Copyright © 2007 by Regina E. Herzlinger. Click here for terms of use.
This book is an attack on our present health care system as well as a presentation of a new, future health care system that differs from everything we have today. I am not conducting a minor skirmish or merely suggesting adjustments to your insurance plan's benefits or adding customer-friendly practices to your hospital. This is a full-blown attack on the structures and the architects of our present system.
Our $2 trillion health care system is as large as the economy of China. And yet, despite all this spending, millions of people cannot get the care they need because it costs too much or because our fragmented health care system cannot efficiently supply integrated, multifaceted treatment for their chronic diseases or disabilities. If they are uninsured, our primarily nonprofit hospitals all too often gouge them with the highest prices they charge and then use criminal-like collection tactics to ensure payment.
You may not realize it, but we all pay for all of this. If we are employed, our boss takes part of our salary and uses it to pay for this system.1 If we are self-employed, we pay horrendously high premiums for insurance plans. And as taxpayers, we funded the government's 44 percent share of 2004 health care costs.2
The system giveth and the system taketh away. It takes your money, time, and health, and it gives generously to Wall Street and fat-cat businesspeople and hospital executives who earn millions of dollars. Dr. William W. McGuire, the former CEO of United-Healthcare, one of the country's largest health consumers, not only received $1.7 billion worth of stock options during his tenure,.3 but also had a jet at his disposal and a red carpet reportedly rolled out to meet his limo so his tootsies did not have to meet the same ground on which we ordinary mortals step.4 This money, or at least some of it, could have provided better health care or lower costs for United-Healthcare's enrollees, but instead it wound up in Dr. McGuire's very large bank account and literally fell under his feet.
I am not suggesting that we put more money into our health care system. At close to $2 trillion, or nearly 20 percent of our economy, we put more than enough money into it. Nor do I think that we must set up yet another bureaucracy that will take our money and then ration our health care. All of us can likely have all the care we need with current spending levels. What I am advocating is using the money we currently spend differently and more effectively so that we can get the health care we want and even cover those who are now forced to go without health insurance because they cannot afford it.
The solution I will discuss here goes by the name consumer-driven health care. It's a term that I popularized, and it's become a common way to describe this new health care solution. Google it and see for yourself. Consumer-driven health care empowers individuals and brings their force to bear on the offerings of doctors, hospitals, and insurance and pharmaceutical companies. It converts the entire system to one that is responsive to you and me as the ultimate consumers of its goods and services.
As I will show in the course of the book, there are consumer-driven health insurers that give you the health care you need at a price you are willing to pay; there are lower-cost hospitals that do not treat you like a slab of meat; and there are governments that do what they are supposed to—help the poor, provide transparency, and protect against fraud and abuse—rather than telling your doctor how to practice medicine. There is a way to create dynamic markets for health services that are more effective, more efficient, and more responsive to the patient-consumer—and her doctor—than anything we have today. The last chapters are devoted to describing that system, how to make it work, the proper roles of government and business in creating and sustaining it, and the benefits and good health it will bring to you.
The day I learned Jack Morgan had died of kidney disease was the day I knew our health care system had died along with him.
Jack needed a kidney transplant, a complex but not uncommon procedure. He found a donor in his loving daughter, who was willing to undergo surgery to have one of her own healthy kidneys removed and given to her dad. Jack's health insurance was paid up and functioning.
What could go wrong? Everything. Jack never got the transplant. Instead, he died of his disease.
The kidney is the body's filtering system. Kidney disease victims are essentially poisoned and drowned. The filters in Jack's kidneys, which were functioning at less than 20 percent of normal, could not effectively remove waste and keep his fluids regulated.
When the disease first struck, the people around Jack, who was normally a lean bundle of energy, noticed that he had become lethargic and puffy. His usually glowing skin was dry and scaly. His HMO doctor thought he was depressed, and he gave Jack a prescription for a generic drug. But, after repeated visits, when his symptoms did not improve, Jack was correctly diagnosed. An artificial kidney, called a dialysis machine, replicated the function of his natural kidneys. But after many years of dialysis, it was no longer enough. Jack needed a new kidney, a good one, transplanted into his body.
