems to compete on who can deliver the greatest value for patients, then I believe most providers and health systems would readily embrace these changes. But the payers have largely not done that to date. The exception has been Medicare Advantage (MA) plans in which willing health systems par- ticipate in bearing the full actuarial risk for total cost of care for these members. Under these plans, the payers take their margin off the top, usually around 15% of the total premium. The remaining 85% gets paid out to the health sys- tem, essentially as a risk-adjusted lump sum to pay for all health-related expenses of these patients. As you might guess, this type of risk- adjusted population-based payment turns the delivery of care for these patients upside down. Under these types of financing arrangements, all of the incentives are now aligned to keep these patients as healthy as possible, keep them out of the hospital whenever possible, and ensure that their true level of risk is being captured because the dollar amount of risk- adjustment payments depends on that. But now think about how health systems have to contort themselves to try and succeed in these arrangements when the great majority of their business is fueled by traditional fee-for- service. Although they are rewarded by these MA contracts to keep their patients healthy, they are penalized across all their other con- “What other customer value proposition in healthcare could possibly exist other than to improve health and health outcomes for the patients we serve? The best way to transform healthcare is to realign competition around creating value for patients.” tracts if their hospital beds are not at capacity. Again, it’s the economics, stupid. In this case, should the hospitals and health systems con- struct two different delivery system structures? One to keep patients healthy and out of the hospital and the other to maximize inpatient throughput and volume of transactions pro- cessed — in both cases struggling to eke out low single digit margins of profitability? All while the payers achieve at least a 15% margin right off the top before a health system even sees their first dollar of profit? For MA patients, the value proposition is at least conceptually aligned with keeping people healthy; for ev- eryone else, the system still treats sickness and throughput as its primary business model. But the challenges go even deeper. Most of the nation’s largest health plans are publicly traded corporations whose fiduciary obliga- tion is not to their members’ health but to their shareholders. This is not a moral failing — it is the economic logic of corporate governance. As Milton Friedman famously argued in his 1970 essay The Social Responsibility of Busi- ness Is to Increase Its Profits , “there is one and