HBS Faculty on Supreme Court Health Care Ruling

We asked three Harvard Business School faculty members, all experts in the health care field, to provide their views on various facets of one of this country's most important and complex problems.

The Supreme Court has spoken, and its ruling last Friday has evoked myriad responses from across the United States—from the far right to the far left, from small businesses to giant corporations, from pundits to the person on the street. We asked three Harvard Business School faculty members, all experts in the health care field, to provide their views on various facets of one of this country's most important and complex problems.

Bill George

Professor of Management Practice, former chair and CEO of Medtronic, and author of 7 Lessons for Leading in Crisis

One thing should be clear after last week's US Supreme Court ruling. It's time to end three-and-a-half years of political wrangling and make the Affordable Health Care Act (AHCA) work. The law's shortcomings are well known. It provides health care access to 30 million people, but contains no viable funding mechanism for this $1 trillion mandate and no assurance of reversing the inexorable rise in health care costs. Paradoxically, although America has the most technologically advanced and expensive health care system in the world, its citizens continue to get sicker.

The reason for this paradox shouldn't be a mystery. Our system focuses almost entirely on disease care to keep people alive, but does very little to enable Americans to live healthy lives. The longer people live in their disease-prone years, the more they cost Medicare. AHCA doesn't really address these challenges. Unless we face them squarely, Medicare will ultimately be bankrupt, and Americans will be forced to pay for a much higher share of their health care bills.

There is a better way. The United States must make healthy living the twenty-first century equivalent of putting a man on the moon. With lifestyle choices accounting for more than 50 percent of health care spending, we should launch a decade-long national "Healthy Living" campaign focusing on nutrition, diet, physical fitness, and stress reduction. We cannot continue to ignore the obesity epidemic sweeping the nation—a serious situation that is leading to ever-increasing rates of diabetes; cardiovascular disease; cancer, spine and joint disease; and metabolic syndrome.

One of the most important aspects of AHCA is the creation of designated accountable care organizations (ACOs). ACOs shift reimbursement away from the prevalent fee-for-service model that measures inputs to focus on outcomes—keeping people well. These organizations will provide their members with the tools and teams of health professionals they need to stay healthy. ACOs will include not only doctors and nurses, but health coaches, nutritionists, physical trainers, and complementary therapists, all working together as an integrated team to provide acupuncture, meditation and relaxation therapy, massage, and yoga. These diverse therapies are equally important for people suffering from chronic illnesses in order to prevent recurrence of their diseases.

To make such a campaign work, Americans must take greater responsibility for maintaining their health. In the future they will have a health score, much like their credit score, that is based on well-established metrics that will motivate them to improve their health. Inevitably, they will also have to assume greater financial responsibility for the cost of their care, while abandoning the myth that "health care is free." This will be accomplished through incentives for those who maintain their health, enabling them to pay less, while people who cost the system more will pay a larger proportion of their expenses.

Large employers as varied as Medtronic, Exxon, General Mills and Whole Foods, all of which are self-insured, have already moved forward with such systems, and their rewards are reflected in the lower cost of employee health care and higher rates of on-the-job employee productivity. Employers must lead the way in ensuring the health of their employees and their families by demanding more aggressive requirements from their health plans or they must work directly with large health systems.

At this stage in our nation's history we face a clear choice. Continue with the current disease-based system with expanded access and watch as people get sicker and the country's financial condition deteriorates. Or mount a massive healthy living campaign by focusing on prevention, wellness, and personal responsibility. In my view the choice is clear, and the time to act is long overdue.

Regina Herzlinger

Nancy R. McPherson Professor of Business Administration and author of Who Killed Health Care?

Although many conservatives are gnashing their teeth about the Supreme Court's upholding the individual mandate, had it not been upheld, their worst nightmares would have occurred. Government would have required hundreds of billions in additional taxes to pay for the health care of the sick.

Health care expenditures roughly follow Pareto's Law: Twenty percent of users spend 80 percent of the money. If the healthy 80 percent do not buy health insurance, the sick 20 percent will not be able to afford it. In 2009, the average expenses of the sick enrolled in state high-risk pools ranged from $8,000 to $24,000. Even the top 10 percent of taxpayers, with incomes over $110,000, could barely afford these sums.

