Managing and Improving Healthcare

  • Conversation Summary

Faculty Response (9 October 2008)

Many of you talked about prevention as the key to healthcare reform. But over 70% of healthcare costs are spent on chronic disease conditions. What can be done to improve the treatment and cost of chronic diseases?

How applicable is the analogy of manufacturing to the delivery of healthcare? That is, is healthcare a manufacturing process?

What technologies do you think hold the most promise for improving healthcare outcomes?

Original Questions

You are the next president of the United States. To improve healthcare outcomes, would you invest in innovative areas such as stem cell research and creation of new medical devices, or would you spend money to improve the process of healthcare delivery?

Do MBAs have a role to play in the management of this industry given the ethical, regulatory, and public service elements involved?

Your Comments

  • Jonathan Maher

    Consider all the expert advice possible, but without that, probably:

    1) Create and promote a global forum to foster collaboration among educational institutions and healthcare technology companies, and then create a government program that provides significant financial incentive to disclose innovative ideas to the community.

    2) Develop and promote a forum for consumers to share information about individuals and organizations that provide healthcare in order to foster a competition for quality, then reduce the consumer's insulation from individual costs incurred during their care ("will that be the 10 dollar or the 100 dollar lancet, miss?"), to reduce total costs in the system, thus reducing premiums.

  • Sandeep Reddy
    Portfolio Manager,
    West Coast District Health Board, NZ

    I think investing in technologies and innovations which can improve the efficiency of health care delivery is important but due consideration should be given to the basic structure of health care delivery like who are the consumers and how will they benefit from the innovations/improvements?

    Management qualifications with a focus on health care management indeed bring strength to a manager's decision making capacity in a complex adaptive system which witnesses changes and at the same moment needs to comply with federal or state regulations and policies.

  • David Semple
    Alumnus MBA 1971
    President
    Health Care Research and Education

    Re: Robert Huckman's question; ninety percent of effort and funds should be devoted to improving delivery of health care, especially inefficient and ineffective health insurance. An abundance of medical knowledge and technology already exists that is not rationally applied to people's needs. Employer sponsored health care plans underwritten by insurance companies frequently cause short term doctor/patient relationships when employers annually shop for cheaper coverage or when employees change jobs (and therefore insurance).

    Regarding Richard Hamermesh's question; MBAs can contribute greatly to health care industry by using skills taught at HBS; that is, identifying health care delivery system problems, determining opportunities for improvement, laying out a plan, convincing stakeholders of the benefits of change, implementation, monitoring results and making refinements. An MBA degree combined with a RN undergraduate degree would be ideal but those without clinical training can learn the industry, with time spend working in the field.

  • Susan Willard
    Founder
    Patient Vanguard

    Investments in Health Care: As the next President of the United States, I would provide tax incentives and funding to both the academic communities, and the private sector for continued efforts in stem cell research and its application, as well as the development of innovative medical device products.

    However, I would recognize that the greatest area for improvements, cost reductions, and efficacy would be in addressing how the current US Health Care Service Delivery System assembles and delivers its product called "Health Care." Yes, I do mean assemble and deliver, just like a we think about a manufacturing process.

    We already know that health care coverage of our citizens, and addressing its cost/payment are two critical issues. However, if we can't build and deliver health care services in a cost-effective, consistent, safe manner, with measureable quality, we will never get our arms around the current industry challenges, or costs for that matter.

    I would expect to promote research, investments,and incentives toward addressing the needs of creating a competitive, consumer-driven Health Care Service Delivery system. Medical Information Management Systems that work, and are designed with a goal of providing interoperability across the delivery chain, and provide the data needed to make excellent health care decisions. Consistent and uniform Care Processes, almost an ISO 9000 approach to delivering care, "pay-for-performance," delivery systems, et al. Cutting-edge institutions like the Cleveland Clinic, and others would be benchmarked.

    Money would be made available to invest in Patient Education endeavors to like a Patient Education Foundation. An organization that examines what consumers need to be able to do to cost-effectively participate in their health care. Today, patients and their families are still frequently treated by the medical community as being incapable of an equal partnership in their treatment. And each institution is left to decide how to engage with its consumer stakeholders, so generally the topic is never addressed - not an academically sexy set of topics. Yet, if we spent money developing the necessary tools, patients could help in preventing then endless medical mistakes, repeat diagnostic testing, drug interactions that occur, we would begin to build the kind of patient-centered care system that is so necessary.

    2) MBA participation: Absolutely, and I would argue that incredible business talent can help institute many of the needed challenges. You do not have to be an RN to understand how to redesign a Care Process. Talented Project Managers in business with appropriate training know how to collect information from subject-matter experts, and apply state-of-the-art process reengineering principles.

    So often it is the same "fox in the hen house," mentality that keeps innovation and change in Health Care from occuring more rapidly.

