Monday, March 26, 2007

Innovation-Driven Care, Herzlinger -The Gospel According to Harvard Business School:

Prologue: What follows are thoughts about the influence of Regina Herzlinger, PhD, professor of business administration at the Harvard Business School on consumer-driven health care. These thoughts don’t necessarily represent the philosophy or activities of the Business School as a whole. Another Harvard Business School professor, Michael Porter,for example, has made quite a splash with Redefining Health Care: Creating Value-Based Competition, co-authored with Elziabeth Olmstead Teisburg.

In any event, here goes.

We are the music-makers,
And we are the dreamers of dreams,
Wandering by the lone sea breakers,
And sitting by desolate streams
World-losers and world-forsakers,
On whom the pale moon gleams;
Yet we are the movers and shakers
Of the world forever, it seems

Arthur William Edgar O’Shaughnessy,
Ode, 1844-1881

This week the March 2007 Harvard Business School Alumni Bulletin crossed my desk. The front cover referred to an interview with Daniel Vasella, MD, “Medicine Man: Novartis CEO Daniel Vasella Makes All The Right Moves.”

As a medicine man, Vasella is an unparalleled mover, shaker, and pill-maker. Three years ago he was named “the most influential European businessman of the past 25 years” in a Financial Times poll of 4000 executives. For good reason. Just this year, Novartis net income rose 17% to $7.2 billion in 2006.

I am personally no mover and shaker as a business person, but I will always be indebted to the Harvard Business School (HBS), of which I am a quasi-alumnus, having graduated as a member of one of its eight-week advanced management programs.

Here, in three parts, are why I'm indebted to HBS.

Part One – Indebtedness – Regina Herzlinger Foreword to Innovation-Driven Health Care (Jones and Bartlett, 2007)

• I spent eight weeks at HBS in 1976 as a student in a program, “Health Systems Management, “ jointly sponsored by the Harvard School of Public Health. It was there I met Regina Herzlinger, PhD, now professor of Business Administration. We have maintained contact off and on for the last 30 years, and she was kind enough to write the following flattering foreword to my book, Innovation-Driven Health Care (Jones and Bartlett), coming off the press on March 29, 2007.

Richard (Dick) Reece is that rare breed of physician commentator who admires his colleagues. How long has it been since you read an article in a medical or health policy journal that applauded the skill and compassion of doctors, scientists, and administrators and/or bemoaned their increasing loss of autonomy to health insurers and governments? Well, you won’t read about how greedy and incompetent they are in Innovation-Driven Health Care: 34 Key Transformations in U.S. Health Care.

What you will read is an intelligent, knowledgeable analysis of the impact of innovations on the future of U.S. health care—and supportive, too. As Dick says, God love him, “being a physician is being part of a brotherhood or sisterhood.”

But why should you read yet another health care future book? Because Dick Reece has nailed it: His view of the future is exactly right. If you want to continue doing what you are doing, this book will enable you to assess how you fit into this new world and to adapt yourself if needed.

I had the good fortune to meet Dick Reece some 30 years ago at the Harvard Business School’s Program for Health Systems Management. Then, as now, Dick was a big man with a gruff affect, piercing intellect, heart of gold, and a sunny, bemused view of life.

I learned of the qualities because I taught accounting in the program, a course that quickly separates the intellectual and emotional wheat from the chaff—the analysts from the analyzed; the “let’s-cut-costs” types from the “let’s–increase-productivity” ones; and those with a sense of humor—believe me, you need this quality in an accounting course—from the deadly serious.These qualities inform Innovation-Driven Health Care.

However, Dick is not merely a cheerleader. He believes that innovations will increase the productivity of the U.S. health care system so that it can provide better services, at a better price, to more people. What a contrast to the usual dour prescribers who contend that innovation is impossible and improved productivity a myth. Their cure? Uncle Sam rations health care. Hello, Canada!

To make the importance of this point of view concrete, consider the following excerpt (Califano, 1977):

Almost immediately (after the introduction of CAT scanning), political objections arose to widespread use of this new imaging technology. HEW Secretary Joseph Califano rose on his political haunches and declared, “There are enough CAT Scanners in Southern California for the entire western United States.”

