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Health Care’s Godmother

Harvard professor Regina Herzlinger's diagnosis is second to none.

By 5.22.07

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Who Killed Health Care?: America's $2 Trillion Medical Problem -- and the Consumer-Driven Cure
by Regina Herzlinger
(McGraw-Hill, 240 pages, $24.95)

Try to imagine health care as a police lineup, with the patient behind the one-way mirror, trying to pick out the suspect. The lineup includes big hospitals, employers, big insurance companies, health care academics and government. When asked which of the suspects killed health care, the patient points to all of them.

That is a good metaphor for what Regina Herzlinger does in her new book, Who Killed Health Care? The Harvard Business School Professor who is often described as the godmother of consumer-driven health care takes no prisoners in this tour-de-force of how our health care system became an unadulterated mess. In the end, Herzlinger will probably have few allies left among those who have a vested interest in the current system. Yet, should her vision become the one that guides health care reform, everyone who is a health care consumer will owe her a debt of gratitude.

Herzlinger was an early critic of "managed care," the theory that gave us insurance companies like health maintenance organizations (HMOs), which act as gatekeepers for patients' use of medical care. While many people think that HMOs are the result of private sector insurance, Who Killed Health Care? points out that they actually came to prominence due to the HMO Act of 1973. With an economy facing rising health care costs in the early 1970s, President Richard Nixon turned to HMOs to hold costs down. His HMO Act required employers who offered insurance to offer at least one managed care product. It also offered subsidies to companies that opened HMOs.

Employers liked managed care because, initially, HMOs seemed to control health insurance costs. They liked managed care so much that they narrowed the insurance choices of employees to the point that by 2005 almost all employers were offering only one type of insurance plan. Big insurers liked managed care because it meant that they would make money by not paying for medical care. Academics (most notably, systems analyst Alain Enthoven) loved managed care too. They touted the example of Kaiser Permanente as how health care should be managed. But what was best about managed care from their perspective was that it put academics at the forefront of evaluating medical treatment. Academics became dedicated to techniques such as disease management that put them in the powerful position of telling doctors how to treat patients.

Indeed, the only ones to not make out on managed care were patients and doctors. Patients loathed the restrictive nature of HMOs, to the point that eventually HMOs were replaced by managed care organizations like Preferred Provider Organizations that put fewer restrictions on patient access and choice. Under managed care, doctors are pressured to conform to managed care organizations' disease management advice. Academics frequently complain of doctors' low compliance with such advice. However, it may be that the doctors, and not the academics, know what they are doing. As Herzlinger notes, "There is no accepted evidence of the cost effectiveness of disease management." In the end, we are left us with a system of paying for Medical Care that offers few insurance choices for consumers and tries to second-guess decisions best left to patients and doctors.

The suspects are still at it. For example, big hospitals are trying to regulate specialty hospitals out of business. "The hospital industry," notes Herzlinger, "sensing correctly that this is an innovation that could really do it in, has gone to all-out war against the specialty sector." The hospital industry convinced Congress to include an 18-month ban on the opening of new specialty hospitals as part of the 2003 Medicare prescription drug bill. The true loser in this fight is the health-care consumer, as specialty hospitals often give better treatment for lower cost than traditional hospitals. Also well worth mentioning is Herzlinger's case study of how badly government has, through Medicare, mismanaged the treatment of kidney disease. It is a frightening glimpse at what a single-payer system would look like in the U.S.

Herzlinger concludes her book by outlining a compelling plan so that we can achieve the health care system that we deserve. First, we should put the tax treatment of health insurance on an equal footing so that those who do not receive their insurance through an employer also get a tax break. Second, we need to deregulate so that entrepreneurialism can flourish in the health care sector -- laws that hinder physician ownership of medical facilities are one such example. Government's role should be very limited, only helping to pay for the insurance of people who cannot afford it, and regulating health care information, much like the Securities and Exchange Commission does with financial markets. The only one of Herzlinger's suggestion that would likely prove counterproductive is her call for an individual mandate to require everyone to purchase health insurance. This is already proving problematic in Massachusetts, leading to even more government involvement in health care.

Otherwise, Who Killed Health Care? is a book that all of those who favor more freedom in our health care system should pick up. As Herzlinger notes, the importance of transforming our health care system into one run by free markets can't be overstated:

"A system controlled by the insurance companies or hospitals or government will kill us financially and medically -- it will ruin our economy, deny us the health care services we need, and undermine the importance of genomic research that can fundamentally improve the practice of medicine and control its costs."

David Hogberg is a Washington writer and host of the website Health Hog.

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David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.