    In the US, and in the global economy, we have been successful in designing, and implementing delivery systems that bring us a host of goods and services to the market in a predictable, cost-effective, timely manner. Why not health care? Because there is no competition, no weeding-out of the poor performers, and greater rewards for the best performers, broken care processes it goes on and on.

  • Mark Simchock
    CEO
    Alchemy United

    Me? For starters I'd put at least a third of my efforts into prevention and work up from there. With nearly 75% of the adult population either overweight or obese we're literally eating (and not exercising) ourselves to death. My hunch is that if one were to plot our "overweightness" and health care cost increases the two graphs would be quite similar.

    I apologize if this counter to conventional wisdom but we need to put a stop to Management by Crisis. Wall Street. Sub-Primes. New Orleans. The list goes on and on. We do not have the resources to wait for things to blow up and then inefficiently just throw money at the problem. Not only is it wasteful but that isn't working anymore. We need leadership and a cultural mindset that is proactive not reactive.

    Frankly, IMHO MBAs are among those who have helped to create the problem as it exits today. It's hard for me to imagine then that their approach is going to be part of the solution.

    Yes, I agree the health care system needs a serious makeover. Obviously. But it's no surprise given the increased weight (literally) that its being forced to burden. There is also a total lack of leadership to move beyond the status quo. As Einstein once said, "Insanity - doing the same thing over and over and expecting different results."

    I digress. Pardon my interruption.

  • Rodrigo Campuzano
    Alumnus OPM 35
    CEO
    GEDESA (Medical Distributor)

    I would invest money in these areas (ranked by order of importance):

    1)PREVENTION: An elderly patient, with cardiovascular diseases costs a fortune to the healthcare system. Most of these diseases did not exist a century ago. We have created a society of sick and overweight people. Prevention is a multisector issue. The healthcare industry and the food industry have to be involved. The government has to be a better regulator.

    2) DELIVERY OF HEALTHCARE: The current state-of-the-art in medicine is quite good for many illnesses. The problem is that it is to expensive to access that service. As an example: a laparoscopic colicystectomy, 48 hours in the hospital, cost a friend of mine $19,000!!! The direct cost of medical supplies/equipment for that surgery are no more than $1,000. Where is the difference going to? My guess, most of it to cover insurance liabilities. This is the rock in the middle of the road that is artificially inflating healthcare costs.

    3) INNOVATIVE RESEARCH: There is always a need for more research and new products. But before investing a fortune in reinventing the wheel, I would develop incentives for US companies/institutions to cooperate with what is being developed in other countries. Germany, Japan, China and Brazil are all examples of countries with breakthroughs in medicine. Because of poorly designed regulation (or protectionism) the US healthcare facilities cannot access these innovative procedures/products.

  • Bill Shirley
    CEO
    In Search of Eagles, Inc

    I'm an Executive Leadership Coach. I work with key business leaders on the whole range of leadership issues, including how our so-called "Health Care" system affects them personally as well as their business. I have these observations to add to this conversation.

    First, we mislead ourselves by the way we mislabel this rapidly growing industry. It is many things but it is NOT a "Health Care" industry; it is not in the "Health" business! I think it is more accurately identified as the Medical Treatment Industry. This industry is totally focused on relieving acute symptoms and coping with chronic conditions. It is focused only on "survival," not "health." The practitioners are only able to address the client's painful, debilitating, or life-threatening symptoms (or conditions) without ever effectively addressing the underlying cause. The focus is on "fixing the problem," rather then the whole person and restoring "wellness" or "health." The differences are subtle, but profound.

    Second, our Medical Treatment Delivery System is working extremely well; it is delivering the results it is designed to produce. It is a profit-driven oligarchy operating in a tightly controlled market. The medical insurance companies, the FDA and "Big Pharma" control our Medical Treatment Industry. The insurance companies control which treatments are covered by insurance and how much will be paid. The FDA and Big Pharma work together to control which treatments are available. The system is designed to produce profits for the insurance companies and the industries that deliver the proven (patentable) drugs and treatments. These profits are essential; otherwise, the existing system would collapse. Our only alternative is politically unacceptable: "Socialized Medicine."

    Third, our political leaders look to these "free market" Medical Insurance Companies to control the exploding cost of medical treatments. They have extensive discretion as to what is covered and how much will be paid if the treatment is covered. The insurance companies negotiate various combinations of premiums, deductibles and co-payments among employers, employees and individuals that effectively rations medical treatments on the basis of what each individual can afford.

    Fourth, the aggregate cost of treating chronic, degenerative diseases such as heart disease, stroke, arthritis, diabetes, and the more popular forms of cancer (breast, prostate and colon) are growing four-times faster than inflation. As our the aging boomer population waddles into their Medicare years, their medical treatment costs will burden the taxpayers far more than anything Wall Street's most creative financial wizards can dream up.

