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David Dranove, the Walter McNerney Distinguished Professor of Health Industry Management.

'Sorry state' of U.S. healthcare target of Kellogg expert's new book

In <i>Code Red</i>, Prof. David Dranove offers market-based remedy for ailing system

By Rebecca Lindell

3/6/2008 - In medical parlance, a "code red" is declared when someone is in critical condition. Death is not imminent, but it might be, if proper treatment is not obtained soon.

It is an apt metaphor for today's U.S. healthcare system, which more closely resembles an ailing patient than the system personified by television's stalwart Marcus Welby, M.D., of old, according to David Dranove, the Walter McNerney Distinguished Professor of Health Industry Management.

It is also the title of Dranove's new book, in which the Kellogg professor diagnoses the root causes of the healthcare system's failings, examines the many attempted cures and offers some prescriptions for recovery.

The book, Code Red: An Economist Explains How to Revive the Healthcare System without Destroying It (Princeton University Press), has been garnering praise for its thorough and pragmatic take on the healthcare crisis.

"The best explanation of how we got into this mess that I've ever read," said healthcare expert Regina Hertzlinger, a professor at the Harvard Business School.

"Policymakers, professionals and students need to hear this message," added Lawton Robert Burns, editor of The Business of Healthcare Innovation.

In his book, Dranove discusses the underlying flaws in the American healthcare system. These include inadequate systems for exchanging information, incentives that work against cost efficiency, and insurance markets rife with dysfunction. Dranove dissects each in detail.

He then traces the many attempts that have been made to "fix" the system. These have included efforts to encourage healthcare consumerism; attempts to improve and rank the quality of healthcare providers; and steps to expand insurance coverage and access to healthcare.

But none of these well-intentioned initiatives has enabled the U.S. to achieve the three main healthcare goals of access, efficiency and quality, Dranove says. He argues that systemic, market-based reforms are needed to pave the way to that ideal.

The most important first step, he suggests, is to improve the state of health information technology. "The type of information that's available to make medical decisions would be an embarrassment to managers in any other sector of the economy," Dranove observes.

He notes that many providers still rely on handwritten paper records and that providers cannot share clinical data. "The result is that too many people make too many important medical decisions in an information vacuum," Dranove writes. "It is a sorry state of affairs that has exacted a heavy toll."

Beyond that, Dranove offers a host of recommendations that he says will go a long way toward reviving the U.S. healthcare system. They include improving incentives for consumer-directed healthcare plans; setting rational prices for healthcare; measuring and rewarding top-quality providers; rethinking healthcare-industry regulations; and covering the uninsured while maintaining competition.

The book arrives just as healthcare takes center stage during the 2008 presidential campaign, which Dranove has been observing closely. While not endorsing any candidate's plan, Dranove noted that each has been talking about the importance of measuring and improving healthcare quality.

Dranove spoke favorably of Democratic Sen. BarackObama's plan to offer a new national healthcare plan with guaranteed eligibility and comprehensive benefits, noting that it preserves the free market while encouraging more people to buy insurance. He is leery of Democratic Sen. Hillary Clinton's plan to require all Americans to carry health insurance, and to offer a federal alternative to market based insurance.

Sen. John McCain, the Republican nominee, is emphasizing cost containment, Dranove says, but is "pretty vague" about how he will reduce costs. Dranove approves of McCain's desire to reform payment systems to encourage prevention and care coordination and to improve health information technology.

"If McCain does nothing else but push harder in these directions, he will at least abide by the familiar medical dictum, 'First, do no harm,'" Dranove says. "That might not be half bad.

Dranove has been discussing the merits of the candidates' healthcare proposals on his blog, ( which shares the name of his book. Co-authored with Cornell University Professor William White, the blog takes the form of a conversation between the two healthcare experts, and allows readers to comment on the debate.

"There is a lot at stake in the upcoming years," Dranove says on his blog. "We hope that this free exchange of ideas can help bring about positive change in our healthcare system."

Code Red: An Economist Explains How to Revive the Healthcare System without Destroying It is available online and in bookstores now.