07 Mar 2000  Research & Ideas

Putting Health Care Consumers in the Driver’s Seat

Amid rising costs, changing attitudes and increasing dissatisfaction with the existing health care system, the development of consumer-driven health care is a given: the question, according to participants in an HBS conference chaired by Professor Regina A. Herzlinger, is not If, but When.

 

A mid-November conference on consumer-driven health care attracted nearly two hundred providers of health-care services, technology, and information; government professionals; and insurance executives to the HBS campus for a two-day exchange of perspectives on the current movement toward giving U.S. consumers more power over decisions related to health care. Those who advocate consumer-driven health care—including conference chair Professor Regina E. Herzlinger—believe that shifting control of health-care purchasing decisions from third parties to individual consumers via defined contribution health care by employers will result in a more cost-effective and efficient system.

Participants submitted papers that were read in advance of the conference. These papers will be edited by Herzlinger and published later this year in a book titled Consumer-Driven Health Care. Each paper addressed one of four topics: different models of consumer-driven health care; the role of consumer-driven health care in supporting innovative solutions to chronic problems in the industry; the new breed of consumer information and support intermediaries; and the role of government in ensuring that the interests of vulnerable or disenfranchised consumers are protected. Encyclopedic in scope and authoritative in substance, the papers represent the sole major work on the subject to date.

Herzlinger, the School's Nancy R. McPherson Professor of Business Administration, is a noted authority in the fields of management control and health care. Her latest book, Market-Driven Health Care, won the 1998 Book of the Year Award from the American College of Healthcare Executives. Herzlinger opened the conference by reporting on the forces driving the push for consumer-driven health care: dissatisfied employees, rapidly rising health-care costs, and the likely loss of existing protection against lawsuits for pain and suffering from medical events.

She then disclosed the results of a 1999 KPMG survey of CEOs and consumers about consumer-driven health care. The firm surveyed 14,626 employees and 103 senior executives from Fortune 1000 companies. Among employees, 73 percent expressed interest in a defined contribution system, citing advantages such as the ability to choose the best quality plan in which their physician participates and the ability to take their plan with them if they change employers. While 93 percent of senior executives surveyed indicated satisfaction with the health-care insurance options they offer their employees, 46 percent said they would be receptive to a defined contribution system—often because they saw an advantage in increasing the number of health plan options available to their workers.

The conference's agenda alternated between small breakout sessions that brought together participants from different industry areas and large group discussions where all attendees could compare notes. The breakout sessions were facilitated by HBS alumni who had been students in Herzlinger's health-care course.

photo of Regina Herzlinger
Herzlinger: Consumers should have more power over health care decisions.

Participants began the first morning of the conference by discussing the current status of consumer empowerment, followed by a look at possible models for the future. While the consumer-driven health-care movement embraces a number of approaches, the various options have some key features in common. Consumers would be able to choose their own health-care plans, typically using tax-advantaged funds supplied by their employers; have substantial choice among health-care plans; and have increased information about the plans and their providers.

After lunch, Dr. Robert Waller, president emeritus of the Mayo Clinic, gave a talk on the impact of consumer-driven health care on the current system, using the Mayo's lauded operations as an example. This thought-provoking presentation led to a general discussion, moderated by Harvard Medical School faculty member Dr. Warner V. Slack, of how access to information and the logistics of insurance would change in a consumer-driven system. While participants largely agreed that the Internet will revolutionize both, they expressed concern about the quality of the resulting information.

Later in the afternoon, Herzlinger led a session in which participants analyzed government's role in a consumer-driven system. In a far-reaching discussion, those on the front lines of patient care, government, and HMOs spoke out. They advocated an exchange of information among doctors, hospitals, patients, and providers; standardization of that information; evaluation of adjustments for the severity of illness of the patient; changes in the tax system to avoid discrimination against the uninsured; reform of state regulation, which one participant described as a "crazy quilt"; and the need for oversight—not micromanagement—of health care from government agencies, among other reforms.

Herzlinger noted that the U.S. government currently funds over 50 percent of health care in the United States, which prompted some participants to decry the inefficiencies of the Medicare system. One insurance executive said that there are currently 111,000 pages of Medicare regulations on the books. A cardiologist at the session described, with frustration, his ongoing multiyear crusade to convince Medicare officials to fund preventive measures against heart disease—such as exercise and diet programs—in the same way that angioplasties and bypass surgeries are funded. Despite compelling statistics that show preventive measures are far more effective and would cost much less than the $2 billion Medicare spends on those surgical procedures each year, the system has been slow to respond.

Other highlights of the conference included a dinner talk by William W. George (MBA '66), CEO of Medtronic, on "The Future of 21st-Century Health: The Right Care" and a lively session moderated by HBS professor emeritus James L. Heskett on the role health-care service and medical technology providers can play in consumer-driven health-care reform.

Wrapping up the conference, representatives from each of several breakout meetings summarized their take on the implementation of a consumer-driven health-care system. The consensus seemed to be built around the concepts of expanded choice, individual selection and ownership of insurance, and a defined contribution by the employer. Participants largely agreed that a radical change in attitude had occurred. The question was not whether a consumer-driven system will result but how soon.

Health Industry Alumni Launch New Organization

by Eileen K. McCluskey

"If I had paid you all to come, I couldn't have assembled a better cross section of the health-care industry," said Bunny Ellerin (MBA '95), president and founder of the HBS Health Industry Alumni Association (HBS Health). The group's first meeting was held on campus in November about a week before Professor Herzlinger's conference. The alumni event attracted more than sixty HBS graduates representing biotechnology, e-commerce, managed care, and pharmaceutical companies. The program featured briefings from HBS faculty members interested in issues related to health-care management.

HBS professor Gary P. Pisano, assistant professor Amy C. Edmondson, and senior lecturer Richard M. Bohmer engaged attendees in an informative discussion of new research, case studies, and course development at the School. Spotlighting courses such as Herzlinger's Managing in the New Health Care Industry and Bohmer's Managing Medicine, Pisano said that cases on subjects such as patient-driven health care and complexity and error in the medical field are now "seeded throughout the first- and second-year MBA Program." Pisano, who is working with Edmondson and Bohmer on a project examining learning curves in the adoption of a new surgical technology, noted a high level of interest among students in health-care management as the issue becomes a greater challenge for society as a whole. Ellerin, who is vice president of network operations at Vivra, Inc., a specialty management company, said that the new alumni group's mission is to facilitate communication and interaction among HBS graduates involved in all sectors of the health-care industry. "HBS Health provides a natural vehicle for alumni to share information and nuances about what's going on," she noted. "It's important for the HBS community to recognize health care for what it contributes—after all, this sector represents 15 percent of the U.S. GDP." To help keep alumni connected between meetings, HBS Health has established a Web site (www.hbshealth.com), which will soon include a searchable alumni database, chat rooms, bulletin boards, and career listings.

Alumni were enthusiastic about the November event. "The presentations by HBS professors were right on the mark," said Allen W. Reedy (MBA '87), director of business planning at Beth Israel Deaconess Medical Center in Boston. "They identified the range of challenges facing health care and focused attention on those areas that might benefit from expertise in management." Charles C. ("Chuck") French (MBA '58), vice president of marketing for Global Telemedix and Advanced Video Technologies, commented, "This was the first HBS alumni event I've been to in years, and I was delighted. I plan to continue to attend these meetings and to assist in local activities."

Reprinted with permission from Harvard Business School Bulletin, February 2001.