    Yes, MBAs have a role: They can design a Health Care paradigm grounded on the fact that ALL the expensive chronic degenerative diseases can be PREVENTED. Prevention requires a major societal shift; a focus on Good Health at an early age. Chronic, degenerative disease is NOT a disease of "The Aged," it is a disease of "The Young" that does not show up years later.

    The exploding cost of medical care, at all ages, will be a crushing burden on the economy and our quality of life. The only way to control it is to focus on disease prevention rather than disease treatment.

  • Yoana Petit
    Alumnus/a 2007
    CEO
    GYP Investmenst Corp

    "You are the next president of the United States. To improve healthcare outcomes, would you invest in innovative areas such a stem cell research and creation of new medical devices, or would you spend money to improve the delivery of healthcare?"

  • Nadeem
    Alumnus/a GMP3 08
    Managing Director, Healthcare BU
    xwave

    The lowest expense care given in the system is the patient, parent or child. Enabling this caregiver with the tools to provide effective, efficient care to a loved one should be the basis of a strategy going forward with focus on chronic disease. 80% of health costs are related to chronic disease. 80% of those costs can be significantly reduced through lifestyle changes.

    A focus on enabling patients and their caregivers to change that lifestyle should receive commitment.

  • Larry Greiner
    Alumnus/a 1960 and 65
    Professor of Management
    Univ. of Southern Calif

    I like Obama's plan because of its mix of private (I can keep my present insurer and doctors) and public for the those who can't afford healthcare.

  • David Terry
    Alumnus MBA 1998
    President
    Bridge Health Capital Partners

    I manage a new fund focused on investing in opportunities in the primary care sector. Clearly my view is that the biggest opportunity for improvement lies in the delivery sector, and specifically in primary care. No one in the delivery system has more information and influence to faciliate care management than the primary care physician. This is particularly true as new technology tools - including EMRs and remote monitoring devices - are becoming more widespread. Unfortunately, capital has historically been controlled by health plans and hospital systems that have viewed primary care providers as loss leaders.

    There is opportunity today, however, to change this dynamic. The focus of our fund is invest in primary care businesses in order to develop a branded network of providers designed to improve customer service, enhance access and manage chronic disease. The economics of the model are driven by several short and medium term principles - own and operate diagnostic ancillary services, leverage nurse practitioners, operate expanded hours urgent care centers, and, in the medium term, negotiate performance based contracts for managing high cost chronic care patients. These are operationally intense solutions to complex delivery system challenges, but the opportunity for improvement, and financial return, is compelling. We are in the early stages of the fund and are just starting to see investment opportunities. I'd be very interested in hearing feedback and ideas from others who are interested in creative ways to improve the delivery system.

  • Ahmad Faraz alvi
    CEO
    Noahs Investments

    The prosperity of 1950s.... changed our lifestyle. Our insatiable appetites and remote controlled luxuries have brought a negative rate of return for our health. We have to adopt a lifestyle that includes daily physical effort, less mental and emotional stress, and most importantly a balanced daily diet. Instead of 4-5 five meals a day plus junk food munching, we have to control it to a maximum three meals. The more we adhere to this balance the lesser will be our medical mishaps.

  • Tom Dolembo
    Alumnus/a 1971
    Owner
    Disaster Planning Associates

    Professor Christensen nails it. Highly disruptive responses will occur as sudden devaluation of assets eliminates options for the few businesses that can still afford healthcare support. Government (and the rest of us) are passengers as benefits safety nets, providers, and benefit funds vaporize and governments allocate critical funds to propping up the social network. MBA's can function well in highly disruptive, socially revolutionary episodes, such as the one emerging now. But HBS isn't famous for teaching disruption outside hedge funds.

    Will we fly our sick and elderly to low cost healthcare, assisted living colonies? Will gene mapping and transforming replace diagnostics? Will manufacturers (I built extreme medical devices out of lactate biosorbables costing $1500 a kilo...just taking them out of the freezer to market was an out-of body experience) grow rather than mold devices? Are human organs really necessary? Think crazy.

    The global map is melting as the economies rupture, the MBA will have to be able to live in a business world so alien to the one she visited in HBS cases that to describe it invites madness. Skip class. Forget JD/MBA. Audit Harvard's fabulous emerging bio-engineering courses. Read Tolkien. Gollum has the ring.

  • Susan Willard
    Founder
    Patient Vanguard

    Perhaps all who have responded have read:

    "Redefining Health Care Creating Value-based Competition on Results" Michael E. Porter & Elizabeth Olmsted Teisberg Harvard Business School Press, 2006

    If not, I would encourage folks to do so. Anyone involved in the US Health Care Industry, Health and Wellness Industry owe it to themselves to read this book. Whether you agree with the book premise, or its conclusions, it should be a "must read," particularly when training health care business professionals. Porter and Teisberg are provocative, and enable one to see the industry in a very different light. Without competition, and value it is hard to see a way out of this mess.