Sick people are currently insured because 40 percent of them are in Medicare, and 97 percent of the rest are covered by employers or Medicaid. The healthy people in these insurance pools subsidize the costs of the sick. But many employers, weary of uncontrolled and unpredictable health care costs, will likely soon switch to a pension-like defined contribution system, cashing out employees with the value of employer-sponsored insurance—$4,500 in 2011. Absent the requirement that healthy people buy insurance, it is likely that the individual insurance market will consist primarily of sick people. They will have $ 4,500 to buy a policy with average expenses of up to $24,000. Good luck with that one.

Without an individual mandate, instead of buying their own insurance, most of the sick will qualify for subsidized coverage either in the public health insurance exchanges created under health care reform or in Medicaid. Staggering sums—hundreds of billions—in additional tax revenues will be required to support them.

Further, government payment for sick people's health care expenses will diminish the massive venture capital investment needed for developing genomically-derived therapies. We stand at the brink of a revolution in medicine that may well replace current barbaric therapies (painful invasive surgery, radiation, and chemotherapy for cancer, for example) with drugs that can palliate and perhaps cure genetically-linked diseases. But like most new technologies, these are hugely expensive to develop, and initially, to manufacture. Remember the prices of the first cell phones? Savvy private equity investors will be leery of funding this sector when the primary customer for its products is a government. They all know that the United Kingdom, with its government-controlled National Health Service, buys expensive cancer drugs at rates like those of far smaller and poorer nations.

Some also claim that enforcing the individual mandate is not feasible, but Switzerland's 97 percent enrollment rate for its version of the individual mandate indicates that it's possible. The Swiss achieve this compliance through straightforward techniques. Tax filings indicate whether health insurance was purchased (it is tax-deductible there); the canton buys health insurance for the uninsured and bills them; and welshers are sued under laws that allow confiscation of property.

Some may view the Swiss as more law-abiding than we are here in the United States, but a 2011 cross-country analysis of the percentage of the GDP in the shadow economy found this country to have the lowest percentage.

Fiscal conservatives have plenty of reasons to deplore other aspects of the health care reform legislation. By expanding coverage, it will add trillions to our already bloated, uncompetitive health care system, and the controls in the legislation are either worrisome (the Independent Payment Advisory Board, for example, allows a handful of people rather than the American public to cap health care expenses) or unrealistic, relying on a rearrangement of the deck chairs on the Titanic—the present US health care delivery system—to keep the lid on costs.

But as far as the individual mandate is concerned, it deserves economic conservatives' support, not their dissention.

(This article originally appeared in the Huffington Post on June 29, 2012.)

Robert Huckman

Professor of Business Administration and Faculty Co-Chair, Healthcare Initiative

In many ways, the recent decision by the Supreme Court to uphold the Affordable Care Act (ACA) is a landmark. It is a political landmark, since it provides a clearer picture of the strategies that will be used by Democrats and Republicans in the coming election cycle and beyond. It is a judicial landmark that is sure to be one of the defining opinions during the career of Chief Justice John Roberts. And finally, it is a social landmark, since it has bolstered efforts to move the United States closer to universal health care coverage.

Yet on one critical dimension—how physicians and hospitals deliver healthcare—this otherwise landmark decision will likely have little effect. This is not to suggest that the ACA itself was inconsequential. To the contrary, the law offered additional momentum to a series of emergent trends among physicians and hospitals. For example, the law formalized the growing recognition that providers must work together to manage both the cost and quality of care rather than continue to battle with each other for payments based largely on the number of patient visits or procedures performed. The law also encouraged (at least indirectly) efforts to broaden the use of electronic medical records to help manage the cost and quality of care delivered.

The pending full implementation of the ACA in 2014 meant that providers could not wait for the Supreme Court's decision before beginning to act on the above initiatives. As they moved forward with their planning, it became clear that they would pursue these beneficial reforms regardless of the ACA's fate. Interestingly, this same sense of inevitability was expressed recently by many of the country's largest healthcare insurers, who stated well before the Court's decision that they would maintain many provisions of the ACA even if the law were struck down. Although I expect the ruling to have relatively little impact on the course already being charted by providers, I realize that the hard work for physicians and hospitals is nowhere near complete.

In my own state of Massachusetts, many touted the Supreme Court's ruling as "vindication" for the Commonwealth's own reform efforts of 2006, which relied on an individual insurance mandate similar to the one at the heart of the ACA. Such assertions are premature. If vindication is to be found for any model-whether state, federal, or private-it will come only by showing that it increases access to care that is of high value to patients. Proving that will require providers to remain resolute in their own efforts to reform health care delivery.

