Interviews - Regina Herzlinger’s Views of Consumer-Driven Health Care

In the July 24, 2007 edition of Health Affairs, Robert Galvin, MD, Director, global health care, for General Electric Corporation and professor adjunct of medicine and health policy at Yale University School of Medicine interviews Regina Herzlinger, Professor of Business Administration at Harvard Business School. The interview’s title is, “ Consumerism And Controversy: A Conversation With Regina Herzlinger.”

Galvin may find Herzlinger’s views controversial because, among other things, she thinks,

•the health establishment protects the status quo;

•intelligent consumers are capable of making rational health decisions;

•consumers are smarter than health care pundits;

•our“top-down” system suppresses innovation;

•all payments should be risk-adjusted;

•The federal government’s role should be restricted to mandating and disseminating outcomes information.

Here’s selected excerpts of the interview:

Galvin: Will the high-deductible plan, paired with either a health savings account (HSA) or health reimbursement arrangement (HRA), engage consumers and elicit the kind of demand you envision?

Herzlinger: The market is clearly starved for insurance innovation. In four years, ten million people have enrolled in the relatively small innovation of high-deductible plans, and Goldman Sachs predicts by 2010 there will be forty million. So it's amazing how fast the market is growing.

Galvin: Much focus has been on whether people are smart enough to be savvy consumers of health care. How about the opposite: Might they be too smart? Some of the data coming out on the early experience of high-deductible plans show that many consumers, knowing that there is still an annual out-of-pocket maximum, are simply "writing off" the increased expense of the deductible but not changing the way they buy health care.

Herzlinger: Unless the supply system is changed, changes in behavior aren’t going to amount to very much. Our bloated, vastly inefficient hospital sector must be restructured.

Galvin: What do you see as the future of specialty hospitals?

Herzlinger: I'm amused that people talk about the spectacular growth of specialty hospitals. There may be a hundred of them, each with thirty or fifty beds. For a company the size of GE, the entire specialty hospital industry would be a rounding error.

So what's stopping real growth? One barrier is the general hospitals, which are so powerful and so territorial. The general hospitals go to Congress and they say, These specialty hospitals, they're bad for my health. They're killing me. In the rest of the economy, Congress would say, Go away. If you can't compete. don't come to us. You need to be more efficient. We will not eliminate your competitors.

The second reason is the micromanagement of the payment system, both by Medicare and by the private insurers.

Galvin: Some of the evidence on specialty hospitals does show that they tend to attract healthier people. Is it fair that they get paid the same amount for someone with less co-morbidity? How would you fix it?


Herzlinger: As I have said since the 1990s, health care prices must be risk-adjusted.

Galvin: What do you see as the role of, and future of, health insurers in a consumer market?

Herzlinger: I believe that there isn't going to be as big a role for insurers in the future.

Galvin: How will we get information we don't have today?

Herzlinger: Only if the government requires collection, auditing, and widespread dissemination of that information.

Galvin: There are serious technical issues in getting outcomes data. The issue of sample size is real and may be a showstopper.

Herzlinge: The sample-size argument is another example of the insular, self-referential, self-protective nature of the health care sector, which is run much more for the benefit of the status quo than the consumer.

Galvin:Couldn't this lead to the consumer who might not be health-literate enough to understand quality data to make decisions based on price?

Herzlinger: It is part of the self-protecting nature of the health care establishment to pooh-pooh the literacy of consumers. Tell me, if the average consumer is such a dummy, how did complex goods like computers become both cheaper and better?

Galvin: You have been critical of pay-for-performance (P4P), calling it at one point "a Trojan horse for government control of health care."

Herzlinger: Currently P4P pays for following Uncle Sam's idea of how the surgery should be performed. It's not about paying for superior outcomes, but rather about paying for following cookbook recipes, dictated by the U.S. government or insurers for delivering medical care.

Galvin: Why not simply go to a single-payer system?

Herzlinger: Single payer could control health care costs by rationing health care for the sick. But would it deal with the quality performance.