30 May 2007  Research & Ideas

Health Care Under a Research Microscope

Perhaps no industry has caught the research attention of Harvard Business School faculty as much as health care. Researchers are investigating business-focused solutions on everything from improving team work among surgical teams to developing market motivations that increase the use of water purification in poor villages. Key concepts include:

  • The $2 trillion American health care system has grown bloated and overly expensive, and it delivers poor service to many patients. Harvard Business School faculty are looking at the system through a business management perspective to recommend changes in almost all aspects of health care research and delivery.
  • Around the world, HBS researchers are studying ways to improve medical services to the poor using techniques that include everything from motivational marketing to microfinance.

 

The $2 trillion health care system is one of the United States' largest industries—but one of its worst performing by almost any measure other than technological innovation.

The problems are painful, including escalating costs, expensive insurance premiums, lack of coordination between major players, poor customer service, and regional variations in quality of care.

"By virtually any standard, it's an underperforming industry," says Richard Hamermesh, faculty chair of Harvard Business School's recently formed Healthcare Initiative. "In virtually every industry, the name of the game is supposed to be quality up and cost down. And this is one where that has not happened. And it's been very slow with the quality movement."

Professor Regina Herzlinger, who has studied the health care system for three decades, has an even more damning critique: The current system, she says, "will kill us financially and medically … it will ruin our economy, deny us the health care services we need, and undermine the important genomic research that can fundamentally improve the practice of medicine and control its costs."

It is little wonder then that HBS has focused its formidable research and teaching talents on bringing business-focused solutions and perspectives to address these problems. Some examples:

  • In Zambia, Nava Ashraf and several colleagues conducted field studies to determine if charging for the water purification product Clorin, instead of just giving it away, might encourage more people to use it. The early, surprising answer: yes. Whereas free is sometimes equated with no value, people who pay even a little bit for Clorin are more likely to use it and use more of it, according to the researchers.
  • HBS senior lecturer Michael Chu is heading up Project Antares with colleagues at the Harvard School of Public Health. The effort aims to create a system for devising commercial incentives that provide affordable public health initiatives, such as delivering medicines at very low cost.
  • A speedy organ transplant can mean the difference between life and death. Professor Alvin Roth has used his expertise in game theory, experimental economics, and market design to create a program that helps match kidney donors with potential recipients. His work also matches medical residents with jobs at American hospitals.
  • Hospital operations, and even the operating room, have been studied by HBS faculty. Amy Edmondson has looked at organizational learning in hospital intensive care units; Gary Pisano and Robert Huckman studied technology adoption and teamwork in hospitals; and Edmondson, Pisano, and Richard M. Bohmer analyzed challenges to operating teams learning a new surgical technique.

Recent books by faculty have also challenged how we understand the health care system. Within the last three years Herzlinger authored Consumer-Driven Health Care and the new Who Killed Health Care? Gary Pisano authored Science Business; Debora Spar, The Baby Business; and Monica Higgins, Career Imprints: Creating Leaders across an Industry; and Michael Porter coauthored Redefining Health Care.

By virtually any standard, it's an underperforming industry. —Richard Hamermesh

The intense interest in health care from a business management perspective is clearly warranted, says Hamermesh. "Health care is 17 percent of the U.S. economy, so at some level the HBS interest in health care is not surprising, and it's got a great set of intellectual problems to deal with.

"Marketing is very complicated, and distribution's very complicated. It is a regulated industry, so anyone who's interested in business and government would be a player. It has a social and ethical component to it. So this is fertile ground to study a lot of other phenomena."

The School has assembled a talented set of practitioners and executives with experience in the field including Bohmer, a physician; Bill George, former chairman and CEO of Medtronic; Raymond Gilmartin, former chairman, president, and CEO of Merck & Co.; Robert Huckman, a former health care consultant and now Faculty Research Fellow in the health care program of the National Bureau of Economic Research; and Robert Higgins, managing general partner and founder of VC firm Highland Capital Partners.

As a physician, Bohmer is interested in the delivery side of health care—how care is given to patients. "Health care reform, in my view, is delivery reform. I'm interested in the act of taking care of ill patients and how we manage that act, how you design the processes that execute on that goal, and how you design the organizations that support those processes."

