Harvard Business Online

HBS Faculty on Health Care Reform


Posted on Harvard Business Review: March 25, 2010 11:00 AM

In the wake of the passage of sweeping health care reform legislation by the U.S. Congress, the political battle over the bill seems destined to continue. But what do Harvard Business School faculty experts, whose research applies a management lens to health care policy and delivery, think about the bill's content? And what are the next steps for improving patient care and containing costs?

Richard Bohmer
Physician and Professor of Management Practice at Harvard Business School.
Author of Designing Care: Aligning the Nature and Management of Health Care.

Insurance reform is a necessary but not sufficient component of U.S. health care reform. We need to think very hard as well about the optimal way of caring for a particular type of patient and then how to pay for that optimal way. For me, the optimal way is the function of a science: What is possible in terms of drugs, technology, devices, information technology, and personnel; then secondarily, consider the current regulations in place and the payment models.

There is an important set of discussions to be had around how we actually organize care, with all sorts of managerial and strategic decisions to be made at a policy and national level. Yet at ground zero, lots of interesting experiments are underway, with professionals trying different ways of configuring and managing services. On that list I include experiments with disease management programs, substituting nurse practitioners for physicians in certain circumstances, the in-store clinic model for treatment of simple diseases, and experiments with IT to enable precise electronic communication between patients and doctors so that real medical discussions can be had at a distance.

At the national level we don't hear much about these innovations; yet they present an equally important set of issues. We need to make a distinction between debating how it will be paid for and what the "it" is that is paid for.

Several factors are pushing us to change how we deliver care. Perhaps the most important of these is changing expectations. Patients are used to good service from other industries, and they expect higher performance than they see in the health care sector. They obviously worry a lot about whether their insurance will cover the medical services they need, but they are also concerned about the care they get—how accurate, reliable, and fail-safe it is, as well as how responsive and convenient. Employers expect better outcomes, and of course they and patients want fewer errors and fewer patients harmed by care that was intended to cure their disease. Finally, all health care's constituents expect better value.

As for innovation, our prevailing model has been that knowledge flows into medical and nursing practice from funded external research. In this model it is the role of provider organizations to bring knowledge published in the medical and nursing literatures to bear on individual patients by selecting the right therapies and the right way of implementing those therapies—a one-way flow of knowledge from the research community to the delivery community to each individual patient.

However, routine practice is itself a fertile source of innovations in care, in both what to do and how to do it. Medical knowledge and how to operationalize it can be learned through taking care of patients, and delivery organizations create knowledge for themselves. This is knowledge flow not from bench-side-to-bedside, but from bedside-to-bedside. New insights derived from practice can be brought to bear for the benefit of each subsequent patient.

Given the increased expectations of performance, we now need to design care by asking nitty-gritty design questions such as: How is care going to be delivered? Who will do what, when, where, and how? How will they hand over tasks and decision rights and accountability to the next person who will do what, when, where, and how? And how does technology support these decisions?

Hence, a lot of health care reform is a management problem. It can't be solved by policymakers acting at a distance. That is why we should help doctors understand the managerial issues related to their clinical practice. My involvement with the MD/MBA program at Harvard Business School is part of that belief. A not-for-profit institution deserves to be as well managed as a for-profit institution. In terms of health care delivery, the absence of a profit motive doesn't mean that people should tolerate poorly designed processes and symptoms, especially when organizational performance is a necessary component of realizing the best clinical outcomes for individual patients.

Adapted from the 11/23/09 HBS Working Knowledge article,"Management's Role in Reforming Health Care."

Bill George
Professor of Management Practice at Harvard Business School and former chair and CEO of Medtronic.
Author of four best-selling books, including 7 Lessons for Leading in Crisis.

The politicians' chatter Sunday night during the historic House vote on access to health insurance gave the impression that reform was done. Speaker Nancy Pelosi called it an extension of the Declaration of Independence, declaring, "health care is a right," not a responsibility. Republican leader John Boehner all but claimed it marked the end of free enterprise.

Wrong on all counts.

Passing this bill is a momentous step in granting health care insurance to 32 million Americans who lack access, something we can finally take pride in. But it certainly doesn't end the urgent need for health care reform. Rather, this is the end of the beginning. Now the hard work must begin in earnest.

The bill addresses only one of the four essential elements of health care. Beyond insuring the uninsured,cost, quality, and lifestyles are not addressed. Unless we focus on all four, we will continue to have a dysfunctional system with unaffordable costs.