What could go wrong? Everything. Everything went wrong, and Jack never got the transplant. Instead, he died of his disease.
His death was not painful, at least not for him. He died quickly, poisoned by his own waste, drowned by his own fluids. But it was painful for the many people who loved him because they knew his death was premature. With a new kidney, Jack could have lived another 20 or more years.
Jack was killed by an inept, malfunctioning, costly health care system that he thought was protecting him. A system that for all intents and purposes is dead. He was killed...
Who exactly killed him? And why?
Remember the book and film Murder on the Orient Express, Agatha Christie's story of a man murdered on a train? It turns out that all the passengers had a hand in his death.5
That's what happened to Jack Morgan—every part of the health care system failed him. Unlike the killers in the Christie mystery, they didn't mean to do it, but they did it anyway. They were so caught up in their self-interest that they forgot what their work was all about—Jack Morgan's health. In the U.S. health care system, and in the United Kingdom, Europe, and Canada, trillions of dollars are spent on health care, but no one gives a voice to its consumers. In these nations, this means that you and I are not being heard. Jack could not speak for himself, and there was no ombudsman to speak for him.
The killers work in insurance and hospital firms that have lost their souls, firms that have become more interested in money and perpetuating themselves than in providing health. Employers, as well as the U.S. Congress and a bevy of health policy academics, are also implicated. They were satisfied with substituting simple, utopian abstractions, like the idea that an insurer or a government can "manage health care" cheaper and better than your doctor, for the thousands of complex interactions that should guide the practice of medicine.
The problem begins with the hospitals—the bloated behemoths that account for the largest part of our health care system, nearly a trillion dollars' worth, and represent the major reason for its cost increases. Their costs rise at a pace that generally exceeds the growth of their services. They have managed this through shameless manipulation of their nonprofit image and massive political contributions. The hospitals have convinced the U.S. Congress to suppress potential competitors, such as physician-controlled specialty hospitals, which could provide better and cheaper services, and to grant them valuable tax exemptions. They've also persuaded local judges and juries to strangle competition by allowing mergers of hospitals and other consolidations.
Clearly, the term nonprofit when applied to these hospitals is a joke. The reality behind the saintly caregiver image they like to promote is startling. These supposedly altruistic institutions earn hundreds of millions of dollars in profit, keep billions of dollars in cash reserves, and pay their executives millions in salary. They play hardball, screwing the uninsured with inflated charges and collection tactics worthy of criminals.
Outrageous hospital costs have gravely injured the employers who buy their employees' health insurance. Since 2000, health insurance premiums have increased by 73 percent compared to cumulative increases in inflation and wages of about 15 percent.6 Although they themselves are victimized by the system, employers, in their turn, have become killers.
Some employers, especially small ones, no longer can afford to offer health insurance. As for the other larger employers, in an effort to control costs, they have allowed their human resources (HR) staffs to restrict employees' choice of health insurance plans, frequently offering only one—a managed care insurance plan. The HR types believe that by restricting choice and giving the insurance companies a large volume of enrollees, they can achieve meaningful cost control. But they are profoundly wrong in their belief: to the contrary, choice supports competition, competition fuels innovation, and innovation is the only way to make things better and cheaper.
The paternalistic HR staff became convinced that the managed care insurers would control costs better than the consumers or the doctors. But they put their faith in the wrong institution; the managed care sector has strayed from its early spiritual roots in the Kaiser organization that originally created the concept of "managed care" as a fundamentally different way of providing better, cheaper health care. As managed care organizations transitioned into an industry, rather than a movement, they lost their souls—all too many were focused on profits at the expense of their enrollees' health care.
Next, the U.S. government's Congress and executive branch enabled this series of disastrous events not only by helping hospitals suppress competition but also by passing legislation that forced U.S. employers to offer managed care options whether they wanted to or not. In addition, the Congress has wrung vast, unwitting subsidies out of us to shower on the managed care insurers and drugs they favor. As a final blow, our Congress has begun to practice medicine, through "pay-for-performance" schemes that reward health service providers who follow Uncle Sam's medical cookbook.
