Consumer Directed Healthcare

     Herzlinger, widely recognized for her early predictions of the unraveling of managed care, and the rise of consumer-driven health care and health care focused factories—two terms she coined—has been studying the business side of the US system as well as those of other countries. In the following interview she sheds some realistic light on many of the assumptions in the current national debate.

     Herzlinger is a best-selling health care author and the Nancy R. McPherson Professor of Business Administration Chair at the Harvard Business School. Her innovative research and analysis have made her one of the most sought after thought leaders in the health care field. Mike McCue has been covering the health care industry since 1993. During his tenure as director of marketing for a health care IT firm and throughout 10 years at the helm of Managed Healthcare Executive magazine, he has interviewed more than 80 health plan CEOs, government officials and academic thought leaders.

     In this annual Outlook issue, they shed some light on what is happening and how it affects large organizations as we enter 2008, as well as what could be happen throughout the year and in the future.

Mike McCue: What is the biggest development in the CDHC industry today?

Regina Herzlinger: The fact that Health and Human Services Secretary, Mike Leavitt will be traveling to Switzerland and Holland to better understand the way their systems work is the best thing that could be happening right now. If we were able to implement a system like theirs, it would allow for universal coverage while permitting businesses to get out of the onerous task of supplying health insurance to workers. Also, eventually it would enable the government to get out of  Medicaid and Medicare as well. 
     The bills being written in the Senate also are a huge development. They would enable us to adopt many of the principles of the Swiss and Dutch systems and give us a chance to emulate the success they’ve had.

MM: What are those countries doing that is so different than what we’re doing in the United States? Why are they having so much success?

RH: The Swiss and Dutch do a good job of shopping for health insurance because everyone is required by law to buy their own coverage. If people can’t afford to buy their own, the government gives them the money they need to go out and get it. Their universal model truly is consumer-driven—people, not employers, and not government, do the buying. 
     There are currently about 50 million people in the United States with no health care coverage, and the number grows every year. Meanwhile, every Swiss citizen has coverage—and their overall costs are about 40 percent lower than ours. Health care inflation in Switzerland from 1996 to 2003 was about 2.8 percent, while ours was 4.3 percent. The economic implications of that fact are staggering and not limited to the health care industry; the ever-increasing cost burden is damaging the ability of American businesses to be competitive in the global market severely. The automakers alone are at a severe competitive disadvantage based solely on the vast amount of money they spend on their employees’ health care coverage versus that spent by competitors such as the Japanese.

MM: How is it possible to compare our health care costs with those of a country like Switzerland?

RH: It’s a common misperception that the savings it achieves is the direct result of having a healthier and better-educated population, but that simply isn’t true. While the Swiss don’t struggle with obesity the way Americans do, they have their own challenges with higher rates of alcohol consumption, smoking and drug abuse [than we do]. In 2004, I wrote an article for the Journal of the American Medical Association that strips away many of those variables to allow more of an apples-to-apples comparison in terms of population; its costs were much lower than ours, even [when compared with] those states with demographic makeups similar to Switzerland. 
     It’s reasonable to assume that the savings it achieves are due to the effectiveness of its system, a fact that becomes more clear once you remove the variations in population. Much of the Swiss system’s success can be attributed to its cost transparency, the mandate of universal coverage, consumer purchasing, and risk adjustment by insurers. It probably could achieve even greater savings through liberalization of its provider coverage and reimbursement policies.

MM: Their costs might be lower, but is the quality of care as good?

RH: Lower costs don’t always mean the system is working better. Both the United Kingdom and Canada have much lower health care costs than we do, but one of the ways they achieve that is by stringently rationing health care services. The Swiss have virtually no waiting lists for services and tremendous capacity, but most importantly, they also have the highest rate of consumer satisfaction with their health care industry. When it’s done through a truly consumer-driven model, health care doesn’t get just cheaper; it gets cheaper and better.

     On the bright side, that’s the direction we are heading in the United States finally. If you enabled all Americans to go out and buy their own health insurance, would everyone suddenly have a wonderful experience? Obviously not. But will the average experience fundamentally improve in terms of quality of care, better provider information and lower costs? If the Swiss are any example, it’s a resounding yes.

MM: What things do we need to do to reach the point of a truly consumer-driven model?

