Dr. Regina Herzlinger, Harvard Business School

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Mark Masselli: This is Conversations on Health Care . I am Mark Masselli .

Margaret Flinter: And I am Margaret Flinter .

Mark Masselli: Well Margaret, the new Secretary of Health and Human Services
isn’t l etting any (inaudible 0:11 ) under her f eet.

Margaret Flinter: Sylvia Mathews Burwell has already announce d some
management changes at HHS just a few weeks after taking the h elm. She is
putting one person exclusively in charge of the federal insurance marketplace ,
the originally troubled Heal thCare . gove, which even the President had to admit
was disastrous .

Mark Masselli: There will a lso be a number 2 person installed at the Centers for
Medicare & Medicaid to oversee the Health Care Law’ s continued rollout . These
may seem like small changes but the inten t ion is to make the department more
e ffi ci ent with a clear chain of command . It should work to streamline efforts as
we move closer to the next round of open enrolments in November .

Margaret Flinter: And they have a tapped a top executive from United Healthcare
for the job . Andy Slavitt is with Optum, which is a division of United Healthcare
which help ed fix the early problems with the Federal Exchange, and he will
responsible for overseeing the exchange moving forward as well as Medicare
an d Medicaid .

Mark Masselli: I think this is bold for a step on the part of Secretary Burwell and I
think it will inspire more confidence in the system in the Department of Health
and Human Services in general .

Margaret Flinter: Because there is still no t as much confidence as we would like
to see on the state level yet , especially in those states that suffered a rocky
rollout of their insurance exchange. Maryland’s exchange never truly got off the
ground and now they are joining forces with Connecticut’ s Access Health
Connecticut.

Mark Masselli: Certainly , and Massachusetts which was a leader in rolling out
RomneyCare, now though they are seeking to re coup tens of millions of dollars
spen t on contracts in companies who botched their states - based insura nce
exchanges .

Margaret Flinter: But also in Massachusetts are some of the leading thinkers in
the country around innovation , and today , we are joined by an expert in the
consumer approach to health care .

Mark Masselli: Our guest today is Regina Herzli nger , PhD , heal th policy expert
and Nancy R. McPherson Professor of Business Administration at the Harvard
Business School , where her focus is on innovation in health care .

Margaret Flinter: Lori Robertson , managing editor of FactCheck . org s tops by to
co rrect another misstatement about health policy in the public domain .

Mark Masselli: But no matter what the topic , y ou can he a r all of our shows by
going to www.chcradio.com .
Margaret Flinter: And as always , if y ou have comments , please email us at
www.chcradio.com
or find us on Facebook or Twitter because we love hearing
from you . We will get to our interview with Dr . Regina Herzlinger in just a
moment .
Mark Masselli: B ut first , here is our producer
Marianne O’Hare with this week’s
Headline News .
(Music) Marianne O’Hare: I am Marianne O’Hare with these Health Care Headlines . A
s cathing review of the VA has been sen t to the President’s office in the wake of
the ongoin g investigation into mismanagement of patients at Veterans Administration health facilities around the country . A letter was sent by the Office
of the Special Counsel details th e consistently ignored warnings by the VA about
dangerous practices that jeopa rdize patient safety . The independent federal
investigative agency found the VA consistently ignored warning s from internal
whistle blowers and that VA did nothing to correct the problems . Mean while ,
another whistleblower has forward from the Phoenix VA h ospital , where the
scandal first broke . A scheduling assistan t said she was a keeper of a secret list
of patient s who had to wait months for medical care , some of whom died waiting .
She says she was told to keep the records of those veterans waiting acce ss to
care for months in a secret drawer because of the VA ’s policy of ensuring
patient s had an appointment within 14 days of requesting one . She also claims
top brass of the VA knew of the extreme delays and of the cover - ups of those
delays for at least two years before they came to light .

Market forces and drug prices , insurers are exerting pressure on drug makers to
begin negotiating down the prices of some of their more expensive drugs , or risk
being replaced entirely by cheaper alternatives . Spendin g on specialty drugs
rose 14.1% last year. Most of the increased spending comes not from new drugs or new patients but from pric e increases on older drugs that can often exceed
10% year after year . And health care pricing overall , predicted to go up in 2 015,
a little under 7% annual health cost increase s have slowed in recent years due in
part to several factors . More scrutiny on health costs, the recession leading to
few er patient s seeking treatment because they couldn’t afford it , and higher

deductible s leading many Americans to for ego preventive or elective surgeries
for out - of - pocket cost s. It still pales in comparison to annual health care price
hikes in the 1990s and 2000 s when it was customary to have double digit price
increase s every year . I am Marianne O’Hare with these Health Care Headlines .