I think Harvard and HBS have the capacity to make breakthroughs on issues that had seemed intractable. —Raymond Gilmartin

Symptoms of an ailing health care system are everywhere, he says. For one thing, there are huge national, geographic variations in the way we care for people. "The probability that you'll be well cared for is a function of where you are," he says. Have a heart attack near Harvard in Cambridge, Massachusetts, and you will likely be administered beta blockers, a class of drug that's generally recommended after a heart attack. The rate at which that drug is delivered nationwide, however, is about 65 percent.

Another problem, he said, is that the current U.S. health care system is set up to take care of the most complex diseases, and as a result, "the people with minimally complex disease, with very straightforward disease, are cared for in very expensive settings." One innovative approach to this situation is the rise of in-store clinics—popping up in grocery stores, Wal-Mart, and even department stores—that treat minor illnesses and provide routine screenings.

"They are a delivery model and an operating system that's configured to the lowest complexity patients," Bohmer says. "It tells us something about how to configure a delivery model for a particular segment of the population."

HBS is also training current and future health care leaders. The School's executive education program offers custom programs to boost the management skills of Boston-area hospital executives. And HBS MBA students can sign up for immersion programs that teach basic health care-related science and medicine.

HBS is partnering with Harvard Medical School to offer select students a combined MD/MBA program. The students typically spend their first three years at HMS, completing preclinical and clinical requirements. The fourth year is at HBS, where they complete the requirements of the first-year MBA core curriculum. In the fifth and final year, they take electives at both HMS and HBS in a sequence determined by each student.

Change is in the air

Gilmartin, the former CEO of Merck, said that until recently very few new ideas to improve the health care system had been brought to the table. That's all changing now, and the major players seem increasingly receptive to rethinking the system. He points to the Medicare Drug Prescription Plan, launched in 2006, as an example. Twenty years ago, few policymakers believed that markets could play a role in improving health care. But the new Medicare drug plan uses private insurers and health plans to drive down drug costs, and is showing early payoffs that exceed expectations, he says.

"Think about the educational mission of HBS, which is to educate leaders who make a difference in the world," Gilmartin says. "Health care is clearly such an opportunity. I think Harvard and HBS have the capacity to make breakthroughs on issues that had seemed intractable."

Related health care articles in HBS Working Knowledge:


Nancy Beaulieu
The Business Case for Diabetes Disease Management
http://hbswk.hbs.edu/item/3792.html
Diabetes is a tough disease to tackle. A case-study discussion led by HBS professor Nancy Beaulieu asked why it is so complex for business and society, and what might be done to curb its incidence.

Richard Bohmer
Learning Tradeoffs in Organizations: Measuring Multiple Dimensions of Improvement to Investigate Learning-Curve Heterogeneity
http://hbswk.hbs.edu/item/5429.html
How and why experience leads to performance improvement has made the learning curve an important management topic for sites ranging from nuclear power plants to cardiac surgical units. This research looks deeper at learning curves by focusing on learning rates in technology adoption in similar organizations along multiple, potentially competing dimensions. Using longitudinal data from 16 hospitals that are adopting a new technology for cardiac surgery, it specifically studies 2 dimensions: efficiency and application innovation and the potential tradeoff between efficiency and application innovation. It also asks how such tradeoffs are influenced.

Inside the OR: Disrupted Routines and New Technologies
http://hbswk.hbs.edu/item/1654.html
A hospital operating room may seem an unlikely place to attract the attention of a group of management professors. But for HBS faculty members Amy Edmondson, Richard Bohmer and Gary Pisano it's a setting that offers great insights into work teams and the ways they adapt and learn.

Alfred D. Chandler Jr.
New Learning at American Home Products
http://hbswk.hbs.edu/item/4769.html
In Alfred D. Chandler Jr.'s new history of the modern chemical and pharma industries, American Home Products follows a singular path to success. An excerpt from Shaping the Industrial Century.

Michael Chu
Improving Public Health for the Poor
http://hbswk.hbs.edu/item/5559.html
Microfinance may offer a window on new methods for widening access to health care for the poor, says Harvard Business School's Michael Chu. He and colleagues at the Harvard School of Public Health have embarked on a new project to serve this critical sector. Bringing together public health care and market forces "could have huge impact," he says.

