Faculty in Focus: Shaping healthcare economics, policy and education
It has long been said that if you’re the smartest person in the room then you’re in the wrong room. But David Dranove, the Walter McNerney Distinguished Professor of Health Industry Management at Kellogg, has always been less interested in getting in the “right” room than in busting down the walls altogether.
“When I started out 40-plus years ago, the conventional wisdom in the medical and health policy communities was that economists had little to contribute to our understanding of how the healthcare system worked,” explained Dranove.
Having recently been inducted into the National Academy of Medicine (NAM), Dranove has proven the naysayers wrong. His influence spans both academia and the real-world policy landscape, and his contributions to healthcare economics have helped shape an entire field — making complex healthcare challenges more understandable and actionable.
As an undergraduate, he majored in biology and economics, a combination he thought could be interesting for business school. While pursuing his MBA at Cornell University, he took a health economics course that set the wheels in motion for a lifelong career in the field. “The professor saw something in me,” said Dranove. Serving as a research assistant to Professor Steve Eastaugh, Dranove tapped into an aspect of academia he really enjoyed: research.
Planting the seed of learning
It was because of encouragement from Eastaugh and other Cornell professors that Dranove pursued a PhD in economics, business and policy from Stanford University, which ultimately sparked a transformative career pathway into healthcare. His research has left an indelible mark in the industry. His co-authored research with Professor Emeritus of Strategy Mark Satterthwaite focused attention on the perils of poorly thought-out hospital quality report cards. The study opened doors for further research and ultimately influenced how quality data is reported. Another major contribution has been the introduction of a new framework to assess the impact of provider mergers — a topic that remains central to healthcare economics today.
His work and research on mergers have had such a broad impact that he has testified in high-profile cases for the Federal Trade Commission, the Department of Justice and other public and private entities. While the healthcare industry faces numerous challenges, his contributions have become vital tools in addressing two of its biggest challenges: improving access to quality care and controlling costs while encouraging innovation.
He approaches his role as a teacher with the same tenacity he has for his research. He recalls hearing a talk from the late professor emeritus Morton Kamien, who shared that, “Anyone can go to business school to learn facts or to learn how to cope with situations in which there are tried and turn formulas, but what really matters is that students learn how to think for themselves and cope with new situations where there is no formula.”
This has acted as a guiding force for Dranove in how he approaches his classroom. “I always emphasize the economic principles behind the actions of individuals and firms,” he shared. Dranove encourages students to think independently rather than just applying formulas to problems.
A community of collaborators
Since joining Kellogg 30 years ago, he has collaborated with other bright minds to continue moving the field forward. David Besanko, the IBM Professor of Regulation and Competitive Practice, started at Kellogg at the same time and they quickly became friends and co-authors. “We shared the same view about what economists could bring to teaching in the classroom,” said Dranove. “It was this shared vision that led us to write a book that teaches principles rather than rote examples.” Their textbook “Economics of Strategy,” written with Kellogg colleagues Mark Shanley and Scott Schaefer (who are now at University of Illinois at Chicago and University of Utah, respectively) has been used at business schools all around the world.
His students have also inspired his work. “When I started teaching business students health economics, I realized how little I knew about the things that they were most interested in,” he shared. He used this motivation to learn more about provider organizations and about the pharmaceutical sector, including exploring how healthcare organizations create and capture value, how they compete with one another and what drives innovation in this sector — all of which have gone on to shape his research and his PhD class.
An aspect that he’s enjoyed about being in the world of academia is the impact he’s able to have as a professor. His former PhD students are now professors in their own right and he’s proud of the work they’re doing. “My doctoral students are making amazing discoveries, and as a result, they have been recognized for their contributions,” he said. “Sometimes when I see their work, I see a trace or two of our old interactions — I see a little bit of myself in their work when they were graduate students.”
He’s had the pleasure of reconnecting with former students at some of the school’s hallmark events like The Kellogg Business of Healthcare Conference, a leading forum for professionals, academics, alumni and students to discuss issues in the healthcare industry. “They seem to remember what they learned not just from me but from the entire Kellogg healthcare curriculum,” said Dranove.
Healthcare’s black boxes: Management and data analytics
With healthcare as an industry undergoing rapid transformation, he urges MBA students and graduates to strike a balance between gaining hard and soft skills, as both are important for effective healthcare management. He explains that in order to improve the healthcare system, business leaders need to better understand the management side of it like how to assemble teams. They also need to be able to not only work with physicians but also gain their trust and give them the right information and the right incentives. “Physicians today have very different goals and expectations. Students need to learn how to navigate complex relationships with different individuals, and Kellogg is a place that’s well positioned to teach this,” he said.
Data analytics is also more important than ever, he said. “This is a field with huge amounts of data, but the data is complex,” he explained. “Pulling the data together from disparate sources to create a useful, unified database for analysis is a difficult task. Those who are best able to do it will be able to create a lot of value and find that they won't face very much competition.”
Shaping the future of healthcare
Not resting on his laurels, he views his recent NAM induction as both a recognition of past accomplishments and a new responsibility. Dranove with the help of his esteemed colleagues including Craig Garthwaite, Amanda Starc, Shengmao Cao and Molly Schnell— faculty leaders with deep expertise — will continue to push forward the healthcare curriculum and programming at Kellogg. Their rigorous research and creative approach to the school’s healthcare curriculum provides students with tools that help them lead and innovate while making meaningful contributions to the healthcare industry.
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