    In reading many of the responses, I agree that services, tools, and programs should be developed to focus on "Prevention." Yet, a single focus on "Prevention" does not address the serious breakdowns in our current health care delivery system, the mismanagement of information, which leads to treatment difficulties, the errors, lack of accountability, and HC businesses that run in the "red," perpetually.

    Today,we have a population riddled with chronic illnesses, diseases which need to be managed across numerous Patient Care Events (some 12 - 15 depending on how you slice and dice the Care Event locations/definitions).

    In the current system, based on multiple experiences, I've learned when I am truly ill, my PCP doesn't actually manage my care any longer, other than provide referral numbers for specialty care treatments - mandatory by the insurance company.

    When I'm really sick, I might have three or four Specialty Care Providers at any given time. I might need to request services at the Emergency Room, then move to an In-patient Hospital Care situation, get discharged, move to a Skilled Nursing Care Event, go home, get In-Home Care, get distressed, go back to the Emergency, on and on. How do these situations get managed? Who handles the information exchange? Does my Emergency Room Care recommendation get to my PCP? What is the role of the Health Care Insurance Provider? How do I handle exchanges between Provider Networks? The scenarios are endless. One fact is evident, if I don't make the effort in today's system, there is a very high probability that my many doctors, and delivery locations will never have the same medical information about me, and the correct data about my illnesses/treatment events.

    Today, it is MY responsibility, or my caregiver's to ensure that everything is "ticked and tied." God help me if I'm too sick to do so, or lack a family member or friend to advocate for me. Many care networks today function as islands unto themselves, and then not even necessarily as an "island of automation." The innovative providers are trying to do accomplish this outcome, and some have quite successfully done so. Look at Partners for example, or even a better example, The Cleveland Clinic, for they conduct the rigorous measurement of their performance, communicate the results, while fixing. Much like in other industries driven by quality programs, whereby a service or product is provided, effectiveness measured, and corrections are made moving the company toward best practice adoption and execution.

    But these Centers of Excellence are the exceptions right now, and not the rule. We are years away from having a medical information highway that all can "plug" into.

    So, until that time when a patient and their caregiver can sit down with a health care professional at any given Care Event, or delivery location, and have an accurate dialog based on real, up-to-date information, a real information "handshake," the quality and safety of the patient experience can be a crap shoot.

    Now, I've rambled and ranted, there is so much that needs to be accomplished, but the bottom-line is we need to find predictable methods to involve patients and their families in the care delivery process.

    We need to invest some of our money in programs, tools, and materials that educate patients about the delivery system, and enable them to come prepared to every care event. Those few studies that have been conducted over the past few years have speculated that by engaging patients in the care delivery process, health care providers and insurance providers could improve care efficacy, cost, and quality immensely. How much is not known, but if we took some time and money to investigate, providers might be able to reduce their costs related to error, miscommunications, and event management by as much as 10% or 20%. This could translate into billions of dollars per year in cost savings, and in some cases lives.

    An "educated customer is the best customer". Yet, specific educational tools and materials are almost non-existent for patients and their caregivers, other than "flat," e-content Web sites. Contextual tools/materials that can aid in a stakeholders' navigation of the US Health Care System are not available today.

    The industry needs to find methods to address this issue. After all stakeholders have the most to gain from the proper engagement and treatment of their illnesses - it's their health and life on the line.

  • Don DeMott
    Marketing Consultant
    MarketingSyndicate, Inc.

    Research and innovation has to continue to be a priority, but much greater emphasis must be shifted toward improving the efficiency of healthcare delivery across the spectrum of provider organizations. Systems' stresses from escalating costs, worsening labor shortages and increasing treatment errors are intensifying as the first of 78 million baby boomers turn 62 and become eligible for Social Security this year.

    An approach to addressing the problem that has proven to get results in provider organizations around the country (e.g., Virginia Mason Medical Center in WA) is application of the waste-eliminating Lean principles, tools and techniques of the Toyota Production System. The methodology's transformational effect on manufacturing processes is being successfully extended across a range of services industries, including healthcare.

    Several centers (IA, VT, CA, NC, SC, and others) in the Commerce Department's NIST Manufacturing Extension Partnership network are coaching and assisting healthcare organizations in implementing Lean problem solving and process improvement to positively impact:

    efficiency

    quality care

    health outcomes

    What's needed is more support at national and state levels behind expanding the penetration of Lean/TPS thinking and practices in healthcare settings. Challenges where better leadership and focus would make a difference are in increasing:

    engagement and advocacy among system providers' CEOs and senior executives.

    cooperation and collaboration at the local and regional level between businesses (who consume and bear the cost of the majority of communities' healthcare services) and caregivers.

    education and open-mindedness of clinically focused staff and groups.

    Given the process heavy nature of healthcare delivery systems and the urgency of transitioning them into more efficient, consumer directed and price transparent organizations, a wider presence of MBAs in their ranks would be beneficial.

