November 24, 2020
From Weight Watchers to bariatric surgery, innovations for combatting obesity abound. But which will do the most good for society and yield the best business results? Harvard Business School professor Regina Herzlinger discusses how to evaluate health care innovations aimed at providing solutions for obesity in her case, “Fighting the Battle of the Bulge – Evaluating Innovations in Morbid Obesity Treatment.”
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BRIAN KENNY: Obesity is a public health crisis in America as designated by the Center for Disease Control and Prevention. In 2018, the Journal of the American Medical Association published a study showing that 40% of Americans over the age of 20, about 93.3 million people, are clinically obese. In every state across the country, at least 20% of adults are obese. Compare that to 1985 when no state had a rate higher than 15%. That’s an alarming rate of increase, especially when you consider that roughly 43 million Americans spent upwards of $33 billion a year on weight loss products. So, what are we doing wrong and how can we stem this rising tide? Today on Cold Call, we’ll take a deep dive into the business of weight loss, discussing professor Regi Herzlinger’s case entitled, “Battle of the Bulge: Innovations in Obesity Treatment.” I’m your host, Brian Kenny, and you’re listening to Cold Call.
Professor Regi Herzlinger is an expert on consumer-driven healthcare and innovation in healthcare. In fact, she has even been called the godmother of consumer driven healthcare by Money magazine, and her brand new book, Innovating in Healthcare: Creating Breakthrough Services, Products, and Business Models, has her very latest thinking on this important topic. Regi, thanks so much for joining me today.
REGINA HERZLINGER: What a pleasure to be with you, Brian. Thank you.
BRIAN KENNY: And you’ve had a spin on Cold Call before, so we’re glad to have you back here talking about an issue that only seems to be getting worse. And I thought the case was really fascinating because you break down the different aspects of the business of weight loss in ways that I hadn’t thought about and I think our listeners will be surprised to hear. I also want to hear how this relates to the ideas in your book. So, let me ask you to begin by, how would you start this case in the class? You’d walk in and what’s your cold call?
REGINA HERZLINGER: Well, it is a cold call for the very first case in my two courses, which are called “Innovating in Healthcare.” And the preamble is that healthcare systems all over the world have wonderful doctors and resources and technology, but they’re failing. They cost too much. The quality is very erratic and the access is very inequitable. And what we need in circumstances like that is innovation. Innovation has helped rescue other sectors like transportation, communication, personal wellbeing, should be done in healthcare. So, here we have a case about obesity, which is a plague across all countries and the case contains all the remedies, all the common remedies for obesity, ranging from surgery to drugs, to Oprah Winfrey’s Weight Watchers, to behavioral economics. You name it, it’s got it. What I’d say to my students: Tell me what’s the best business? Tell me which one of these is going to do the most for society?
BRIAN KENNY: There’s no easy answer to that question. So, we’ll dive into that for sure. But tell me, first of all, I love the name of the case, “The Battle of the Bulge.” Very clever, I thought that was well done.
REGINA HERZLINGER: Thank you. I am fond of puns. I may be the last human being who likes them.
BRIAN KENNY: Well, you and me both. So, there’s two of us left at least. So, why did you decide to write the case and how does it relate to the ideas in book?
REGINA HERZLINGER: I chose obesity rather than some other health issue because everybody is familiar with it. And the case illustrates that the three pillar framework that’s in my book about how to build effective, innovative healthcare business models, and the first pillar is that you, the innovator, have to be clear about what you’re doing. Are you trying to cut costs? Are you trying to make consumer’s lives better? Are you trying to commercialize technology? Many innovations say they’re trying to do all three or two of the three and that’s impossible. Second pillar is how does the innovation align with the social and economic factors that are in the environment? Factors like how does public policy feel about this innovation? Who is going to pay for it? What about the status quo? Are they your friends or are they your enemies? And then, the last pillar is the actual business model. Have you figured out business elements that would enable this business model to work?
BRIAN KENNY: Cynics out there might say, well, of course this is about healthy outcomes and why should we worry about the business side of it? It’s not about making money. But I think we would be quick to point out at Harvard Business School that if you can’t sustain the business, then you can’t sustain the outcome. So, the business model is critically important to the success of the overall endeavor.