The bill does virtually nothing to constrain health care costs. It is "paid for" with tax increases that take effect this year and projected cuts in Medicare reimbursement, while delaying most benefits until 2014. If we don't get health care costs under control before then, the Congressional Budget Office's projected deficit reductions will turn into a trillion dollar increase the following decade.

Even the current round of Medicare cuts—over 20% for many physicians and hospitals—is unsustainable, as politicians plan to reverse them retroactively. If they don't, many physicians and hospitals will refuse to take Medicare patients, just as the Baby Boomers enter the Medicare system. Last month Mayo Clinic in Scottsdale announced it could not afford to accept Medicare patients. Longer term, this could push the U.S. toward the British system of splitting into private and public systems.

Nor does this bill constrain insurance premiums. Wellpoint's 38% rate hikes in California are going into effect, in spite of jawboning by Health and Human Services Secretary Kathryn Sebelius. Expect other insurers to follow. Can you think of any other product or service that could pull off price increases of this magnitude?

The incentives for individuals and health care professionals in the current system are perverse. There are no rewards for people who stay well, and no penalties for leading unhealthy lifestyles or overusing the system. Nor are there incentives for doctors and hospitals to keep people healthy and prevent disease. In fact, studies have shown that those physicians and facilities who do so find themselves losing income.

As a result, primary care physicians are forced to pack more office visits into already crowded schedules, while spending less time with each patient. Specialists are incentivized to do more procedures, even when lower cost alternatives are available. Hospitals are forced to conduct more tests and get people out of the hospital before they are ready.

We need to realign these incentives by rewarding people for healthy lifestyles and taking more cost-effective approaches to their health. Hospitals and physicians should be rewarded for keeping people well.

Experts like Donald Berwick, MD, of the Institute for Health Improvement and Charles Denham, MD, of the Texas Medical Institute of Technology have identified ten quality issues whose correction could save billions of dollars. Managing chronic disease, which accounts for 75% percent of health care costs, in a systematic manner instead of as a series of acute events, for example, could improve outcomes and quality of life for millions of people, while dramatically lowering the cost of care. Yet there is no national push to get this done.

It is estimated that lifestyle issues like unhealthy diets, smoking, alcohol, lack of physical exercise, and unmanaged stress account for more than half of all health care costs. Addressing these factors requires a national movement for wellness and prevention, modeled after the highly successful anti-smoking campaign; yet all this is virtually ignored in the current legislation. To motivate people to take responsibility for their health and live healthy lives, there must be rewards for those who do and penalties for those who don't. On a local level, consumer-driven health plans and the integrated health movement have had some success in this regard. Now these must be taken to scale nationally.

This is a complex set of priorities to realize in a system already under tremendous pressure. It is too complex to leave in the hands of politicians who lack deep knowledge of health care and are swayed by lobbyists. For these reasons it is likely that solutions will arise in local communities before they are adopted nationally. The process will be long and difficult.But unless we begin immediately, the U.S. health care system will make our country not only less healthy but less competitive.

Now is the time for health care leaders locally and nationally to step up to these challenges, and bring about the whole package of needed changes and improvements.

Let's get on with the hard work.

Regina E. Herzlinger
Nancy R. McPherson Professor of Business Administration at Harvard Business School and author of Who Killed Health Care?

The United States finally has the universal health care coverage I have long advocated. Further, the legislation's subsidization of health insurance costs for employees who earn up to $88,000 can lower employers' costs.

But don't break out the champagne—the costs of this legislation, more than $900 billion, will put another nail in the coffin of the U.S. economy and open the door to a government-controlled health care system that gravely injures the sick and the entrepreneurs who could help them, along the way.

The problem? The absence of a way to control the costs that already cripple U.S. global competitiveness. As a percentage of gross domestic product, this country spends roughly 70 percent more on health care than other developed nations; yet we cannot point to commensurate superiority in value, other than in biotechnology and genomics. And these official numbers fail to include the $38 trillion in unfunded Medicare liabilities-the dubious gift we leave to our progeny.

The legislation's cost controls rely primarily on public health insurance marketplaces, labeled Exchanges, where private health insurers compete with public insurance. These initiatives don't control costs as much as shift them, through deficits, cutbacks and unfunded liabilities.

Ultimately, absent entrepreneurial innovators and competition, they will lead to a single-payer health care system that controls costs by rationing care.