Amy Edmondson
Implementing New Practices: An Empirical Study of Organizational Learning in Hospital Intensive Care Units
http://hbswk.hbs.edu/item/5414.html
How do hospital units, as complex service organizations, successfully implement best practices? Practices involve people and knowledge; people must apply knowledge to particular situations, so changing practices requires changing behavior. This study is a starting point for health care organizations to improve work practices.The researchers drew from literature on best practice transfer, team learning, and process change and developed four hypotheses to test at highly specialized hospital units that care for premature infants and critically ill newborns.

The Hard Work of Failure Analysis
http://hbswk.hbs.edu/item/4959.html
We all should learn from failure—but it's difficult to do so objectively. In this excerpt from "Failing to Learn and Learning to Fail (Intelligently)" in Long Range Planning Journal, HBS professor Amy Edmondson and coauthor Mark Cannon offer a process for analyzing what went wrong.

Inside the OR: Disrupted Routines and New Technologies
http://hbswk.hbs.edu/item/1654.html
A hospital operating room may seem an unlikely place to attract the attention of a group of management professors. But for HBS faculty members Amy Edmondson, Richard Bohmer, and Gary Pisano it's a setting that offers great insights into work teams and the ways they adapt and learn.

Regina Herzlinger
The Case for Consumer-Driven Medicaid
http://hbswk.hbs.edu/item/5455.html
The Medicaid program is a health insurance safety net for 52 million Americans, but the price tag threatens the financial stability of the states. Regina Herzlinger looks to South Carolina for a model in consumer-driven health care.

Why Europe Lags in Pharmaceuticals and Biotech
http://hbswk.hbs.edu/item/3817.html
Governmental, cultural, and academic differences are hurting Europe's chances of gaining on the U.S. Can anything be done?

Five Questions for Regina E. Herzlinger
http://hbswk.hbs.edu/item/3574.html
Professor Herzlinger shared her vision for health care in an e-mail interview with HBS Working Knowledge senior editor Martha Lagace. Herzlinger's next book, Consumer-Driven Health Care, was published in January 2003 by Jossey-Bass.

Are Consumers the Cure for Broken Health Insurance?
http://hbswk.hbs.edu/item/3045.html
"The health insurance system in the United States is broken, and business is paying the price," says HBS professor Regina E. Herzlinger. In this excerpt from Harvard Business Review, she describes how consumers may just be the cure. PLUS: Q&A with the author.

Putting Healthcare Consumers in the Driver's Seat
http://hbswk.hbs.edu/item/1353.html
Amid rising costs, changing attitudes, and increasing dissatisfaction with the existing healthcare system, the development of consumer-driven healthcare is a given: The question, according to participants in an HBS conference chaired by Professor Regina A. Herzlinger, is not if, but when.

Jim Heskett
What Is the Government's Role in U.S. Health Care?
http://hbswk.hbs.edu/item/5645.html
Health care will grab ever more headlines in the U.S. in the coming months, says Jim Heskett. Any service that is on track to consume 40 percent of the gross national product of the world's largest economy by the year 2050 will be hard to ignore. But are we addressing health care cost issues with the creativity they deserve? What do you think?

Robert Huckman
From Turf Wars to Learning Curves: How Hospitals Adopt New Technology
http://hbswk.hbs.edu/item/4851.html
Turf wars and learning curves influence how new technology is adopted in hospitals. HBS professors Gary Pisano and Robert Huckman discuss the implications of their research for your organization.

Tarun Khanna
Entrepreneurial Hospital Pioneers New Model
http://hbswk.hbs.edu/item/4585.html
A "Robin Hood" cardiac hospital in India—which charges wealthy patients, yet equally welcomes the destitute—is an exciting example of entrepreneurship in the subcontinent, says HBS professor Tarun Khanna.

Gary Pisano
Science Business: What Happened to Biotech?
http://hbswk.hbs.edu/item/5503.html
After 30 years the numbers are in on the biotech business—and it's not what we expected. The industry in aggregate has lost money. R&D performance has not radically improved. The problem? In a new book, Professor Gary Pisano points to systemic flaws as well as unhealthy tensions between science and business.

From Turf Wars to Learning Curves: How Hospitals Adopt New Technology
http://hbswk.hbs.edu/item/4851.html
Turf wars and learning curves influence how new technology is adopted in hospitals. HBS professors Gary Pisano and Robert Huckman discuss the implications of their research for your organization.