  • Tom Dolembo
    Alumnus 1971

    To respond to Professor Huckman: Improvement of outcomes assumes some base metric on which to improve. None exists. Many areas of research, ie Harvard's vast bioengineering initiative in North Yard and Allston, will produce only by collaboration. The intense competition for saleable patents between private industry and universities makes this complex. By investing in the process of invention, by stimulating the research system and assuring reasonable ownership, the next president will add more than direct investment in medical devices. In my experience as a manufacturer, archaic manufacturing techniques favored in the US are not worth the investment. Delivery of healthcare, in what is becoming an environment akin to a medical French Revolution, will undergo such a radical change in the next 10 years that government will not lead, but follow a very angry and very motivated former middle class electorate.

    To respond to Professor Hamermesh, the Harvard MBA is not trained in an integrated educational format with background in the engineering and even the slightest familiarization with how things are made. The concept of a case trained only, general manager with emphasis on financial networking is obsolete. History would offer few ethical impediments to the MBA, regulatory oversight has been transparent, and public service has hardly motivated many. The next 10 years will require such innovation, radical thought, structural challenges and rejection of past organizational management methods that an MBA will have to be a re-learning expert. The curriculum at HBS sadly lacks the combination of working knowledge, familiarity with basic processes, and does not develop skills at handling massive revolutionary deconstruction. "One's attention is sharp when on the way to the gallows" is hardly the proper motivator for the MBA. Been there, done that. Yes, Harvard's talented alumni have a critical role in this industry. Yes, HBS squanders their incredible talent by offering an obsolete and dangerously irrelevant preparation for this brave new world.

  • Moderator

    Note: Comments below are in response to new questions posed by faculty on October 9, 2008.

  • Edward Hahn
    Undergraduate in Biomedical Engineering
    Georgia Institute of Technology

    Question 1:

    Being on the forefront of technology and having participated in research opportunities with both stem cells and medical devices, I don't see how a substantial monetary donation towards the progress within these focus areas will significantly impact America's healthcare system. Rather, I believe the money should be put towards impacting the delivery or healthcare. The opportunity consists of many avenues. One major area would be to address the issue of speed to market with a lot of devices and therapies due to disconnects from research institutes and government entities. Most devices and drugs that have potential to have a substantial impact could potentially take 8-9 years from concept to commercialization. This hinders the progress of our health system and discourages many businesses from looking into opportunities just because of the potential loss of profitability. This aspect of the "delivery of healthcare" must be expedited for the sake of the American people.

    Question 2:

    MBAs have a huge role in the management of the healthcare industry. Those involved with the regulatory pathway are best suited for this type of endeavor, especially those with a technical background in biomedical sciences. Adding a proper education on how business is conducted in the healthcare industry could provide an entrepreneurial opportunity for someone who capable of developing a method a prominent speed to market strategy. By being a pioneer in this sense, it would serve as a template for all businesses within the healthcare sector to follow suit.

  • Tom Dolembo
    Alumnus 1971

    Professor Huckman: W. Edwards Deming might say healthcare delivery is a manufacturing process, as suffering from the following:

    Deming's Seven Deadly Diseases (from his original text, "Out of the Crisis" published in Japan in 1982 and translated later into English ... American bizlit didn't buy it)

    The Seven Deadly Diseases (also known as the "Seven Wastes"):

    1. Lack of constancy of purpose.
    2. Emphasis on short-term profits.
    3. Evaluation by performance, merit rating, or annual review of performance.
    4. Mobility of management.
    5. Running a company on visible figures alone.
    6. Excessive medical costs.
    7. Excessive costs of warranty, fueled by lawyers who work for contingency fees.

    A Lesser Category of Obstacles:

    1. Neglecting long-range planning.
    2. Relying on technology to solve problems.
    3. Seeking examples to follow rather than developing solutions. Excuses, such as "Our problems are different."
  • Ajay Kumar Handa
    President
    Centaur Pharmaceuticals P Ltd

    With changing disease profile and unmet solution for some stubborn diseases, dynamic research has to support future treatment. Given the constraints in resources, the challenge for any President would be to balance between speedy healthcare delivery and research. Just one discovery becomes a boon for the next generation. Delivery pertaining to common ailments is not as much an issue as is wrt to disease where diagnosis is a challenge and requires complex investigations.

    Prevention and education are any day better, but there are whole lot of hereditary problems that need to be addressed through stem cell research.

    If private sector is encouraged through more lucrative research incentives - to realize few years hence, Govt can focus on improving healthcare delivery during this phase.

    MBAs can bring new solution to the problem. At times experience inhibits fresh approach and out of the box thinking.

  • Steve Hyde
    Alumnus MBA '71
    CEO
    Hyde Rx Services Corp.

    Would you spend money to improve the delivery of health care? I would reform the health care regulatory framework to enable and essentially require consumers to demand the answers to two essential questions:

    1. For my medical conditions, which providers offer the highest quality solutions?

    2. Of those high quality providers, which are the cheapest?

    Getting consumers to do this will, I believe, resolve virtually all of the major problems now facing health care financing and delivery(i.e., quality, availability, affordability, portability, and insurability).