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.
    • Anonymous
    The comments of each of the professors were illuminating and clarified aspects of so-called "Obamacare" that politicians, obfuscate. For example, Prof George's proposition that instead of continued efforts to repeal health reform, the objective now should be to fix the problem areas, particularly funding of expanded coverage and initiatives to bring about cost reductions to enable an affordable and more cost competitive system. Prof Herzlinger's description of the Swiss approach deserves much consideration in evaluating proposed changes. Rather than continue to pay taxes and subsidies implicitly imposed and charged, the need is clear for acceptance of more individual responsibility for payment of health costs based on individual choices for keep oneself healthy. Ultimately, as Prof Huckman eludes, the politics have to change to enable citizens to understand the truth. The source of that change, however, is the c
    itizenry. We have to get our heads out of the sand and become more informed not through political rhetoric, but, through objective, unvarnished education - a task vitally needed to be undertaken by citizen groups.
    • Anonymous
    Since nearly 50% of the population believes the decision was wrong or that Obama care should be repealed, one of the persons that was writing an opinion should have represented that view, with the proper arguments as to why that opinion is so prevalent. It is good that at least one mentioned that there were basically no cost reductions in the system and the additional people included in the program will drastically drive up the cost and utilization of the healthcare system by now asking for medical care (in many case catch up care for issues not previously properly attended to). There is no basis for expecting emergency care to those patients to decrease, in fact, in the MA example, those costs increased along with other costs. Everyone knows that without the extra Federal money (form the waiver) the MA universal coverage would not have been affordable (if it even is with that money). No one is really sure how to reduce the costs o
    f the system, short of rationaing care by a small group of people. A nearly no one finds that acceptable. But, there certainly needs to be experiments trying strategies for cost reductions and careful measurements of the outcomes. MA would be a good place for those experiments. If they are so possible, why has that not happened at all? Costs continue to skyrocket up, and with even more demand, the system is bound for failure.
    • Anonymous
    The main reason that this isn't a better bill is that the conservatives were afraid to come to the table. The reason that 50% of the people object is that the are not uninformed, they have been misinformed. The vast majority of those in MA like their plan. Now is the time to get together to massage the plan into something better.
    • Irene Chavez
    • Sr VP Area Manager, Kaiser Permanente San Jose
    Dr Huckman's ending sentence resonated with me because our journey has proven that access to quality healthcare is achievable. The next part of the journey is to further address the cost of delivering this level of care. Thank you for your articles, I enjoy and appreciate reading them.
    • Anonymous
    I have to say that if these professors think that the best way to bend the cost curve is through ACA's our healthcare system is sunk for certain. If one were to look at the most advanced healthcare systems (top 10%); those who are financially strong and have deep support staffs to implement a qualified ACA, most of them are already finding that qualifying for this "higher reimbursement" (5% more) have decided the burden is too high for the net benefit.
    The biggest issue with the broader Affordable Healthcare Act is that it does very little to actually bend the real costs of healthcare. The reason the Swiss system works is because the Swiss do not have a lawyer present in every interaction with a healthcare provider like the U.S. system does with our out-of-control malpractice tort system. Furthermore, the Swiss, French and UK do not have anywhere near the regulatory hurdles that our care providers have to meet in the U.S. So when you have any overly regulated industry with an out of control tort system you get a healthcare system as screwed-up and as hopeless as the American system.
    Furthermore, the more removed the average consumer of healthcare is from the actual costs, the more those costs will grow. The only real way to dramatically change the cost of healthcare is to make every consumer of care an active participant in both the choices for care as well as the costs associated with that care. I am not so certain that Grandma or Grandpa will be fighting to have a heart valve replaced if they know that the cost will be carried by their children or grandchildren either through direct costs or loss of inheritance. In today's system, Grandma doesn't really care because Medicare carries most of the bill.
    Lasltly, a founding principle within our country's history is the belief in the free-market. In almost every area of our society we have found market-based choices that have greatly improved the performance and the quality of the services or goods. In the only industry where that is not the case is in the delivery of healthcare services and it is no mystery why it is such a mess.
    • Mark Angelo
    • Director, Operations and Service Lines, Hospital for Special Surgery
    Professor Huckman is correct in that the ACA does little to change how hospitals and physicians deliver care, which is where the most reform is needed. While the ACA offers certain incentives to encourage the use of IT, improve clinical outcomes, and enhance care coordination, it will ultimately be the responsibility of hospitals and physicians to figure out how to maximize "value" for patients (i.e. improve quality of care delivered per unit cost).

