Regina Herzlinger, PhD Promoting Consumer-Driven Health Care
Clinical Innovators | Interview by Katlyn Nemani, MD
Regina E. Herzlinger, PhD, is the Nancy R. McPherson Professor of Business Administration at the Harvard Business School. She was the first woman to be tenured and chaired at Harvard Business School and the first to serve on a number of corporate boards. She is widely recognized for her innovative research in health care, including her early predictions of the unraveling of managed care and the rise of consumer-driven health care, a term that she coined. Money has dubbed her the “Godmother” of consumer-driven health care. Dr. Herzlinger has written several healthcare books, many of which are bestsellers in their categories, including “Market Driven Health Care” and “Who Killed Health Care?” She is regularly selected by industry journals as one of health care’s top thinkers.
You have predicted some of the most powerful trends in health care since the 1990s. Now you are predicting that accountable care organizations (ACOs) and patient-centered medical homes will likely fail. Why is that?
I hope I am wrong, but these organizations are simply not feasible.
ACOs cannot possibly do everything for everybody. Their mandate is too broad. Most of the world’s successful firms create a very small percentage of their products internally while outsourcing the rest to smaller firms that specialize in solely that product. As a simple example, most vehicle manufacturers do not make their own batteries because they recognize that firms that specialize in these complex products create better value.
Another challenge within ACOs is the lack of interoperability of the electronic medical records (EMRs) across different providers. This makes their lofty “population-based health” even more impossible to achieve.
Last, the absence of shared culture and point-of-view among the acquired portions of the ACOs vastly complicates integration. Most corporate merger and acquisition deals fail for just this reason.
Patient-centered medical homes are infeasible for similar reasons. Their mandate is too lofty. Can the corner garage fix a Lamborghini?
No, but the 20% of people who account for 80% of health care costs are Lamborghinis – severe diabetics, those with advanced stage cancer, class III and IV congestive heart failure (CHF), etc. We need bundled specialists to care for these people. That isn’t to say that primary care providers (PCPs) are not wonderful and brilliant, because they can do wonders with the 80% who cause 20% of the costs and can prevent some of them from slipping into the costly 20% category.
You have been an advocate for “focused factories” of care as opposed to ACOs. What are focused factories of care, and how will they add value to patient care?
They are integrated bundles of care that provide all the care needed at a fixed risk-adjusted price. For example, a focused factory for CHF would attend to CHF and all its 34 common comorbidities with an integrated network of providers. They would be paid a fixed risk-adjusted price for doing this. The absence of fee-for-service payment would obviate turf warfare among the providers and motivate adherence to best practice protocols.
Some estimates approximate the average payment for treating CHF annually at $15,000 and the costs of integrated, evidence-based care at $6,000. The difference between the two would emerge with bundles and would benefit the insurers and society through lower costs. Providers would share in these savings for higher income. Patients would additionally benefit from better care.
There are current efforts to bundle surgical procedures such as coronary artery bypass graft (CABG) and hip replacements. This is great, but the big payoff is from bundling chronic diseases, such as CHF and other cardiovascular diseases, which are widely thought to be mismanaged.
While economic conservatives have plenty of reasons to detest several aspects of health care legislation, you have argued that they should support the individual mandate. Why?
We pay for the care of the uninsured one way or the other through various cost-shifting mechanisms (e.g., bloated disproportionate share payments). Nevertheless, they receive inadequate, fragmented, delayed care due to their lack of insurance. So if we insure the uninsured we will ultimately save money, and they will enjoy a better quality of life. Besides this, it is the right thing to do morally.
Under the Affordable Care Act (ACA), more people can shop directly for their own health insurance. Where can health care consumers go for credible and accurate information about what they are buying?
Firms like Castlight and Change are emerging to provide this information. A recent JAMA article linked price transparency to cost savings when people had Castlight data available to them. What I worry about is governmental control of transparency. For example, the CEO of the National Quality Forum (NQF), which received tens of millions of dollars from the ACA to enable transparency, and whose board is dominated by government representatives, was simultaneously (well) paid for service on the board of directors of providers, such as Kaiser—whose accomplishment the NQF metrics should reveal.
I find this kind of blatant conflict of interest worrisome. It is present in the private sector too, but much easier to find. For example, one can readily examine the annual report for the publically traded Castlight to see the conflicts of interest of its board members and CEO.
What makes innovation in health care so difficult?
This is something I discuss extensively in my book, Who Killed Health Care? The status quo kills innovators. They do not mean to, but in their ardent pursuit of their self-interest they kill innovation in the US. And unlike the innovators, they have vast tubs of money to pay off potential academic and government critics with speaking fees, consulting jobs, and political donations.
In my Harvard Business School MBA course, “Innovating in Health Care,” most of the cases which depict innovations in health care delivery, insurance, information technology, and telemedicine come from BRIC [Brazil, Russia, India, and China] and similar countries which need to rapidly create a health care infrastructure and which lack the innovation-killing status quo.
The emerging consumerization of the U.S. health care system through the use of public and private exchanges will create a powerful adversary to the self-interest of the status quo: the consumer.
We will see much more innovation in the US as this movement unfolds, but it will take some time.
What successful innovations do you expect to see in health care in the coming decade?
We will see more health delivery in the community and home, reductions in the size and scope of hospitals, and more open IT interfaces with more sophisticated analytics. We will also see new health insurance plans (e.g., 5-year plans which align the long-term health care interests for the insurer and patient). There will be reorganization of the delivery system for the sick into integrated networks of providers. We will also see more personalized diagnostics and drugs along with implantable sensors.
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