    Getting there, however, will require slaughtering a number of sacred cows, including:

    1. Converting all group insurance (i.e., employer-based, Medicare, Medicaid, SCHIP, IHS, etc.) from defined benefit to defined contribution programs, in concert with the creation of a universal market for individual private health insurance. This, in effect, would give consumers the standing (i.e., the financial clout) to demand and act on the answers to those two questions--an ability they now almost completely lack. Group insurance represents a fundamental market and regulatory failure to assure quality, contain costs, provide affordability, assure universality, or yield individual choice or portability. We need a new model.

    2. Health insurance should revert to true insurance principals. That is, it should be required only to provide financial protection against otherwise unaffordable costs, not normal consumer purchases. That means eliminating all requirements (but not the ability) for insurance to cover normal consumer purchases of primary, preventive, and elective care. Insuring primary care office visits and generic drugs is like buying car insurance to cover the cost of oil changes.

    3. Level the tax playing field between group and individual insurance and health care benefits.

    4. Get government (i.e.,CMS) out of the business of establishing relative "values" of all physician services by which it now effectively controls prices for the entire health care industry, thus preventing a true price-mediated health care market to function. Loosen legal CPT coding requirements and allow increased bundling and price transparency of globally-priced services.

    5. Allow insurers to vary premiums only by age, gender, location, and personal achievement of individually controllable health risk factors (e.g., smoking, alcohol abuse, obesity, hypertension, hyperlipidemia, and hyperglycemia)--but NOT individual health status or history. This eliminates employer discrimination against its younger workers (a significant reason for their high rates of nonparticipation in employer insurance)and moves the primary financial responsibility for prevention to individuals for those conditions for which individual behavior trumps medical intervention.

    6. Use limited, annual open enrollment periods for individual insurance choice and late-enrollment penalties to control adverse selection (but do not require mandatory participation). No medical underwriting would be allowed (i.e., no one could be denied coverage for health status or history).

    Such a system--enabled by government regulation overseen by an independent Fed-like commission--would resolve the essential problem of having a B-to-B business model that has been forced on what is essentially a B-to-C dynamic. It would be self sustaining and result in wide consumer choice, improved quality, lower costs, price transparency, accelerated innovation, enhanced competition, insurance portability, and universal insurability.

    The barriers are political, not technical or actuarial.

  • Aravindan Vasudevan
    Research Scientist
    Piramal Life Sciences Ltd, India

    The next president of the United States has a tough job on his hands, with the economic downturn. But even with the present in turmoil, he cannot afford to barter away the future. Stem cell research and innovative medical devices will provide breakthroughs in medical science that will help alleviate diseases and suffering. Results won't be apparent in the short term (maybe not in the presidential term) but the long term benefits of investing in research will pay dividends. It will be interesting to see if the new President will sacrifice long term gains for short term reprieve.

    The president can work to bring a global consensus in medical research, somewhat on the lines of the Human Genome Project. On critical research like stem cells that will benefit mankind, countries should pool resources and establish a global consortium to coordinate critical research initiatives. Cost and resource sharing is the need of the day.

    The government and pharmaceutical companies have to work together to control the rising costs of essential drugs.Considering the huge costs involved in drug discovery, the President should work with the FDA to speed up approval process of drugs for chronic diseases and provide tax breaks to companies involved in research for a cure to critical ailments like AIDS, Cancer etc. Reducing the cost and time of getting a drug through clinic will ultimately reduce the market price of the drug, passing on the benefit to the citizen.

  • Steve Hyde
    Alumnus MBA '71
    CEO
    Hyde Rx Services Corp.

    Question: Many of you talked about prevention as the key to healthcare reform. But over 70% of healthcare costs are spent on chronic disease conditions. What can be done to improve the treatment and cost of chronic diseases?

    Sandeep, above, offers the deep insight that health care is a complex adaptive system. And Bill correctly identifies the nature of our medical care system as, essentially, a Business to Business (B-to-B) structure dominated by providers, drug manufacturers, regulators, insurers, and, he might have added, employers. The problem is that a B-to-B model is a poor fit with what is, at bottom, a Business to Consumer (B-to-C) delivery dynamic, but one in which, as Jonathan suggests, consumers have been blocked from choosing their care according to its quality and price. Rather, we are trying to manage a complex adaptive system with a top-down (i.e., institution dominated) approach that is ill suited to its purpose. That is a significant reason why we have the current problems we have. The alternative is not, as Bill suggests, socialized medicine. In fact, that would represent the ultimate extension of top-down, centralized control.

    What is needed is a solution that more appropriately recognizes the complex adaptive nature of health care and which reorients incentives and structures toward the outcomes that, as Susan says, offer cost-effective, consistent, safe care, with measurable quality. That suggests a bottom-up approach in which a true B-to-C solution emerges to meet the needs of its players at an atomistic or individual level, but which also achieves our macro social and economic goals.