The well-managed Massachusetts Exchange has reduced the uninsured rate to about 3% from 7%. But although advocates initially claimed it would create economies of scale, it proved no panacea.

The left complained of costs so high that more than a 100,000 were excused from state requirements to purchase health insurance. Conservatives criticized the features the Massachusetts legislature required: Product standardization limited competition, and plans were required to cover costly, questionable benefits that made insurance unaffordable to some (among the 52 required benefits are chiropractic services and expensive in vitro fertilization that add up to 8% to costs).

After raising taxes by $800 million for health care reform, among other activities, wealthy Massachusetts needs yet more revenues and has the country's highest health insurance costs. Desperately, Governor Deval Patrick has proposed price controls on locally-insured health care, mirroring the actions of the Netherlands, which also featured a national exchange in the vain hope of controlling health care costs. If government price controls sound like a march to single payer, that's because they are.

Some argue that Massachusetts couldn't control costs because it lacked public-insurance plans, pointing to Medicare, whose administrative overhead is 3% versus 12-18% for private insurers. But that figure ignores the Ponzi scheme of Medicare's unfunded liabilities, estimated at about $38 trillion—roughly three times U.S. GDP. If Medicare recognized them, they would add an additional trillion dollars to administrative costs, at a Federal borrowing cost of 3 percent.

Underpriced public plans, financed by borrowing from our children, will drive out private competitors. Private insurers are no angels, but unlike public insurers, they cannot survive massive deficits, thus protecting future generations, and unlike monopolistic public plans, they do provide a modicum of competition.

Medicare and Medicaid's monopoly powers also enable provider underpayment of billions of dollars, sums currently made up by commercial insurers. But if underpriced public plans forced out private ones, who would take up the slack? The looming doctor shortage could become a national crisis as prospective physicians, facing massive educational debt, reluctantly opt for other occupations. You can count potential health care entrepreneurs out, too.

The percentage of Americans insured by the government will inevitably grow as private plans disappear and employers urge their employees into heavily-subsided public plans.

But how will they control costs? Many experts, including the Congressional Budget Office, dismiss the Democrats' claims that government can control costs through information technology and other technocratic tools.

The unavoidable fact is that because the sick constitute roughly 20% of users, but account for about 80% of the costs, they are a politically vulnerable cost-control target. Although government-rationing can squeeze out some inefficiency, it is hardly benign or equitable. The government-controlled system in the United Kingdom, for example, has the lowest adoption of cancer drugs among the biggest five European economies and correspondingly low cancer survival rates. Many of the UK's affluent buy private insurance to avoid government stringency, like those in other European government-controlled systems.

There's no question that we must have universal coverage; but, the present bill will inevitably increase costs, further weakening our economy. Tragically, although it will expand insurance coverage, it will ultimately result in rationed medical care for its beneficiaries and suppress the entrepreneurs who could help them.

Robert Huckman
Associate Professor of Business Administration and Faculty Research Fellow in the health care program of the National Bureau of Economic Research.

This Patient Protection and Affordable Care Act approved by Congress and signed into law this week is indeed historic. Most notably, it promises to eventually expand coverage to an estimated 32 million uninsured Americans and takes important steps in limiting the ability of insurers to deny coverage to patients with pre-existing conditions. This legislation is by no means perfect, but the question we need to ask is whether significant reform of the American health care system can be better achieved by "passing and fixing" this bill than by "keeping and fixing" the current system. The prospects for the former strike me as better than those for the latter, but I must admit that the jury is still out.

The good news is that the bill tackles many important issues related to insurance coverage. The more sobering news is that addressing coverage issues shines a bright light on the more fundamental reform that still needs to occur—improving the process by which medical care is actually delivered to patients. There has been much discussion about the critical and remaining need to study the cost-effectiveness of various approaches to treatment to get a better sense of what does (and does not) create value for patients. Not only does cost-effectiveness need to be studied, but clinicians and patients need to begin to act on the lessons emerging from those studies. In the end, meaningful reform of the care-delivery process is difficult to legislate, as it requires education, persuasion, and behavioral change at the level of individual clinicians, administrators, and patients.

I hope that the bill passed by Congress has initiated a process that will ultimately improve the American health care system by making it not only more accessible but also more efficient and effective. That said, it is important to acknowledge that the bill is but one step along the path to more fundamental reform.


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