Learning Tradeoffs in Organizations: Measuring Multiple Dimensions of Improvement to Investigate Learning-Curve Heterogeneity
http://hbswk.hbs.edu/item/5429.html
How and why experience leads to performance improvement has made the learning curve an important management topic for sites ranging from nuclear power plants to cardiac surgical units. This new research looks deeper at learning curves by focusing on learning rates in technology adoption in similar organizations along multiple, potentially competing dimensions. Using longitudinal data from 16 hospitals that are adopting a new technology for cardiac surgery, it specifically studies 2 dimensions: efficiency and application innovation and the potential tradeoff between efficiency and application innovation. It also asks how such tradeoffs are influenced.

Do Managers' Heuristics Affect R&D Performance Volatility? A Simulation Informed by the Pharmaceutical Industry
http://hbswk.hbs.edu/item/5423.html
Can the R&D process be managed to provide more certainty and success? The authors explore R&D performance volatility using the pharmaceutical industry as the model. The study looks at 2 types of heuristics that are commonly used to manage R&D project portfolios: (1) which products to start, and whether to continue or kill a product in development; (2) how resources should be allocated at each phase of development. By changing the heuristics used to make decisions at each stage of development, managers can decrease the amount of uncertainty and failure in the R&D process.

Healthcare Research and Prospects
http://hbswk.hbs.edu/item/4288.html
A groundbreaking project at Harvard Business School is bringing together faculty, researchers, and students to probe issues in healthcare management. An interview with Professor Gary P. Pisano.

Making Biotech Work as a Business
http://hbswk.hbs.edu/item/3247.html
What will it take for biotechnology to fulfill its economic potential? Participants need to think twice about the strategies and assumptions that are driving the industry, says HBS professor Gary P. Pisano.

Inside the OR: Disrupted Routines and New Technologies
http://hbswk.hbs.edu/item/1654.html
A hospital operating room may seem an unlikely place to attract the attention of a group of management professors. But for HBS faculty members Amy Edmondson, Richard Bohmer, and Gary Pisano it's a setting that offers great insights into work teams and the ways they adapt and learn.

The Business of Biotech
http://hbswk.hbs.edu/item/1625.html
On the cusp of what most analysts agree will be the age of biotechology, Professor Gary P. Pisano and four HBS alums on the front lines of the biotech revolution offer their views of the challenges, issues, and opportunities facing the industry in the laboratory, the boardroom, and the marketplace.

Michael Porter
Competition the Cure for Health Care
http://hbswk.hbs.edu/item/5452.html
Michael Porter is considered by many the world's foremost authority on competition and strategy. He discusses the need for fundamental reform in the way the United States delivers health care.

Using Competition to Reform Health Care
http://hbswk.hbs.edu/item/5369.html
In their new book, HBS professor Michael Porter and Elizabeth Olmsted Teisberg argue that the very structure of U.S. health care must be redesigned to create value and effective competition throughout the system. An excerpt from Redefining Health Care: Creating Value-Based Competition on Results.

Solving the Healthcare Conundrum
http://hbswk.hbs.edu/item/4486.html
Executive summary of a presentation on reforming healthcare made by Professor Michael Porter at a Harvard Business School Publishing Virtual Seminar.

Michael Porter's Prescription for the High Cost of Healthcare
http://hbswk.hbs.edu/item/4255.html
The troubled U.S. healthcare system needs a brave, new kind of competition, say HBS professor Michael E. Porter and the University of Virginia's Elizabeth Olmsted Teisberg. A Harvard Business Review excerpt.

Debora Spar
The Hidden Market for Babies
http://hbswk.hbs.edu/item/5204.html
Surrogates. Fertility clinics. Egg donors. Adoption. It's time to recognize (and perhaps regulate) the huge market being created by reproductive technologies, says HBS professor Debora L. Spar. She discusses her new book, The Baby Business.

The Business of Babies
http://hbswk.hbs.edu/item/3790.html
The demand for babies by infertile couples and other would-be parents is huge—and little discussed. HBS professor Debora L. Spar looks at the market realities.

Marta Wosinska
Side Effects: The Case of Propecia
http://hbswk.hbs.edu/item/4503.html
Selling Propecia was a difficult marketing task for Merck & Co., and was recently the subject of a case study debated by Harvard Business School alumni.