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The Accountant Is In

Regina Herzlinger ‘65 has strong medicine for the health-care industry.
March 12, 2007

It may be 7:00 a.m. in a darkened auditorium at Massachusetts General Hospital, but it’s not too early for Professor Regina Herzlinger ‘65 to deliver her prognosis.

“It is possible to make health care cheaper and better in this country,” she tells the audience of doctors and medical residents gathered for her talk on consumer-driven health care, “if we would give consumers more power, more information, more choice.” It’s an argument that the Nancy R. McPherson Professor of Business Administration at the Harvard Business School has been making for nearly three decades.

“Choice is good,” she declares to the sea of white coats, citing Alfred Sloan and the rise of General Motors as exhibit A. “It spurs competition, which spurs innovation, which makes things better and cheaper in every industry. But we don’t get that choice in health care.”

Bemoaning the fact that “Larry Summers [the former president of Harvard University] purchased my health insurance for me,” she goes on to protest, “I wouldn’t permit him to buy my house or my clothing or my food for me. Yet as my employer, he could take up to $15,000 of my sala­ry each year and buy my health insurance for me, without knowing anything about my preferences or needs. It’s ridiculous.”

It’s hard to imagine this trenchant critic and industry reformer as a stricken young HBS accounting professor with a dark bun and oversized spectacles, unable to decide in 1972 which fact she wanted to camouflage more: that she was pregnant or that she was scarcely older than her students. Yet ­Herzlinger, now a sought-after public speaker and frequently quoted consumer advocate, can still recall the stage fright of her first class. “I thought I was going to faint,” she says.

The first woman to achieve tenure and hold a chair at the Harvard Business School, Herzlinger has become many things over the years–award-winning teacher, prolific author, public intellectual, conservative provocateur, grandmother–but she is still an accountant at heart. So she prefers to judge performance by the data, and the harder the numbers, the better.

Consider, then, these metrics from her CV: two best-­selling books; more than two dozen articles; a dozen or so awards; about 50 HBS case studies; more than 100 speeches. And this in just the last five years of a 36-year career.

Herzlinger’s dignified, deep voice seems tuned for the lecture hall. Her wide-ranging erudition bespeaks a scholar. But for two decades, that scholarship has been pressed into the service of a not-so-quiet revolution, which she’s been fomenting well beyond the halls of Harvard Business School. “I have never wanted to confine my influence to the realm of abstract thought,” she says. “My interest is in effecting change.”

Reluctant to call herself a “public intellectual”–it’s “too highfalutin,” she demurs–this impassioned champion of health-care reform refuses to limit her audience to the readers of peer-reviewed journals. She continues to churn out case studies for her MBA and executive education courses on innovation in health care. She continues to teach governance and financial control for corporate and nonprofit management. But in recent years she has also become a regular contributor to the op-ed page of the Wall Street Journal (she’s usually at her writing desk before dawn); she gets quoted in the New York Times and interviewed on national television. She’s been invited to the White House to advise the Bush administration on health-care policy. In conservative circles, her ideas have come to define the political agenda on health care.

“It helps to have someone knowledgeable, who’s identified with the ideas and who can dignify people’s questions,” she says, downplaying her influence in what she calls a consumer “movement” in health care.

When Regina Elbinger left Crown Heights, Brooklyn, in 1961, having been voted most outstanding senior at her small Orthodox yeshiva, she was the first girl from the school to attend MIT or even, she says, to leave the confines of her immigrant Jewish enclave.

“It would have been unthinkable, except for the kind of freedom of thought I had been raised in,” recalls Herzlinger, whose father, a rabbinical scholar, had given her the Qur’an and the works of Spinoza to read by the time she was 14.

Iconoclasm, a mathematical mind, and a dogged optimism were her family’s legacy to her. Alexander Elbinger had fled revolutionary Russia in the 1920s, only to flee Nazi Germany in 1939 with his wife, Ella.

Elbinger’s facility with languages and his gift for computing currency fluctuations almost instantly in his head had made him a successful trader, and he’d accumulated some wealth. “He was a Zionist,” his daughter says, so before the outbreak of war in Europe, he had invested in land in the Jewish homeland. “Fleeing [Germany] saved their lives and made mine possible,” says Herzlinger, who was born in Tel Aviv. Like most Jewish émigrés, the Elbingers had taken little with them. But Herzlinger’s mother, a gregarious beauty and shrewd card player, helped support the family by beating gambling men at gin. The Elbingers survived Israel’s War of Independence in 1948 and endured rationing and austerity in the early years of statehood before immigrating to the United States when Regi, an only child, was eight.

Precocious and ambitious, Regina mastered English in the New York Public Library, where she became fascinated by iconic Americans like Andrew Carnegie, who essentially built the public library system. Both predatory and beneficent, “he was this genius monster,” she says. His ruthless exploitation of economies of scale sparked her curiosity about competitive advantage in American business. Carnegie’s philanthropy got her interested in how to finance public goods, such as libraries, that capital markets can’t efficiently produce.

MIT was virtually all male when Herzlinger enrolled to study economics, one of about 20 women in her class. Demographics, not her talent for science and math, led her to choose MIT over Radcliffe (Harvard was not yet coed). Intent on a career–“I was not going to be financially dependent on anyone else,” she says–she knew she had to learn to work with men. And Radcliffe, she wagered, wouldn’t teach her that.