REGINA HERZLINGER: For profit, nonprofit mission requires money. So, if it’s not efficient, if it doesn’t have a good business model, if it can’t be widely disseminated and thereby achieving economies of scale and broader access, for profit, nonprofit, forget about it.
BRIAN KENNY: The central organization in the case is called Lifestyle Advantage. The protagonist is Doctor Dean Ornish. Tell us about Lifestyle Advantage. What kind of business are they in?
REGINA HERZLINGER: Dr. Dean Ornish, in his field, is very well known. He’s a cardiologist who, I believe, treated President Clinton after his heart attack. And you may recall, or certain of our listeners who are of a certain age may recall, that President Clinton got kind of skinny. And the reason he got kind of skinny is that Dr. Ornish’s diet is vegetarian diet, very low fat, very low sugar. And it also involves other lifestyle changes, that’s why it’s called Lifestyle Advantage. Not only dietary but meditation, stress relaxation, exercise. It’s a program that requires tens if not hundreds of hours in a month to follow. And Dr. Ornish has shown, albeit on a relatively small sample of people, that this diet not only will cause people to lose weight as it did with Bill Clinton, but that it will also reverse heart disease. Sounds great. It is not a business success. And by business success, I mean, it is not widely replicated. Most people have not heard of it and it’s a shame. Here’s something that does do the right thing. A sensible diet, sensible exercise, and sensible mental health and business wise it’s got a long way to go.
BRIAN KENNY: Why is it not working? What are some of the roadblocks he’s run into?
REGINA HERZLINGER: Well, to go back to my three pillars. First, I believe that Dean Ornish, who I know and respect a great deal, was not clear about what he was trying to do. He really wanted his technology, his new way of dealing with obesity, to be commercialized, but he didn’t think through the six factors. Would the environment be in tune with his desires? And he marketed to hospitals. The reimbursement was about $8,200 for 200 hours of work or about $40 per hour. You don’t need a CPA to figure out that $40 per hour is not a very attractive revenue for a hospital with all its costly infrastructure. Plus, the hospital is filled with cardiologists, cardiac surgeons, people who have very different ideas of how to deal with heart disease and how to deal with obesity. So, Ornish had to convince all these doctors who’ve staked their lives and reputations and careers on a certain way of dealing with cardiology and its close relative, obesity, to do it his way at a revenue take of $40 per hour. Sorry, it’s not going to work. Alternatively, he could have said, “I’m consumer facing, I’m going to sell this to consumers.” So, how could he do that? Well, there are people, a lot of people, who would like to be vegetarian and who would like somebody to hold their hand while they meditate and while they do exercises. There is a company called Jenny Craig that sells food. It could sell vegetarian food just as well as selling whatever it is that they do sell, but because Dean Ornish was an academic physician, he had a technology commercializing model in his mind, he would go to the hospitals and the academic doctors rather than a consumer facing one.
I think it would have been a much more significant success if he’d followed the first pillar and that is ruthlessly examine the question of: What am I? And, how does what I am, what I’m trying to do, line up with the six factors?
And then, the business model, as it stood, was not that great. He didn’t have to go to the hospitals. His first clinical trial was with 48 people. There are tens of millions of people who have cardiac disease. So, a clinical trial of 48 is not going to do it. The payment was vastly inadequate. He also built centers to which people came and they received these treatments, but the centers themselves were very expensive to create. You needed a huge volume of customers to break even. Why would a hospital send their customer to these centers? I call that viability. How much of the market do you need to break even? He needed a huge percentage, which clearly, given his idea of what he was trying to do, and which relied on hospitals to refer their patients to him, just wasn’t going to work.
So sadly, this model violated all three pillars. He still has centers and he has people who believe him, but I wish that this idea of supporting people as they transition to this difficult lifestyle, I wish that had been effectual.
BRIAN KENNY: He’s a doctor, he’s a practicing cardiologist, does some of that relate back just to his feeling of, I don’t know, optics or image? If I go direct to consumer and try to do it the way Jenny Craig has done it, does that make it seem like it’s less authentic? Does it look less medical? Is part of it just caught up in maybe his ego?
REGINA HERZLINGER: I don’t know. I think the world of him, but I know of many physicians who talk of business as the dark side, as if they were compromising their integrity by trying the business solution.
BRIAN KENNY: Let’s talk about some of the other kinds of treatment that your case looks at, because you present a number of different models of the way that the different businesses have approached this. Describe some of the others.