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Mark Masselli: We are speaking today with Regina Herzlinger , PhD , heal th
policy expert and Nancy R. McPherson Professor of Business Administration at
Harvard Business School , where her focus is on innovation in health care. Dr .
Herzlinger coin ed the phrase ‘ consumer - driven health care ’ and was instrumental
in creating consumer - driven health plans. And Dr. Herzlinger has written
numerous best - selling books including Who Killed Health Care?: Amer ica’s $2
Trillion Health Care Problem . Often cited by Becker's Hospital Review as one of
the 40 smartest people in health care , Dr . Herzlinger earned her bachelor ’ s from
MIT and her P h D at the Harvard Business School, where she is the first wom a n
to be te nured and chaired. We are ple ased that you are with us today .

Dr . Regina Herzlinger : I am thrilled to be here and please call me R eggie.

Mark Masselli: Alright. You have been called the godmother of consumer - driven
health care, which calls for co nsu m ers to begin exerting their purchasing power
on health care industry. So , when you first began this research , it was more of
an academic concept but now it seems to be e volving trend in the health care
industry . Can you describe for our listeners your vi sion of consumer - d rive n
health care and its power to transform our very expensive and inefficient health
system?

Dr . Regina Herzlinger : My vision for consumer - driven health care is that
consumers would be given the money that others now spend on their be half ,
employers or government s, and they the consumers , would buy health care , and
in doing that, they would transform the health care system to give them what they
want . And what American consumers want is that they want choice , they want
control , they w ant convenience , and most of all , they want good prices and that
transformation happily is beginning to occur in the American health care system .

Margaret Flinter: Well Reggie, I think we have certainly seen the wave of
consumer participation of a new ki nd with the first round of open enrolment on
the insurance exchanges created by the Affordable Care Act. And what we have
seen with that is kind of a lack of awareness or knowledge on how to even
purchase the right insurance plan for yourself or your fami ly , and then a second
wave of consumer uncertain t y when they have got an insurance about how
exactly to navigate this health care system . Wh at are the strategies for getting
the guidance and the information to consumers so they do understand what they
are getting , they do understand what their money is buying them ?

Dr . Regina Herzlinger : On government exchange , there have been fabulous
results . So what ’s happened is in the supermarkets , rather than having a choice
of one insurer and one plan, in the ave rage government - run supermarket s, there
are 47 different plans and 11 or more insur ers. If you have more competition ,
you lower cost . So from the private exchanges , one of which the biggest one is
run by a firm called Aon Hewitt , 80% of the people on the ir exchange used a
comparison tool that enabled them to compare the design features of all these
great choices and 66% of the people on this private exchange also searched for
the characteristics of hospital s and doctors . In other words , when people shop
for themselves , they are more prone to use information . The information is not
so great , so there is a whole new industry that is form ing to provide the sort of
information that people can understand . And the reason is that people namely
investors , under stand that with these exchanges , there is a huge unfulfilled
ap pe tite for information about prices and quality and they are going to reward the
entrepreneurs who provide them .

Mark Masselli: You have identif ied the villains driving much of the cost growt h in
health care and you have spoken about the iron triangle of third parties who have
overtaken the health care industry , so help illuminate for our listeners that
landscape .

Dr . Regina Herzlinger : So when somebody else controls your money , inevitably
t hey will spend the money in a way that conveniences the m rather th a n that
serves t h e interest s of the people . And wh at changed with the Health Care
Reform Act is first of all , more and more people are able to buy health insurance ,
that’s wonderful , and se condly , the exchanges , the supermarket s have
democratized the control of health care mon ies and given them back to the
people who really are the sources of those funds . So in the past , what ’s
happened is that the status quo health care providers just got fatter and fatter
because there was no countervailing pressure to say look, we just can’t keep
stuffing money down this endless mall , we now have consumers exerting
countervailing pressures. And the result s that we see from the exchanges , which
is that wh en consumers buy their own health plan s, many of them buy far lower
cost health plans than their employers have purchased in the past . Those far
lower cost health plans exert a lot of pressure on the providers to slim down . So
the heroes in th is story or the health care reform legislation itself , CMMI which is
a $ 10 billion venture capital firm that’s housed within the federal government , i t’ s
the Center for Medicare & Medicaid Innovation which ha s funded a lot of the
innovation s, and then the entrepreneu r s themselves who have created new kind s
of insurance policies , new supermarket tools that w ill make it possible for a
consumer to shop intelligently .

