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Available at Amazon, Barnes and Noble, Borders, and everywhere books
are sold!

ISBN: 0071487808






(McGraw-Hill, 2007)

By Regina Herzlinger


What is the problem with the American system of health care?

The problem is that an iron triangle of third parties—Congress, insurers, and hospitals—has stopped consumer-driven health care, creating a system that gives them a lot of power instead of one that puts patients and their doctors first.

How has Congress hurt health care?

Congress approves the government budget for Medicare. But the Congress is not content to merely approve the total budget. Instead, it sets prices for every procedure performed by every doctor, hospital, and other medical care provider. Lately, the Congress has even specified how doctors should practice medicine. Congressional oversight of health care is akin to telling an artist to paint by numbers and giving every artist, be he a Monet or a dauber, the same price. Uncle Sam has effectively turned into Dr. Sam.

The government should not be involved in the delivery of health care!

How have insurers hurt health care?

Insurers offer us virtually no choice of health insurance policies. They simply cobble together a disparate network of physicians and hospitals willing to accept low payments. They provide little incentive for providers to promote wellness but lots of incentives to spend as little time as possible with the patient. They also control costs by “just saying no”—no to extras like specialists, hospital admissions, and payments to providers.

How have hospitals hurt health care?

Hospitals have become monopolists or oligopolists who suppress price and quality competition in many parts of the country.

They are the largest and fastest growing part of our health care system. Demand for services is growing far more slowly than are costs. One analysis reported that hospitals accounted for 80% of the excessive $500 billion of costs in the US health care system, relative to countries of similar wealth.

Further, hospitals are dangerous to your health. Hundreds of thousands of people have died from hospital-induced causes, such as infections.

Finally, hospitals use their nonprofit status to suppress competition. They claim they are charitable. Try that one on the uninsured who have been driven to bankruptcy by hospitals or tossed out on the street with the most minimal of care!

What are you proposing as a desired outcome?

Our health care system must be transformed into a consumer-driven health care system. A consumer-run system would give us all more control over our choices of insurers and providers; this would provoke providers to offer better services and treatments, at a price we are willing to pay, ultimately driving innovation and reducing costs.

Does a consumer-driven health care system exist anywhere? What is it?

Switzerland is the only developed country with a long-standing consumer-driven health care system. In essence, consumers purchase their own insurance and everyone is required to insure themselves. Those in financial need are not simply left out in the cold; there are tax-financed, means-tested subsidies for them. Furthermore, health insurance plan options vary substantially in price and coverage, providing options to the health care consumers.

How could sick people afford to buy health insurance?

The Swiss model is a good one. There, the price for health insurance is determined by gender and age, not the level of sickness; but the insurers have formed an exchange where they risk-adjust each other. They remove the profits earned by insurers solely by enrolling people who are healthier than the average for their gender and age and redistribute this profit to the insurers who have enrolled those who are sicker than the average.

These risk adjusted prices mean that sick people pay the same price for their insurance as everyone else, but providers receive more money for treatment of the sick. This way, health providers are encouraged, rather than dissuaded, to help those who need it most.

Are there any elements of a consumer-driven system that exist here at home in the USA? What have the outcomes been?

Oklahoma, South Carolina, and Florida have each taken the step of allowing Medicaid enrollees to choose health services and providers for themselves; ultimately, health providers who compete for customers offer better service and better costs.

Nearly 10 million Americans are enrolled in national health savings account type programs; these health care consumers are shown to incur substantially lower costs, use more preventatives services, and comply more with regimens for their chronic diseases than those with standard insurance

How can consumer-driven care lead to lower costs?

Consumers will be rewarded by the entrepreneurial innovation that can simultaneously improve quality and control costs. Examples include convenient, inexpensive, “you’re sick, we’re quick” retail medical centers; competition among doctor-owned, specialty hospitals; and integrated teams for the treatment of chronic diseases or disabilities.

Other examples include global health services in developing countries that offer care to international patients; this enables countries to minimize capital investment health facilities require. This also helps by reducing waiting times and capacity pressures in single-payer countries—and the services offered are typically cheaper than those in developed countries.

Do you see any role at all for government in a consumer-driven health care system?

Yes, the government plays four important functions:

1. To oversee the integrity of participants; ie. by prosecuting fraudulent providers and those who do not buy health insurance.

2. To provide transparency; ie. by requiring the dissemination of audited data about the quality and price of providers.

3. To subsidize important health purchases for those in need; ie. by using tax money to help those without means.

4. To provide tax shelters for individuals who buy health insurance.



Read an excerpt
“A wonderful Orwellian romp through issues which carry a deadly irony. . . Rarely has the case for the public been made with so much force, foresight, and wit, and a better way forward shown so clearly

James F. Fries, MD Professor of Medicine, Stanford University School of Medicine

Regina Herzlinger

Consumer-Driven Health Care: Implications for Providers, Payers, and Policy-Makers
(Jossey-Bass 2004)

Health Care

(Perseus Book
Group 1997)



Manhattan Institute