Former government executives who sit on the boards of directors of insurance and health services firms keep congressional relationships well oiled. They are well compensated for their work. The person who once ran the U.S. government's massive Medicare program, for example, was a member of the board of directors at United-Healthcare that approved $1.6 billion in payments to Dr. William McGuire, the firm's former CEO and chairman. She did pretty well herself—earning nearly $15 million in stock, in addition to other compensation, for her board services.7
The health policy academics also enabled Jack's death, motivated by their self-interest and belief in their superior intellects to advocate for a large role in the control of the system. They paved the way, through their intellectual discourse and public policy papers, for technocrats to oversee physicians and usurp their judgments and treatment preferences—the ugly core of managed care and pay-for-performance systems.
The academics succeeded in blaming the failures of health care in this country on the doctors who actually treat patients. They claimed that practicing physicians made mistakes that would be eliminated if they were controlled by academic researchers who, somehow, know how to practice better medicine. Their efforts were all about placing the individual doctor under their control or that of their technocrat surrogates. The last few recent studies of the Institute of Medicine, one of the National Academies and a group of health policy experts set up to advise the U.S. Congress, focus on how terrible the doctors are.8 Their solution? Just give us more power to tell the clinical docs how to do it right.
But, presently, medicine is more art than science. Unlike the powerful, universal laws of physics that inform the practice of engineering, there are few inviolate rules in the sciences of biology and biochemistry to inform the practice of medicine. Scientists are just beginning to understand how our bodies function, as new human genome research decodes the uncertainty of our biology, fate, and health. So where is the science that will enable some bureaucrat to tell your doctor, who knows you so much better than the bureaucrat, how to practice medicine on you? It does not exist.
Some academics accuse the practicing doctors of unbridled greed too, claiming that they give patients medical services they do not need just to jack up their income. Yes, some do, but the majority do not.9 To the contrary, many doctors lie to insurers only to make sure that their patients can get the medical care they need, and two-thirds donate 11 hours each month of their time to patients for free.10
The academics and policy makers had their way. After decades of brainwashing with this kind of academic preaching, the U.S. Congress passed a whole set of laws, twice as long as the King James Bible of 1,377 pages, that constrain doctors who want to go into the health care services business.11 But in its rush to pass these restrictive laws, Congress was abandoning this nation's passion for innovations and the entrepreneurs who bring them to life. Many of our most important companies were founded by businesspeople who deeply understood their core technologies, in the way that doctors, and only doctors, understand the practice of medicine. Thomas Edison was not only the brilliant businessman who started General Electric; he was also a brilliant inventor. Henry Ford not only founded the Ford Motor Company; he was also a genius mechanical engineer who in only eight years slashed the price of automobiles by more than half with his technological and managerial innovations.12 Bill Gates was not only the visionary founder of the great business, Microsoft, but also an excellent software writer. But if these guys were doctors, they would likely not be allowed to create the same sort of excellent, effective, efficient businesses in health care.
While the Congress and academics pounded away at the practicing doctors' failures, they did not celebrate their successes. Some of the leaders in the physician community also lost sight of the purpose of health care, having been caught up in the politics. But of all the many participants in the health care system, it is the doctors who have more steadfastly adhered to their ethics as professionals. Through scientific innovations in the practice of medicine, we have witnessed a dramatic increase in life span and decrease in illness. Yet physicians' inflation-adjusted incomes dropped by 7 percent from 1995 to 2003, while those of professional and technical workers increased by 7 percent.13 And, increasingly, physicians are asked to follow medical care recipes concocted by insurers and government bureaucrats. With their professional autonomy and financial well-being compromised, small wonder that the number of applicants to medical schools decreased by nearly 20 percent between 1996 and 2006.14 When I ask my MD students why they have enrolled in the Harvard Business School for an MBA, many say, " cannot practice medicine anymore."
The kind of system that exists now hates innovation. It hates outsiders with good ideas. Yet sometimes, against all odds, the outsiders succeed. Two brilliant scientists who helped Jack to stay alive as long as he did fit into that category. Their genius profoundly altered the pattern of care for kidney disease.
