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Healthcare scholar Regina Herzlinger spoke to Kellogg School students and faculty Oct. 25.

Healthcare ‘godmother’ Regina Herzlinger delivers MacEachern lecture

By Crystal Gentilello

11/9/2007 -

She’s been called one of healthcare’s most powerful people and innovative thinkers. She’s earned the label “healthcare heretic” from The Economist for her activist stance in trying to bring market forces to bear on what she sees as an insulated and inefficient U.S. health system. And as far as Money magazine is concerned, Regina Herzlinger also wears the mantle “godmother of consumer-driven healthcare.”

Herzlinger, the Nancy R. McPherson Professor of Business Administration at Harvard Business School, delivered the 2007 Malcolm T. MacEachern Memorial Lecture on Oct. 25 at the Kellogg School. The author of Market-Driven Healthcare and Consumer-Driven Healthcare, Herzlinger attracted a large audience of Kellogg students, faculty and alumni to the James L. Allen Center, where she outlined the research that serves as the basis of her new book, Who Killed Health Care? America’s $2 Trillion Medical Problem – And the Consumer Driven Cure.

She began by framing what she called the “iron triangle” of killers in healthcare: insurers, hospitals and the U.S. Congress. According to Herzlinger, these three players maintain the status quo and inhibit innovation. Lack of choice when selecting medical coverage limits competition, she said, and employers typically determine those options from among a narrow range of indistinguishable offerings.

“Where there is no product differentiation, there is no competition,” said Herzlinger. “Where there is no competition, there is no productivity.” Hospitals function as a monopoly within this industry, she added, since all healthcare services are delivered through them but the facilities are able to “hide” behind their nonprofit status. Increasingly intruding into healthcare, the U.S. government restricts physician-driven innovation and an equal playing field, Herzlinger believes.

Herzlinger’s proposed solution is a consumer-driven healthcare system where the government “helps the poor, prosecutes the fraudulent, enables transparency and gets out of the way.” This model would result in higher quality and lower costs with the consumer in charge of demand, which will subsequently cause change in supply, she contends. Citing Switzerland’s consumer-driven healthcare as an effective model, Herzlinger indicated that consumers respond positively to choice: With the opportunity to spend their own money as they choose, they make the right decisions about their care.

“Who will convert demand and supply?” she asked the audience, “Who started Microsoft? General Electric? Vanguard? Ford Motor Company?” Her answer: entrepreneurs. Acknowledging that the healthcare sector’s bureaucracy does not often entice entrepreneurs, Herzlinger nevertheless believes they are key to driving change in the field. She also expressed admiration for physicians who have worked to improve the system and make their patients’ lives better.

Herzlinger left an impression on the audience.

“Mrs. Herzlinger is a thoughtful observer of the U.S. healthcare system who delivers criticisms and suggestions for change with wit and good humor,” said James Drury, assistant director of the Kellogg School’s Health Industry Management Program (HIM).

In addition to providing an opportunity to bring together healthcare faculty, alumni and students for stimulating discussion, the lecture, which marked its 30th year in 2007, is a chance to remember Dr. Malcolm T. MacEachern, the founder of HIM’s predecessor at Northwestern University in 1943, as well as an early champion of healthcare quality.