Try telling a bunch of doctors healthcare is a business that must react to market forces and you will likely get some surly looks and a mumbled crack or two about "mangled care."
Yet when Regina Herzlinger makes that same statement to doctors, she gets a burst of applause and a speaking fee.
Herzlinger is a Harvard University business professor who has captured industry attention with her book, Market-Driven Healthcare: Who Wins, Who Loses In the Transformation of America's Largest Service Industry. The 291-page book is an examination of the trends in consumer demand that are changing how healthcare is delivered, regardless of whether physicians want to go along with those changes.
Published by Addison-Wesley, the book was released in January 1997 and has been selling steadily ever since; it's now in its 10th printing. The success of her work has put Herzlinger in front of such influential crowds as the American Medical Association's House of Delegates.
The gist of the book and Herzlinger's speeches is that smarter, time-pressed consumers are changing every industry -- not just healthcare -- by demanding more convenient services, more information about those services and more respect for their knowledge about them.
When Herzlinger delivered her message to the AMA House of Delegates in Dallas in December she made it seem as pleasant as a sunrise. She described the advent of consumer-driven healthcare, with doctors allied in "focused factory" chains, as similar in style to the big-box retailers dominating other service industries.
To do that, she said, doctors can be friends not foes in making the new environment work.
"Some blame doctors and hospitals for high costs and poor quality," she says. "But the true problem is the absence of an integrated-care system. The problems are managerial."
And like the song in "Mary Poppins," her analysis is the spoonful of sugar that makes the medicine go down. When she delivered her speech to the AMA delegates, she received enthusiastic applause and a run on the 100 copies of "Market-Driven Healthcare" for sale at the meeting (albeit at the wholesale price of $15). The giddy autograph line at Herzlinger's table wouldn't have been out of place at a Spice Girls appearance.
"She's obviously extremely bright, appropriately witty and reasonable," says David Moore Selby, M.D., a general surgeon from Oklahoma City. "She's sensitive to patients' needs."
It's not as if Herzlinger is the only person delivering the message that healthcare is a market-driven business. Most notably, Scott Fassbach of the Advisory Board has criss-crossed the nation to spread this idea, even citing some of the same examples Herzlinger illustrates regarding healthcare entities that are responding to consumers. However, the response to Fassbach is generally more skeptical than it is to Herzlinger.
Herzlinger's ideas about the future of healthcare are centered on what she refers to as a new generation of consumers. They are "tremendously assertive, pragmatic and manipulative," she says. Another word that comes up, especially when she describes the Baby Boom generation, is "narcissistic," though not in a negative way.
"Are they narcissistic whiners? No," Herzlinger says. What makes consumers more assertive and pragmatic is a combination of less free time and more education, she says.
Studies show that adults have only 1.4 hours per weekday of free time and they guard it jealously -- they want convenience, she says. And because many doctors and clinics keep the same weekday hours as their patients, even small medical problems end up in expensive emergency departments as "late at night they're the only place open."
In addition, the number of adults with a high school degree or greater has increased to 82%, twice what it was in the 1960s. Consumers are less deferential to doctors than they used to be and savvy enough to consult myriad print publications and even the Internet for healthcare information. Plus, the lifting of restrictions on television advertising for prescription drugs has given consumers yet another source of health-related information. And J.D. Power & Associates, which made its name rating automobile quality, is now doing the same for HMOs and medical groups.
"Even if you don't think (patients) are smarter, they think they're smarter," Herzlinger says. "We're in an age where we're all equals."
Managed care's failure, Herzlinger says, is that it limits consumer choice, and anyone who does that these days is heading for extinction. One good example is the gatekeeper model favored by HMOs that forces patients to drive around town to several different offices to see primary-care doctors and specialists, hardly the epitome of convenience. (HMOs are solidly on Herzlinger's list of "losers" when it comes to what will survive market-driven healthcare.)
Instead, Herzlinger sees the most effective way of setting up healthcare as "focus factories" -- locations that would serve all needs for a particular disease. For example, a diabetes focus factory would include a multi-disciplinary team of endocrinologists, renal specialists, surgeons, social workers, nutritionists, therapists and psychologists and others working under a team coordinator.
"It would be like a 'real' factory, where people work together and know others' strengths and weaknesses," Herzlinger says.
Comparing healthcare to factory work may not sound like the wisest way to convince doctors that market forces are the best thing for healthcare, but Herzlinger manages to make the concept sound like something other than cranking out widgets. She compares the focus factory to large, single-specialty retailers like Staples (office supplies) and Home Depot (tools and building supplies), which focus relentlessly on one niche, providing a high volume of products for lesser costs.
Although she doesn't mention carve-out companies specifically in her speeches, companies that are following this model include Miami-based Vivra Specialty Partners -- a favorite example for Fassbach -- which is in disease management, and Los Angeles-based Salick Health Care, a division of London drugmaker Zeneca Group, which is in cancer care.
"What focus does is allow you to be very good by developing your business," Herzlinger says. "When people say `the commoditization of healthcare,' that means goods that can't be replicated."
Though getting patients to be responsible for taking care of themselves is part of the formula for reducing healthcare costs, Herzlinger says it is important to remember that most of the costs of healthcare come from treating sick people.
To illustrate her point, she cites the "the 20-80 rule," that is, 80% of anything can be explained by 20% of the possible causes -- 80% of the clothes you wear come from 20% of your closet; 80% of the calories you consume come from 20% of the food you eat. Her point: Seventy-six percent of direct managed-care costs are for chronic diseases. Administrative expenses eat an average of only about 10%. It makes sense then for a focused system to concentrate on chronic diseases, with high-volume procedures, Herzlinger says.
Those who organize around such teams in the future -- even big, box-like chains -- will be winners among consumers, Herzlinger says. But HMOs and "vertically integrated organizations that try to do everything for everybody" will lose out.