Not to be outdone, Dr. Howard Hiatt, dean for the Harvard School of Public Health, compared the use of CT scanners to overgrazed medical commons in which too many were foraging for too little. He said a national center for technology assessment and suppression of new technologies should be established and argued (1976):

There is no doubt that the scanners provide additional diagnostic information, and frequently with less discomfort and hazard to the patient, however, it is not clear that the diagnostic information very often leads to a better outcome for the patient. Until this important information is available from careful studies, would we not be better served limiting the use of such expensive technology.

Califano and Hiatt overestimated the power of federal regulations and underestimated the thirst of doctors and the public for this clearly superior technology. Neurosurgeons immediately embraced CT scans. Their enthusiasm soon spread to orthopedic surgeons, who saw the potential of MRIs for joint, bone, and soft-tissue imaging. Most recently, oncologists have welcomed PET scans to check for subtle cancer spread. CT and MRI scanning has become the modus operandi for evaluating all manner of physiological anomalies.

In 2001, 225 internists, when asked to evaluate the relative importance of 30 medical technologies, rated CT and MRI scans as the number one innovation.”

However, Reece is no ideologue. He is a pragmatist. With illuminating case studies, he provides news you can use, as illustrated by the following examples:

How stand-alone, onesie-twosie physician practices can thrive.
• Want to leave medicine? Here is how to make your intellect, training, and experience work for you.
• How to empower consumers and embrace new high-deductible health plans without disemboweling yourself.
• How large groups—Mayo, Kaiser—have avoided “mid-life” crises.
• How to flourish in insurer-physician and hospital-physician relationships, which are more typically akin to the relationship between a salmon and a bear.

I have merely mentioned only five of the 34 topics in this book. If you want to know more, read on!

Why am I so sure that Dick Reece’s views of the future are right? It’s not only that he agrees with my own views, but also, and, more importantly, because he has been right so often before. For example, a dozen years ago, as chairman of a physician hospital organization, Dick created the case-based pricing that payers are finally coming to, some 20 years later. And while living in the midst of managed care–loving Minnesota, Dick predicted the threat HMOs posed to physicians. The observation, which now seems obvious, was radical when he made it—a quarter century ago.

Best of all, Dick’s sunny belief in the transformative powers of innovation are mirrored by his bright, witty writing style. Here are some samples:

Question: What do you call farmers who convert fallow into fertile ground?

Answer: Farmers with a sense of humus.
And on pay for performance: “An ounce of performance is worth a pound of lucre.

It’s great to laugh, especially when the laughter is accompanied by such useful.

Part Two – Indebtedness – Consumer-Driven Health Care: Implications for Providers, Payers, and Policymakers ( Jossey-Bass, 2004)

In 1999 Regina invited me to attend a conference “Consumer-Driven Health Care” organized by Harvard Business School. Ultimately the papers presented at that conference became the basis for her book Consumer-Driven Health Care: Implications for Providers, Payers, Policymakers (Jossey-Bass, 2004). Speaking of the Gospel , in the future this 892 page tome may well be the cited as the gospel that lay the foundation for the consumer-driven movement that was to follow.

Regina served as editor of the book. It had 97 contributors, of whom 25 were physicians. She clearly understood physicians would be central figures in shaping consumer-driven care. As I look back and leaf through the list of contributors and attendees, I realize most movers and shakers of today’s health care world were there and are still around, moving and shaking and developing what is to become a uniquely American system, a blending of private, public, and governmental enterprises.

In 2004, Regina and a Harvard colleague wrote an article in the Journal of the American Medical Association (“Lessons from Switzerland,” volume 292, pages 1213-1220). The article said, in essence consumer-driven care and universal coverage can co-exist. Here is the abstract of that article:

Switzerland's consumer-driven health care system achieves universal insurance and high quality of care at significantly lower costs than the employer-based US system and without the constrained resources that can characterize government-controlled systems. Unlike other systems in which the choice and most of the funding for health insurance is provided by third parties, such as employers and governments, in the Swiss system, individuals are required to purchase their own health insurance. The positive results achieved by the Swiss system may be attributed to its consumer control, price transparency of the insurance plans, risk adjustment of insurers, and solidarity. However, the constraints the Swiss system places on hospitals and physicians and the paucity of provider quality information may unduly limit its impact. The Swiss health care system holds important lessons, including evidence about its feasibility and equity, for the United States, which is now embarking on its own consumer-driven health care system.One of Regina’s “students” in the 1999 Harvard conference was Daniel (Stormy) Johnson, MD., a radiologist, former president of the American Medical Association, and now Board Chair of Consumers for Health Care Choices (CHCC).