    From a provider's point-of-view, healthcare costs continue to rise, patient volumes continue to grow, patients continue to live longer and suffer from more complex co-morbidities, and reimbursement levels continue to fall, making efficiency and improved quality critical to long term survival. Unfortunately there are no silver bullets. Increasing efficiency, quality and patient safety will require changes in process, attitudes and behaviors on the parts of clinicians and administrators. It will require us to shed the clinician-value of "independence" and "self-sufficiency" and instead embrace interdisciplinary teamwork. It will require us to go beyond simple day-to-day "firefighting" to solve patient problems and instead, embrace continuous performance improvement methodologies such as Lean/Six Sigma, thus addressing the root causes of problems rather than their symptoms alone. It will require us to empower patients and involve them as partne
    rs in their own care, as opposed to treating them as simply objects of care. I will require us to think more strategically about cost containment and treat IT and our employees as critical investments that yield long term returns over time rather than simple cost centers that should be cut whenever profitability falters.

    All these are fundamental changes in culture and hospital administration that will require strong leadership from the top (C-suite administrators, Physician Leaders, Board members), as well as meaningful engagement of front-line physicians and staff in order to understand the real issues impacting care and develop real solutions that maximize value for patients.

    Unfortunately, while increased transparency and consumer-driven healthcare will be better for patients, market-based solutions will not be enough. Unlike consumer products, healthcare is a social good that cannot be regulated by market forces alone. Government, private industry, non-profits, academia, physicians, patients and their families will all have to work together in the best interests of society.

    The task at hand will not be easy, but the future of our nation's health and our overall economic prosperity hangs in the balance. For those of us in healthcare management, we have a real opportunity to step up and create transformational change. When you think about it, it's not that often that a generation gets the opportunity to shape an entire industry such as healthcare for the better.
    • Anonymous
    I have, last Friday, heard of my daughter's death in California. She has been in poor health for nearly 30 years (Anorexia Nervosa) the last 15 in California. Although I admire the USA in many ways I think health care is primitive.
    • Anonymous
    My greatest disappointment in the health care debate is that financing health care has trumped the moral imperative. Health care should be as important as public access to police protection, education, and fire protection. I live near an undeveloped hillside and am "red-lined" by insurance companies refusing to insure me because of existing/prior conditions (higher risk of my house catching on fire). But the state provides fire insurance so that I don't loose everything if a fire occurs. But I can't get life insurance and was refused health insurance because I recovered from cancer (a prior condition). So all it takes is another bout of cancer and I'm financially ruined. Yes, health care is expensive, but it is immoral to let that become our obstacle given the wealth of the U.S. Let's get on with it now. We have the mandate, let's put our American ingenuity to work and find a way to pay for it, just as we do with
    fire, police, education, and other public services.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    The experts have given valuable suggestions. AHCA is a good piece of legislation which needs to be sincerely implemented.
    Excess eating of junk food and aerated drinks has become a habit with Americans of all ages. We find very obese men, women and children all around. There should be a war against obesity with deterrant punishment to those responsible for it. We need monitoring right from birth - a " health score " is a bright idea. Let there be a specified minimum permissible level of health parameters and those not adhering to these be punished in one way or the other. Some suggested deterance is : higher tax rates, rejection in job interviews, less opportunity for self employment, and social bycott of incorrigibles. Precaution being better than cure, lot of money can be saved this way.
    Alternate systems of health care - as suggested by Bill George -need to be adopted for lasting results and because theseare somewhat cheaper.
    School curriculum needs to include " health" as a compulsory subject. There should be a close vigil on the health of students and no violation of the basic code ( to be evolved) be permitted under any circumstances.
    Simply because many Americans have wealth doesn't and mustn't permit them to spend it recklessly to spoil their own and their family and others' health !!
    • Bob DeNoble
    • Consultant, RDA Healthcare Consulting, LLC
    I applaud that all three HBS thought leaders support moving ahead with the ACA each with a focus on a critical element of reform: focus on keeping people well, everyone must be included in the system, and reforming the care delivery process. It is a travesty that these important issues get lost in the political rhetoric and misleading statements by those opposed to any attempt at managing the system other than by pure market forces. It is important that HBS take a leadership role in this significant component of our society.
    • samantha
    • http://www.medicaremichigan.com/
    If the Price for the policy continues in this method then i guess not many people would show up with Insurance polices as the price ranges are way higher then the wages of a middle class citizen !

    • samantha prabhu
    • employee, expedient
    I think people needs to be totally aware of Insurance plan before they even sign the contract as there are many private companies which ask for the extra premiums in the middle of the year without any information as they hide these kind of things in there Terms and Conditions option !