02 Jul 2012

Three Harvard Business School Professors Comment on the Supreme Court’s Health Care Decision


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.

Bill George

One thing should be clear after last week's U.S. 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 21st 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

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% of the money. If the healthy 80% do not buy health insurance, the sick 20% 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% of taxpayers, with incomes over $110,000, could barely afford these sums.

Sick people are currently insured because 40% of them are in Medicare, and 97% 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 $2,400. 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% 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.

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

Robert Huckman

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.

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Jim Aisner