Margaret Flinter: Well Reggie, the Affordable Care Act certainly saw and I think
is successful ly in man y ways rectifying the lack of access to health care by
providing coverage for millions of uninsured . But you have also looked at the
inequities on the provider side and noted and rightly so th at providers that treat a

large cadre of Medicare and particula rly Medicaid patients are paid only a
fraction of the compensation for providers when they treat patients with private
insurance , but there is still this burden on providers who treat a large percentage
of the publicly insured . So tell us about your alter native approach to this question
of uneq ual compensation for providers .

Dr . Regina Herzlinger : Well it ’ s very stupid public policy to underpay providers
so drastically as is done with Medicaid and somewhat as is done with Medicare
because it has two very bad side effects and that is the refusal of providers to
treat Medicaid patients . Furthermore, I believe that a number of people are not
attracted to medicine as a profession because of this fear of underpayment . And
thirdly , many of the providers just shift their c ost to the commercial payers . So in
Switzerland, which the Commonwealth Fund just found as the world’s second
best health care system , in Switzerland , there is no Medicare. I n Switzerland
w h ere everybody i s privately insured , you have equal access because the
provider will be paid the same . I think it’s a great system .

Mark Masselli: We are speaking today with Dr . Regina Herzlinger , PhD , heal th
policy expert and Nancy R. McPherson Professor of Business Administration at
Harvard Business Sc hool . She ha s been dubbed the godmother of consumer -
driven health care. You know, to pull the thread a little Reggie, you have been
steeped in the private sector , you have been involved in a number of publicly
traded companies . We have seen the onset of the accountable care
organization s, customer - driven plans and focused health factories . What is the
future going to hold ? And a lot of it seems to be dominated by sort of equalizing
out opportunity by putting maybe everybody into the private sector . Wh at else
are the people , that you are associat ed with , thinking about in the health care
world today?

Dr . Regina Herzlinger: First of all , in Switzerland , the government funds the poor
who could not otherwise afford to buy private insurance . So there is a role for the
government in Switzerland . To me , that’s what equity is all about . So on the
provider s side , clearly the health care system is a non - system , it ’ s terribly
fragmented , the IT is very primitive so there is very poor connectivity and as a
res ult , there is overtreatment and undertreatment and high quality and low quality
and there is a drive towards consolidation which is much needed . How the
consolidation will occur is not exactly clear . Will it be through vertically integrated
provider orga nization s which are called accountable care organization s? Will it
be through organization s that have more modest kind of agendas ? I believe the
la tt er will prevail , and what will see is re organization of the health care delivery
system into more integra ted systems of care that are focused o n care as the
consumer defines it . So i f I had congestive heart failure, I would have up to 34
comorbidities, I would be desperately looking for some place that would integrate
all of these . So one trend in the integ ration trend I believe it is the bundlers
rather than everything for everybody who will ultimately succeed. Along the way
we have seen some very useful other kinds of innovations . For example , there

are about 1200 retai l medical centers right now . They obviously could serve a s a
terrific delivery point for example for helping people with chronic disease s comply
with their daunting daily regimens. Some have a lot of IT , like the company
called First Medical. Some focus on chronic diseases like ChenMed. I think
the se innovations on the re tail part of health care are also tremendous .

Margaret Flinter: We ll Reggie, we are very interested in and engaged in
educating and training the next generation of health care providers and policy
leaders for the futur e and I know that you have been very focused in your
teaching career and a s cofounder of the health care initiative which looks to
immerse MBA students who are interested in health care . Tell us about the
approach that you have helped to develop at Harvar d that really does train these
students for a health care industry and system as you would like to see it .

Dr . Regina Herzlinger: So I did a survey of the top 26 schools in health care
administrat ion. The number one word in their course description was
organization , system , policy . Simultaneously, I interviewed the CEOs of 58 of the
globe ’s most innovative health care compan ies , what do they want , what do they
need for their employees , and they said number one word was innovation , and
essentially , they said the current school s are not providing us with what we need .
So at Harvard , we have six courses in innovating in health care . This year , five
of my students are leaving the Harvard Business School to start those
companies . We give them the tools and the confidence and the contacts so they
could innovat e the health care system . I also did a MOOC, which is a Massively
Open Online Course for Harvard Ex on innovating in health care , and we had
tens of thousands of students . 20% of them were PhD s and ot her 20% were
doctors . The course was entirely focused on the tools that you need in order to
commercialize your brilliant innovative ideas about how to make health care
better and cheaper . I have a number of frameworks that can help people
evaluate w heth er their ideas make any sense and in this MOOC we had 500
students whom we selected who did their own business plans as part of the
MOOC . I think this is what we need . Public policy is very important in health
care . Health care system needs to be funded and that system need s to be able
to have the tools to make it happen .