    In the case of prevention, the current focus on institutional solutions is consistent with the top-down, B-to-B model, but it does not and will not work. The primary reason is that the vast majority of preventable chronic (and their associated acute) maladies are caused by six conditions: tobacco smoking, obesity, alcohol abuse, hypertension, hyperlipidemia, and hyperglycemia. With each, prevention is only marginally controllable by doctors or other health care providers. There are at least three reasons for that. First, doctors are trained to diagnose and treat diseases, not prevent them. Second, they practice according to an episodic treatment model in which chronic disease patients are seen only occasionally for conditions that are, by definition, continuous. Third, the most important care provider for any chronic or pre-chronic disease is necessarily the patient himself, who must engage in day-to-day behavioral activities with respect to diet, exercise, ingestion (o r not) of harmful substances, and adherence to medication regimens. Doctors' roles may be necessary, but they are hardly sufficient.

    Preventable conditions are even less subject to improvement by insurers. First, most prevention activities provided by doctors are not cost effective. Thus, insurers have no incentive to promote them, since they drive costs up, not down. Second, even in the limited cases where active prevention is cost effective, the lengthy period between paying for prevention and achieving the savings, combined with the high turnover in a given insurer's membership, further reduces an insurer's incentive to pay for prevention. Third, 35 years of managed care coverage for primary and preventive care has, with limited exceptions, failed to produce a reduction in preventable diseases. Instead, we have an obesity epidemic with the myriad health problems that result.

    If we want to reduce the incidence of preventable chronic and acute diseases, we must address it at the level of consumers, by giving them the authority, the responsibility, and the incentives to change their behavior to reduce the risk factors that predictably lead to disease. No amount of "consumer education" or insurance coverage for preventive care will accomplish this. Instead, we must look to solutions that give consumers the clout to demand information on the trade offs, availability, quality, and price of behavioral and treatment options, along with the incentives to make those demands and then to act on the answers.

    One way to do that is to convert the health insurance system to a defined contribution model in which each consumer is simply given the money by employers and others to purchase their own health insurance and health services directly. Insurers in such a market would be prevented from discriminating on the basis of health status or history but would be allowed to reduce a consumer's premiums based on his achievement of healthy personal risk factors. Thus a non-smoking, non-alcohol-abusing consumer with normal BMI would pay significantly lower premiums than a fat, smoking alcoholic. Not only would this provide a strong financial incentive for people to change their personal behavior, but it would also stop the forced premium subsidy of the irresponsible by the responsible. Thus, a smoker would, over his lifetime, pay higher premiums equal to the actuarially expected cost of his self-induced diseases; while always having the option to pay less by ceasing to smoke.

  • Rebecca Leung
    Alumna MBA 1996
    Health IT Director

    Broadly speaking, investing in innovative areas improve health outcomes to a specific smaller set of consumers. Whereas investing in Health IT, specifically in nationwide health records sharing, improves health delivery to a larger set of population. Benefits of electronic health records (EHR) are widely accepted. Cost of implementing range vary greatly from $115B to $276B in initial capital investments. Obama has pledged to invest $50B in the next 5 years. McCain has not come up with the details of Health IT plan. Savings start at $100B per year before including some difficult to quantify savings, like earlier detection of outbreaks, fewer redundant clinical tests and fewer medication errors.

    As an example, the veteran's EHR system (VistA) provides an example of how Health IT can support better care while keeping costs down. Veterans Affair's annual per-patient cost for care that is considered some of the nation's highest quality is about $5000 in 2006, which was $1300 cheaper per person than in the private sector.

    It is important to note that in the case of the Veterans Affairs (VA), the payers, providers and consumers' interests are very much aligned. VA would pay for preventive care as it has to take care of the veteran for life. In the private sector, employees change jobs and thus payers do not necessarily have a long term relationship with the consumer.

    As an Health IT implementer and business person, MBAs have a role in improving health care delivery through providing governance structure and creating a framework where the interests of various stakeholders (payers, providers, pharma firms and consumers) are aligned. The barrier to Health IT adoption is that interests of the stakeholders are not aligned. At the most basic level, consumers are afraid to put health information online lest the payers penalize them with the vast amounts of information they can aggregate.

    Department of Human Health Services' Office of National Coordinator of Health IT have made a lot of progress in the last 4 years in creating a nationwide health information network. At this juncture, we need IT folks, business managers, organizational folks, health policy and legislation experts to create alignment of interests between all stakeholders included in the healthcare continuum.

  • Mike Leahy
    Alumnus MBA 1974/PHSM 1979
    Visiting Associate Professor of Health Sciences
    Linfield College

    Regarding the treatment and cost of chronic diseases question:

    As a former Kaiser Permanente Executive and Public Health Director, we would be wise to consider the following:

    1 - We have been paying for procedures, visits, and hospital days rather than health and improved health outcomes. We are now getting what we pay for. Suggestion - realign financial incentives so that we pay for prevention, continuity of care, and improved health care outcome.