RH: It’s a step in the right direction to let consumers make their own health care purchasing decisions, but it won’t help unless we also give them the information tools they need to make the right decisions. Currently, we have nothing. Consumers need to know about the quality of the providers they can choose from, but when government is making those kinds of judgments they are typically too politically charged to be effective.

     Hospitals and health insurers employ so many people that politicians and state agencies are afraid to upset them, so there is no real way to differentiate one doctor or hospital from another right now—and that means there’s no way to reward the ones who do the best job. Right now, comparative information on health care providers is useless.

     Health care needs an organization similar to the Securities and Exchange Commission. In a matter of minutes, I can find just about anything I might want to know about the history and performance of any publicly traded company. If you aren’t willing to provide that kind of fiscal transparency [about your company], you can’t trade your stock. The US public is not a placid crowd; if they need to shop for their health care, they are going to demand that they be given a way to determine the quality of the services they purchase.

MM: What role does technology play in enabling the consumer-driven model? Are health care IT companies doing their part?

RH: The IT industry has been derelict in this arena. If I took the burden upon myself and tried to create my own personal health record, I couldn’t do it because provider IT systems aren’t interoperable. Much of the information isn’t electronic, so even if there was a Quicken-like program I could download information into, that wouldn’t help because so much of the information only exists on paper.

     Not only have we failed to create a standard system that can consolidate information from all providers, there are hospitals whose own departments can’t communicate with each other. Intuit, Google and Microsoft offer portals where consumers can store their personal health records, but I can’t go around and collect all of the information about my health history from every provider I’ve ever seen—that would be a career in itself.

     But there are some companies doing interesting things. Allscripts and Cerner have physician practice and hospital management programs that can download information from clinical medical devices into a comprehensive medical record. They’re betting that they can compile the information into a integrated medical record that they can hand over to consumers. I think these companies have a better chance of success than the portals do, which expect consumers to do all the information gathering.

     One way or another, IT companies and providers need to quit squabbling about little things and just get the interoperability needed for all this done.

MM: What single barrier is the most important for the CDHC industry to overcome? If you could wave a magic wand and change just one thing, what would it be?

RH: I would enact the law that enables people to use tax-sheltered funds to buy their health insurance. Right now, many employers are paying to provide their workers a Mercedes Benz-level of health care when all the employee wants is a Toyota-level of coverage. If companies could give the amount they’re spending on health care directly to their workers, and allow them to purchase the amount of coverage they want in some sort of tax-sheltered way, it would be a quantum leap toward a more effective and efficient health care system.

     There are some encouraging developments going on right now in that direction. There is a Congressional coalition of Republicans and Democrats that might be able to get something done soon. Sen. Ron Wyden (D-OR) and Sen. Bob Bennett (R-UT) might seem like unlikely allies, with Utah being a very conservative state and Oregon a very liberal one, but Bennett is supporting Wyden’s Healthy Americans Act.

     It would create a hybrid public/private single-payer system that eliminates employer-based health care and gives the money to employees to purchase their own coverage. The government would oversee the plan, require all Americans to have health care insurance and subsidize payments for people up to 400 percent of the poverty level. It’s a positive step into what I believe is the right direction, and it is being emulated by many governors, Republican and Democrat alike, across the United States.

Dubbed “the godmother of consumer-driven health care” by Money magazine, Regina E. Herzlinger is one of the nation’s leading authorities on consumer-driven health care. Her research has been reported in numerous industry journals and business publications, she was profiled in The Economist (May 2007), writes numerous articles for publications such The Washington Post and Wall Street Journal, and has delivered key note addresses for many health insurance and business groups. Her latest book, Who Killed Health Care, is in the CEO Best Seller List. Herzlinger was the first woman tenured and chaired at Harvard Business School. She has served on the Scientific Advisory Group to the US Secretary of the Air Force and as a board member of many private and publicly-traded firms, mostly in the CDHC space, and often as chair of governance and audit subcommittees. In recognition of her work in non-profit accounting and control, she was named the first Chartered Institute of Management Accountants Visiting Professor at the University of Edinburgh.

Mike McCue is a freelance writer based in Cleveland, OH. He can be reached by email at mccue330@yahoo.com.