Stories
Stories
Herzlinger on Health Care: Revolution in Evolution
Topics: Health-Health Care and TreatmentThe Bulletin recently spoke with Regina E. Herzlinger, the School's Nancy R. McPherson Professor of Business Administration, about her new book, Market-Driven Health Care: Who Wins, Who Loses in the Transformation of America's Largest Service Industry. The following are some highlights from that conversation.
What are the major market forces that are transforming the health-care system?
First and foremost, it's consumers. They have already revolutionized the retailing and information industries because they are so busy working and so well-informed that they demand convenient, straightforward transactions. Now they're requiring that the health-care system also provide convenience and information. Patients can't be patient anymore.
What other market forces are at work?
Major organizational changes. During the 1980s, companies learned that bigger is not necessarily better and that vertical integration doesn't guarantee that you can do everything well simultaneously. Focus, we've discovered, is critical.
What does "focus" mean in terms of the health-care industry?
It means more integrated facilities that center on providing all the care for one disease or procedure - what I call "focused factories." An example is the Shouldice Hospital in Canada, which performs hernia operations exclusively. Its operations are substantially cheaper and higher quality than those in a traditional hospital because it focuses its skills and resources on just one condition.
Wouldn't these facilities use expensive technology, which many people cite as the reason for high U.S. health-care costs?
Actually,the opposite is true: advances in medical technology have made health care cheaper and better - and this is the third major market force that will transform our health-care system. Hospitals already have lower occupancy due to advances in technology.
Then where does the misconception arise that expensive technology - such as MRIs and CAT scanners - is pushing up the cost of health care?
Hospitals like to showcase the latest technology to attract patients. There's just too much of it as a result. Now, if that same equipment were used in a focused factory, only equipment relevant to that disease would be purchased, and it would be used efficiently.
But should health care be market-driven, particularly when one result is managed care, which many see as ultimately harmful to consumers?
A real market would permit Americans to buy health insurance for themselves, not from a shopper like an HMO. Americans are rejecting what they view as the unfair tactics that HMOs use to keep their costs down: discrimination against high-cost sick and elderly enrollees; "just saying no" to procedures that patients may feel are necessary; and squeezing down compensation for talented physicians and hospitals. Indeed, activist American consumers even rebel against perfectly rational HMO tactics like reducing hospital lengths of stay.
What is your vision of health-care in the future?
Your employer will give you the money it now spends on buying your health insurance. You will be required to use the money to buy insurance for yourself. People like me who prefer HMOs could still buy them. Insurers will contract with the focused factories I've discussed, and those offering the best choices will be the leaders.
That makes sense. Why aren't employers doing this already?
Currently the employer - and not, in most cases, the employee - can deduct the cost of health insurance from income taxes. That provision must be reversed.
What is the role of government in the health-care system?
First, we need to have universal health insurance. We don't have it now because it costs too much. But a market-driven health-care system will lower costs, so it will be more feasible to provide insurance to the poor and low-income uninsured. Second, we need to permit people to deduct health insurance expenses from their income taxes. Third, the government should make sure that everyone buys health insurance, regulate health insurers to ensure honesty and financial stability, and monitor the quality of information, just as the SEC does for the stock market.
The role of government, however, is not to produce health care or to sell health insurance; those are the roles of the consumers and providers who make up the "market."
Health-care cost increases are already on the decline because this transformation is under way. And because these fundamental forces have transformed other sectors of the American economy, they will have their way in health care eventually.
Post a Comment
Related Stories
-
- 01 Mar 2024
- HBS Alumni Bulletin
Vital Signs
Re: Lorin Gresser (MBA 1998); By: Jen McFarland Flint -
- 01 Mar 2024
- HBS Alumni Bulletin
INK: Taking Care
Re: Kathy Giusti (MBA 1985) -
- 22 Feb 2024
- Skydeck
Combat-Tested Cancer Coaching
Re: Kathy Giusti (MBA 1985) -
- 07 Feb 2024
- New York Times
The Sound of Success
Re: Manny Simons (MBA 2012)