    2 - We now have the technological ability to use real time patient specific information at the point of care through electronic health/medical records that are inter-operable, integrated, and complete. This will allow us to measure and pay for appropriate prevention, assure continuity of care, and improve patient specific health care outcomes. It will also help us stop paying for inappropriate episodic care and for the mistakes we make in delivering care as part of a fundamental approach to transform all of health care delivery and financing, focusing initially on chronic care.

    3 - As a byproduct of paying for procedures and upcoding, we over pay specialists and treatment and underpay information, prevention, primary care, and diagnosis. Tools such as simplified work flows, integrated patient specific electronic health information, and encouraging the most cost effective prevention, drugs, etc combined with paying for outcomes will encourage more appropriate prevention, re-balance health manpower ( more primary care and cost effective prevention and public health) and less high tech, specialty treatment, especially during our last months of life.

    Best regards, Mike Leahy

  • Javier Ospina
    Consultant
    Remolina Estrada

    Regarding the treatment and cost of chronic diseases question:

    If you take in mind the point of view from an Insurance Company, you have to consider three key elements that can be helpful to improve healthcare outcomes (cost-effective) such as:

    1. Cost Containment through:

    1.1 Tracking Healthcare Network: in this topic, you have to develop an excellent relationship with Hospitals. This relationship is based on some agreements as clinical protocols, physician evaluations and intervention cost.

    1.2 Chronic Diseases: insurance companies have to promote some special programs in hospitals that try to prevent some unexpected outcomes that can be control if you track cases with these special programs (HIV, Renal or Heart diseases, etc).

    1.3 Case Management: this is a good practice that can control some cases and can reduce cost in healthcare system.

    1.4 Contracting model (capitation vs. per event): I think that this is an important issue for healthcare system and we have to be very careful when we tried to apply one of these contracting models. However, I recommend per event contracting model, if you have a robust information system that reflects a lot of good practices in your process (eg. A control system for medical services)

    1. Power of Information: actually, we can identify a lot of tools that could help to manage this kind of business. For example, epidemiological and actuarial analysis are useful for decisions making.

    2. Public and Private Health: governments and insurance companies have to articulate policies that can help to assign common resources in prevention programs, because this kind of measures can help to be more efficient and accurate to improve population's health.

    Kind Regards, Javier Ospina

  • Girish Malhotra
    President
    EPCOT International

    I understand the queries well. Industry has never developed economic manufacturing processes for the active ingredients and their formulations. They never had need to improve their R&D and manufacturing technologies as they are able to achieve their margins with the pricing "highest price the market can bear." The blockbuster model has worked well, but now it is dying.

    MBA's at pharma companies can influence the whole business process that is driven by "quality by analysis" rather than "quality by design." I foresee consolidation on the horizon. You can read my additional comments on my blog. Thanks.

  • Yoana Petit
    Executive Education Participant 2007
    C.E.O
    GYP Investments Corp

    The rapid rise of technology and its adoption into the healthcare field has caused healthcare organizations to collect an accumulation of non-interoperable systems that not only need to work together within the organization, but are also accessed from outside. The burden of integration usually falls on the users of the system, who are forced often to access many different systems to complete one task. The use of a service oriented architecture (SOA), however, can improve the delivery of important information and make the sharing of data across a community of care practical in cost, security, and risk of deployment.

    Healthcare organizations today are challenged to manage a growing portfolio of systems. The cost of acquiring, integrating, and maintaining these systems are rising, while the demands of system users are increasing. Organizations must address evolving clinical requirements as well as support revenue cycle and administration business functions. In addition, demands are increasing for interoperability with other organizations to regionally support care delivery. Service oriented architecture offers system design and management principles that support reuse and sharing of system resources across the healthcare organization. SOA does not require the re-engineering of existing systems. With SOA, existing processing can be combined with new capabilities to build a library of services that are used as a part of solutions. Using shared services that are aligned with business processes, SOA strengthens interoperability while reducing the need to synchronize data between isolated systems. Services may be made available, no matter their location, to create solutions that reach beyond the desktop, the department, and the healthcare organization.

What is the Conversation?

The Conversation is question- or topic-based dialogue between two conversation leads and our Centennial- site visitors. Every month or so, our conversation leads will pose a question to you, our visitors, to get your thoughts on specific issues in the world of business. The Conversation invites you to join the dialogue, and selections from these responses are made available online.

Conversation Leads

Additional Resources

Professor Richard Hamermesh is chair of the HBS Healthcare Initiative. And, if you like The Conversation, you may also enjoy What Do YOU Think?, an ongoing dialogue between Harvard Business School professor Jim Heskett and the readers of HBS Working Knowledge.