One was the classic academic—a wiry Dutch MD/Ph.D. with a long face, big nose, and Euro-style goatee, clad in the scientific researcher uniform of rumpled chinos, T shirt, and sneakers. Willem Kolff is his name, and he is a raving genius. When I met him, a decade ago, he was a twenty-something in vitality and intellect boxed into an eighty-something body. He invented an artificial kidney that filters the blood of impurities in a lengthy, painful, but life-saving process called dialysis. The second was more your idea of a good doctor—grandfatherly, pious, smiling, noble Joe Murray, from Boston's Brigham and Women's Hospital. He introduced kidney transplantation from a living donor.
Mother Nature is the best of engineers: because kidneys are so important, she has given us two of them. But, despite the security blanket, they may both fail, largely because of diabetes (nearly half of new cases) and/or high blood pressure (25 percent).15
Transplants are a great solution. Joe Murray performed the first transplant of a kidney taken from a living donor. But as recently as August 15, 2006, there were 67,328 people waiting for a kidney but only 13, 268 kidneys available. Sadly, the demand far outstrips the supply.16
Dialysis, which rids the body of impurities, is the only alternative to transplants. Roman sweat baths were likely among the first sites for dialysis. Romans who sweated impurities from their bodies were purified but desiccated, trading profound thirst for kidney failure.
The key to an artificial kidney lay in the most mundane of materials—plastics: a membrane so porous that it allowed the impurities in the blood to leach out but sufficiently strong to withstand the pressure created by the flow of blood. During World War II, in Nazi-occupied Holland, Willem Kolff found this membrane in sausage casing made of cellulose acetate. He wound yards and yards of it around a drum, seated it in a vat of liquid, used an engine scavenged from a lawn mower as a power source, and thus created the first artificial kidney.
No good deed goes unpunished in health care. Sure, these two helped people with kidney disease to live good and useful lives, but these doctors also took a lot of abuse along the way. They persevered in the face of unrelenting opposition to their innovations in kidney disease treatment by the status quo medical establishment. You'll hear more about that later.
In the course of my attack, you will meet some other riveting personalities amid the hundreds of thousands of faceless businesspeople, hospital executives, politicians, academics, and bureaucrats who created this destructive system. One was the Prince of Darkness, former President Richard Nixon, who kick-started the managed care insurance movement with legislation that forced employers to offer HMOs as health insurance options to their employees and supported these HMOs with massive federal government subsidies that were funded by the taxpayers and that lowered the prices of the HMOs. They also include the Odd Couple who created Kaiser, a large California HMO—a can-do, huffing, puffing entrepreneur, Henry Kaiser, and Dr. Sidney Garfield, who so admired Kaiser, 24 years his elder, that he married the sister of Kaiser's wife so he could become Kaiser's brother-in-law. Believe it or not, there are some heroes, too, such as doctors Willem Kolff and Joe Murray, whom you've already briefly met, and Richard "Dickie" Scruggs, a Mississippi plaintiff lawyer who, despite his boyish nickname, is as huggable as a shark. Scruggs is bringing the hospitals to their knees in suits about their outrageous overcharges of uninsured patients.
Jack Morgan is a pastiche of many patients who have died at the hands of the U.S. health care system. I have given him the average characteristics that shape many of their experiences. I made him a chef who owned a successful French-style restaurant, for example, because self-employed people have a hard time finding health insurance.
Nobody who knew Jack as a kid thought he would succeed. He had been a wild teenager—always ready to party, never ready to study. His initial foray in a community college, to study accounting of all things, was disastrous. He took a job as a dishwasher in a local restaurant just for something to do. But luck was smiling on Jack. The restaurant was an up-and-comer, part of the foodie revolution that started in the United States in the 1980s. Its owner was a renowned chef who sought to merge the best of local, organic ingredients with the best of French cooking techniques. He was as wild as Jack—mercurial, brilliant, demanding; but, unlike Jack, he was successful. The chef stirred Jack's interest in cooking.