In a March 15, 2007, press release, CHCC president, Greg Scandlen, issued this statement:

American Media Ignore Swiss Vote

Single Payer Rejected by 71% of Voters

On Sunday the Swiss people voted overwhelmingly to reject a Single Payer system. But there has been not a word about it in the American press – other than a single paragraph in the trade publication Business Insurance.

The vote was on whether to replace Switzerland’s current system of mandatory health insurance coverage provided by 87 private health plans with a single payer system based on income-related premiums. It was rejected by 71% of the voters.
If the vote had gone the other way – if the Swiss had embraced Single Payer – it would have been front page news in every newspaper in the United States, it would have been a lead story in every broadcast. Reporters would have booked flights to Geneva to interview citizens and political leaders.

This provides a sobering example of why public policy goes so wrong in the United States. The public is informed of only one side of the story. Reporters and editors are biased in favor of government intervention and against free markets. They are part of a privileged elite who think consumers are incapable of making sound decisions and intelligent choices.

But the people of Switzerland made the same choice as the American people make every time they have had an opportunity. Voters in Oregon rejected Single Payer by a vote of 79% to 21% in 2002. People do not want to be herded into a government-run cattle car. We want and demand freedom of choice in health care as in every other aspect of our lives.

• Part Three – Indebtedness – Daniel Vasella, MD, Interview

Lastly I am indebted to Harvard Business School through its publications for continuing to recognize that health care is a driving, uplifting force in the U.S. and international health economies. Indeed, within 20 years, health care may be the economic engine for 25% of the U.S economy, as it already has in Minnesota, where it is that state’s number one employer.

The interview highlights the insights and contributions of Dr. Daniel Vasella, who rose from a clinician in Bern, Switzerland, to work his way up through the marketing division of the Swiss conglomerate Sandoz. Within a decade, Vasella, who did a stint at Harvard Business School advanced management course in 1989, was leading Sandoz’s merger with Ciba-Geigy. The merged company was named Novartis. Vasella became CEO of Novartis in 1996. Today, Novartis ranks no. 4 among international drug companies with sales of $37 billion. Under his leadership, the company has led the industry in new drug approvals. It now has 138 new drugs in its pipeline. Novartis has also diversified into vaccines and generic drugs, setting it apart from rivals.

Among the observations and insights Vasella offers in his interview are these.

• Drugs make up 15% to 18% of health costs but account for about 40% of the drop in disease mortality. If we were to strip all the profits from the industry, it would drop overall health costs by just 3%.
• The Medicare prescription drug program has been a success, despite Democratic criticisms that it relies too much on private insurance providers. Costs have been lower than anticipated, and, says Vasella, “The system seems to work pretty well.”
• Novartis has succeeded in developing new products by creating a culture of innovation by integrating research and marketing and by nurturing project teams to move drug development forward.
• Novartis has moved its research headquarters to the U.S, so it work more closely with academic institutions, has created a genomic institute in La Jolla, and in 2002 formed the Institutes of BioMedical Research in Cambridge, Massachusetts.
• Novartis has invested heavily into generic drugs. These drugs have less profit than brand names but are growing more rapidly. People are rapidly switching from brand drugs to generics to cut expenses. “Our philosophy is to link for sustainable growth and to create and maintain a business that is competitive and that satisfies the needs for society and customers.”
• Novartis has moved into vaccines big time because of high growth rates of 15 to 20% and because other companies had abandoned vaccines due to litigation problems. This adversarial legal climate has changed recently, The U.S. government has recognized nobody wants to produce vaccines anymore and loosened litigation rules,
• Novartis is cautious about supplying low-cost drugs to poor countries because it cannot fix poor governance, corruption, inadequate distribution systems, and lack of health-care professionals. Even so, Novartis is delivering services and products worth $700 million to these countries, about 2% of its sales. Vasella says one cannot punish patients because of bad government, but it is not the responsibility of private companies to compensate for bad government.


Regina Herzlinger, PhD, Professor of Business Administration at the Harvard Business School, has helped nurture a group of physician movers, shakers, and pill-makers to lead consumer driven health care. This type of care may develop into an integral component of U.S. and international health systems. Consumer- driven care assumes empowered consumers will have more choice, more control over care, and lower costs with higher quality. It also takes for granted consumers will willingly take more responsibility for their health and will become more informed health care consumers.


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