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If Health Care Were Run Like Retail...


Harvard's Regina Herzlinger says a consumer-driven system would cut costs and improve service

The incoming Obama Administration put a high priority on health-care reform, especially when it comes to extending insurance coverage to an estimated 45 million in the U.S. who currently lack it. No surprise, then, that policy experts are burying Team Obama in a blizzard of reform proposals. Former Senator Tom Daschle, President-elect Obama's pick for Health & Human Services Secretary, even plans to hold community forums around the country during the last two weeks of December in an effort to hear "fresh ideas" from the citizenry.

One of the more iconoclastic voices in this discussion is that of Regina E. Herzlinger, a professor of business administration at Harvard Business School. Herzlinger has been called a health-care heretic because she supports neither government- nor corporate-provided health insurance. Instead, she focuses on the needs of the consumer, the neglected party in many health reform debates.

"Why can't health care be run like the retail sector?" she asks. If hospitals, insurers, and doctors all had to compete in the open market for patient-customers, she believes innovation would flourish, prices would come down, and quality would improve.

Herzlinger, 64, stands out in the health-care policy arena as one of the most passionate advocates for patients-as-consumers, often referred to as consumer-driven health care. In her ideal world:

Consumers tailor their own health-care coverage, navigating in a national insurance market.

Everyone must buy insurance, and the federal government maintains strict oversight to ensure price and coverage fairness.

Small, disease-specific hospitals care for patients who don't need all the services offered by medical centers.

A national database contains the prices and outcomes for procedures at every hospital and clinic, so consumers can make informed choices.

Individuals get generous tax breaks to buy their own insurance, with subsidies for those with low incomes.

None of this sounds exactly like any Democrat or Republican proposal, although Herzlinger has advised politicians on both sides of the aisle. And her schedule is loaded with speaking engagements before policy wonks, politicians, and executives of every stripe, all while she teaches her popular B-school class, Innovating in Health Care.

Herzlinger's critics, and they are many, argue that health care is too complex for consumers to sort out on their own, and insurance too costly a burden for the individual. "No way is consumer-driven health care the answer," says Dr. Robert S. Galvin, global health director for General Electric (GE). He lauds Herzlinger as an original thinker but says Americans don't want to give up employer-provided insurance. He argues for "managed consumerism"—with employers doing the managing.

Power to the Patient

Herzlinger doesn't want anyone but consumers managing. Only then, she says, will innovations be unleashed that improve quality. "People can choose from 240 models and makes of cars pretty intelligently," she says. "Why do we assume they can't do the same when it comes to their health?" She notes that her suggestions are "relatively low-cost," which makes them even more attractive given the financial crisis.

Although she is a registered Republican and a fellow at the libertarian Manhattan Institute think tank, Herzlinger does not want a regulation-free market. Nor does she think health savings accounts, favored by many Republicans, are the best solution. These plans, which combine high deductibles with tax exemptions for health-care dollars, have been adopted by only about 6% of Americans, and she figures that's about right. "Consumers should have hundreds of coverage options."

In her 2007 book, Who Killed Health Care (McGraw-Hill, which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP), she charges that hospitals, insurers, government, managed-care providers, corporations, and even her fellow academics are arrayed against the consumer, all of them locked in a struggle to control the medical industry. That leaves her in a somewhat lonely position in the health-care debate, but as she hustles from one speaking engagement to the next, she feels she is winning converts. "Really," she says, "how can you argue against the consumer?"

Arnst is a senior writer for BusinessWeek based in New York.

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