Jack's grandmother was French—he was named "Jacques" in honor of his late grandfather. Grandmère was a great home cook and shared her skills with her family. Although Jack thought he knew how to cook, he quickly learned that in a professional restaurant setting, his pride was misplaced. He was promoted from dishwasher to prep chef—one of the army of people who prepared the food that the real chefs cooked. Jack spent his days in the kitchen boning ducks, descaling fish, and dicing thousands of carrots, celeries, and onions into the tiny cubes, all exactly the same size, that would form the mirepoix, the caramelized base of most sauces.
The restaurant's kitchen was small—the smaller the kitchen, the more room for paying customers—and resembled a scene from hell. Flames from fat fires shot out of the grill; clouds of steam rose from the pasta cooker; and the chefs, mostly men, were packed in tight, under unrelenting pressure to cook and plate the food. But Jack found the environment enthralling. He loved the pace, the creativity, the ribald bonhomie. And most of all he loved the food: its preparation, its presentation, everything about it, except for offal—tripe, liver, sweetbreads—the innards of animals.
To his surprise, he became ambitious. He too wanted to own his own restaurant. Jack knew he needed further training. He applied to a famous French cooking school and was accepted as a student there. In preparation, Jack studied French and created a backpack tour of all the best restaurants in France, using the Michelin Guide to plan the voyage.
Jack's first encounter with a kidney occurred in a restaurant in the north of France. It was noted for its lamb. Proud of his mastery of the French language, he ordered the agneau. A plate of lamb, beautifully sauced and showered with minced fresh herbs, showed up; but one bite convinced him that this urine-soaked meat was not the agneau he had in mind.
Jack had inadvertently ordered lamb kidneys. Their flavor underscored their function: the kidneys produce the urine that removes waste from our bodies. Once the food we eat is digested and used, the body discards both useful and waste products into the blood. The kidney's one million filters separate out about two quarts of excess water. We call the waste urine.
Little did Jack know that some 20 years later, long after he had achieved success as a restaurateur, he would have yet another unhappy encounter with a kidney when he developed kidney disease.
This time around, the consequence of the encounter was devastating: Jack Morgan died of his kidney disease. A lot of people mourned for him because he was a great guy: ebullient, charming, demanding. Everybody loved him, including his 29-year-old daughter. She loved him so much she was willing to donate one of her two kidneys to replace his hopelessly diseased ones.
Mother Nature is the world's best bioengineer. She designed us with considerable redundancy, so if, in our careless ways, we destroy one part of our body, another is waiting in the wings to take over the job. She gave us two kidneys, but people can survive with only one, even one transplanted from another person's body.
Mother Nature's engineering miracles include an army that ruthlessly hunts down and destroys any invaders. It is called the immune system. But sometimes even the best designers can go awry. If the immune system profiles a donated kidney as foreign, it will destroy it. Kidneys that come from relatives have a greater chance of passing the immune system's inspection. Jack's daughter's kidney was as good a match as one could hope for with Jack's tissues. As brilliant an invention as Willem Kolff's artificial kidney is, there is only so much that it can do. Jack needed Joe Murray's skill.
It was either a kidney transplant or death.
Jack Morgan needed the transplant, but he got death. Badly debilitated by his dialysis, he caught an infection that killed him.
Jack Morgan never had a chance. As a small employer, Jack could afford only one health insurance plan, a managed care one. And it killed him by delaying his transplant through sheer ineptitude, like the California-based insurer Kaiser Permanente, in which more than 100 people died while they waited for kidney transplants. Twenty-five of those waiting had a perfect match.
You and I are all potential Jack Morgans—the victims of the untrammeled vanity, greed, and self-interest of those meant to protect us. The ideas in this book will enable us to wrest the health care system away from those who killed Jack Morgan and put it back where it belongs, under our control in a consumer-driven health care system.
I begin my attack on the health care system by exposing the dysfunctional cultures of the mammoth HMOs and managed care insurers. I'll show how they lost their souls—how their mission became distorted from protection and preservation of their patients' health to self-interest and self-enrichment, and how, in the process, people like Jack Morgan died.