Mark Masselli: We have been speaking with Regina Herzlinger , PhD , Professor
of Business Administration at the Harvard Business School. You can learn more
about her work at www.hbs.edu/herzlinger . Reg gie, thank you so much for
joining us on Conversations today .
Dr . Regina Herzlinger: It’s been my great pleasure .
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Mark Masselli: At Conversations on Health Care, we want our audi ence to be
truly in the know when it comes to the facts about health care reform and policy.

Lori Robertson is an award - winning journalist and managing editor of
FactCheck.org, a nonpartisan, nonprofit consumer advocate for voters that aim to
reduce the l evel of deception in US politics. Lori, what have you got for us this
week?

Lori Robertson : We often find politicians engag ing in what we call Mediscare ,
distorting an opponent’s position on Medicare to scare seniors. The latest
example comes from a We st Virginia House Race, in which the incumbent uses
his opponent’s words on Medicaid to create Mediscare . An ad from Democratic
representative Nick Rahall says that his Republican opponent, Evan Jenkins , has
“billionaire financial backers” in reference to the Koch brothers, who want to turn
Medicare into a voucher plan that would raise seniors ’ out of pocket cost by
$6000 . That’s an outdated reference to a 2011 House Republican budget plan
by Representative Paul Ryan , who has significant ly revise d his pla n since . It
may or may not increas e seniors’ cost. But then the ad says Jenkins is
comfortable with raising seniors’ out of pocket cost saying “He said senior s
should have some financial skin in the game and think harder about going to the
doctor .” But it turns out the quote from Jenkins wasn’t about Ryan’s plan or
Medicare; he was talking about the Medicaid expansion under the Affordable
Care Act and West Virginia’s move to charge Medicaid recipients a nominal co -
pay to prevent the overuse of health car e services . Medica id is a joint federal
state insurance program for the low income . Medicare is for seniors age d 65 and
over . The new co - pays allowed by the Obama Administration in 2013 are $8 for
a non - emergency visit to an emergency room and doctor vi sit co - pays ranging
from 0 to 4 dollars depending on income level s . It’s true that about 6 million low
income seniors have both Medicare and Medicaid coverage which covers long
term care but West Virginia’s rules exempt individuals in nursing homes or
hos pi ce from any Medicaid co - pays. Check our website for the fact s behind
other scary claims about Medicare . I am Lori Robertson, managing editor of
FactCheck . org .

Margaret Flinter: FactCheck.org is committed to factual accuracy from the
country’s major political players and is a project of the Annenberg Public Policy
Center at the University of Pennsylvania. If you have a fact that you would like
checked, email us at www.chcradio.com . We will have FactCheck.org ’ s Lori
Robertson check it out for you here on Conversations on Health Care.
( Music)
Margaret Flinter: Each week , Conversations highlights a bright idea about how
to make wellness a part of our communities and everyday lives . When Derreck
Kayongo was a young refugee , living in Africa , he learned the true meaning of
survival .

Derreck Kayongo: Child of war can be simply described as a kid caught between
a rock and a hard place. It's finding all your pieces and trying to put them back
together.

Margaret Flinter: Rescued by an aid organization and brought to the United
States , he knew he had to do something to make a difference in the lives of
those many children left behind, children displaced by war, orphaned by disease,
living in extreme poverty . 2. 4 million children die each year from lack of access
to basic sanitation.

Derreck Kayongo: We have about two million kids that die of sanitation issues
mainly because they don’t wash their hands.

Margaret Flinter: And when Kayongo learned th at hotels ar ound the United
States dispose off 800 million bars of soap every year , he knew that was a
resource to tap into.

Derreck Kayongo: 800 million bars of soap that the hotels throw away in the US
alone every year.

Margaret Flinter: He founded the Global So ap Project . The discarded soaps are
gathered and processed at a plant that sanitizes , melts and reforms new bars of
soap , that will be distributed around the world to children and families living in
poverty or in disaster zones like Haiti. And with it , t he children are given lessons
in basic hygiene , some learn ing for the first time how to thoroughly wash their
hand s and why. The Global Soap Project ear ned Kayango the distinction of one
of CNN’s Hero finalists , and he was also a winner in the Annual CLAS SY
Awards , which support philanthropic work that improves health and wellness
around the globe . A simple idea , repurposing the waste of soap and providing
one of the most simple tools of hygiene to those in need around the world , now
that’s a bright idea.

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Margaret Flinter: This is Conversations on Health Care. I am Margaret Flinter.

Mark Masselli: And I am Mark Masselli, peace and health.

Conversations on Health Care, broadcast from the campus of WESU at
Wesleyan University, streaming live at www.wesufm.org and brought to you by
the Community Health Center.