Herzlinger expected to be challenged at MIT. She didn’t expect to be prepped for failure. “There was a cruelty about the school,” she says. “There was this expectation that people would fail and it was their fault.” She recalls sitting in an assembly hall with incoming freshmen and being told by MIT’s president, “Look to the left of you. Look to the right of you. One of the three of you will not be here at graduation.”

“I thought, ‘What are you talking about? Why shouldn’t we all be here?’ We were being told, in effect, that teachers would not be responsible to teach to the different needs and learning styles of the students. I couldn’t believe they wouldn’t be held more accountable for the success of some extremely bright and capable students.” Today, she attributes her own sensitivity to her HBS students’ differing needs at least in part to her antithetical experience at MIT.

“I became acutely concerned with unacknowledged differences,” she says. “Equality doesn’t mean homogeneity.” A healthy 25-year-old should not be insured in the same way that a 55-year-old diabetic is, she says, and in her era at MIT, women should have been called “women,” not “coeds.”

“At Wellesley College, there were women,” she recalls. “At MIT we were this strange subsector” that often felt socially marginalized by peers and overlooked by faculty. Herzlinger did find romance at MIT, meeting her husband George, to whom she’s been married for 41 years, while both were students. But she still remembers the words to a self-deprecatory jingle that was floating around: “But I’m just a Tech coed/Mother dropped me on my head/I wear a slide rule on my belt/Man, oh, man, am I svelte.”

Nevertheless, she views what she calls “feminist whining” as unproductive. “I have female colleagues who’ve become depressed because of the unfair difficulties they face,” she says. “And they do face them”–Herzlinger herself encountered at least subtle vestiges of sexism at MIT, at Harvard, and in industry. “But you can’t let it overwhelm you.”

A problem-solver’s pragmatism is what she still recommends to women in the sciences and academia. “It’s about the metrics,” she says. Even in the 1970s, when few women were earning doctorates or faculty appointments in business administration, she saw that teaching evaluations gave her a competitive advantage: her courses consistently received rave reviews from her accounting students. “No one was ever going to define me but me,” she says.

Dubbed the “godmother” of consumer-driven health care, Herzlinger is on a mission to reinvent the way health care is paid for, organized, and delivered.

“I want to give consumers the money that is taken from them by government and business and allow them to choose the health insurance and health care they want,” she explains. She favors individual control over 401(k)-like accounts, which employers or the government fund, and which consumers manage themselves, selecting the coverage, deductible levels, and provider networks that meet their needs.

At $2 trillion a year–almost the size of the GDP of China–the U.S. health-care market should, Herzlinger argues, behave more like a consumer market, offering a wider menu of products that compete on quality and price. She wants to bring more market discipline to the business of healing; increasing demand, she says, should encourage more competitors to enter the market, driving prices down, not up. Herzlinger also contends that the supply of goods and services should not be so regulated by government that rationing and shortages result. Individuals–not government, not employers, not insurers–should have both the purchasing power and the knowledge to make informed choices.

Herzlinger’s vision of health care boils down to transparency, so that consumers can compare prices and outcomes or other measures of quality; choice, so that insurance products can be customized and allocated by users; and deregulation, so that flexible, specialized networks of providers can focus on the treatment of particular chronic diseases. “That someone with heart disease or diabetes has to assemble and manage their own team of providers, often in the midst of a health crisis, is cruel,” Herzlinger says.

That vision is not without critics–on the right as well as the left. Administration policy makers have taken umbrage at Herzlinger’s contention that Bush’s proposals for health security accounts and high-deductible insurance fail to deliver enough choice or buying power to consumers. ­Managed-­care proponents, even conservative-leaning ones, are uneasy with the laissez-faire she endorses in the health-care marketplace. And although she favors universal coverage, her opposition to government-funded universal care is so vehement that she has been pilloried in left-leaning blogs.

“There are some people who dislike my work intensely,” says Herzlinger. But she has answers for her critics. To exponents of universal health care who say her system would penalize the poor and the sick, she counters, “If the poor weren’t stuffed into Medicaid, if they got as much money as anybody else to spend on health insurance and the freedom to choose what they needed, they’d have better access and better quality of care.” To the defenders of managed care, whom she calls “micromanaging technocrats” and “gatekeepers,” she cites unabated double-digit annual cost increases in recent years and the rise of the patients’-rights movement: “Just-say-no health insurance is generally conceded to be a failure.”

To further the cause of promoting innovation and choice in health care, Herzlinger is mentoring a generation of like-minded iconoclasts and entrepreneurs, many of them former students, who are building consumer-driven-health-care companies. She serves as a board director for at least one. “Having Regi on your board is like the Good Housekeeping Seal of Approval,” says HBS alumnus Todd Farha, CEO of WellCare, a $3.7 billion health-insurance company in Tampa, FL. “She brings credibility.”

In between board meetings, lectures, and classes, ­Herz­linger is thinking ahead and usually thinking big. Retirement appears nowhere on her horizon; it’s just another long-range market opportunity. “Teaching business to young entrepreneurs in China or Russia,” she says, picking up the phone to take her next conference call. “That might be fun in my 70s.” And “consumer” might well be the first word she learns in Mandarin.

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