REGINA HERZLINGER: Well, there are food models like Jenny Craig. There are support models like Weight Watchers, which is actually a great business model because it has no fixed costs. Accountability, one of my six factors, not so good, but people like it, it doesn’t cost much to put it on. And as a business, it’s great. Another interesting model is one that uses behavioral economics to get people to change their lifestyle. The current version is very heavily advertised. It’s called Noom, and it’s an app in which you discuss your eating patterns with somebody. Another one, a very interesting one, was developed by an academic psychologist and it pays people, in a very funny way, if they lose weight. So, if they make a promise and say, “I’m going to lose 10 pounds in a month,” if they don’t fulfill their commitment, they commit to donate to a charity they loathe.
BRIAN KENNY: It’s very creative, I think, that’s a really-
REGINA HERZLINGER: Very creative. Unfortunately, what business really wants to sponsor this model where people are contributing to charities they despise because they didn’t fulfill their commitments? And secondly, how do you sell it to all those businesses? And thirdly, how much money do you charge as a percentage of the savings? So unfortunately, Noom spending a fortune on advertising, all of these consumer facing models require tremendous marketing expenses. We then come to the technology part and there are a lot of drugs for obesity, which wound up killing people, or by accelerating their metabolism to a point where they died. Very healthy athletes died of some of these drugs. So, the drug route, which is a very frequent route, technology commercializing in healthcare issues. We don’t understand how drugs and the digestive and appetite system interact. And all those drugs have been a failure. Third route is surgery. Surgery is called bariatric and it essentially reduces the stomach in one way or another. This surgery is performed in hospitals or in specialty clinics that do nothing but that surgery. They specialize in bariatric. So, the accountability here is fantastic. Bariatric surgery causes people to lose a great deal of weight and amazingly in some cases it reverses the dreadful disease of diabetes. But, in a small but significant percentage of the people who undergo the surgery, they commit suicide relative to the group that hasn’t undergone surgery, and have more accidents. The surgery is performed either in the hospitals or in these chains. Oh, there’s one more solution and that is counseling. Counseling by doctors or counseling by nutritionists. Counseling by doctors, when the doctor says, “Look, you’re just too fat and you’re endangering your life. Very effective. The downside is the doctors don’t want to do it and aren’t trained in doing it. They get very poorly paid for it doing it. As you said, in your brilliant opener, there is so much obesity in the US, and really in most developed societies, even in the Middle East, it’s just a growing epidemic. It would take all the doctors in the US, all their time to do this, to counsel their patients. Nutritionists are cheaper, but not so effective. But people don’t place, rightly or wrongly, the same degree of belief in what they have to say as when a doctor says you’ve got to lose that beer belly or you’re just a candidate for a heart attack. That’s very scary. Nutritionists can can’t do that. So, what do you think is the best in terms of a business and best in terms of society?
BRIAN KENNY: So, I read the case and I know that the answer is not in the case.
REGINA HERZLINGER: It is not. Like all good cases, it’s not there and it’s filled with a lot of red herrings that kind of lead you in one way or the other.
BRIAN KENNY: To my mind, it feels like pieces of each have efficacy. So, if you could mold a separate whole out of the pieces and parts of these, I think counseling must be hugely important as it is most healthcare related issues.
REGINA HERZLINGER: Absolutely.
BRIAN KENNY: People need that kind of ongoing support.
REGINA HERZLINGER: Absolutely.
BRIAN KENNY: Right? But also something that I can understand as a patient, the surgery, I think, obviously must be reserved for the most serious morbid cases of obesity.
REGINA HERZLINGER: Absolutely right, Brian. So, the most successful business by far is bariatric surgery and it is successful because there are good data about the fact that it works from consumer’s perspective, one of my six factors. A lot of people have tried dieting and it just hasn’t worked for them and this works for them. The hospitals like it, it’s a very lucrative procedure. The surgeons like it, it’s complicated, and these are very intelligent people and they’re learning a new complicated procedure and it’s continually changing as new instrumentation devices come along to help in that surgery. It’s a very good business model for the hospital. Curiously, it is not successful in the chains that do bariatric surgery, and that is because these chains are competing with well-established hospitals that are very reluctant to lose the surgery to a for-profit chain, a dark side chain, that does nothing but this surgery and they have by and large failed. The mention of counseling, Brian, is so interesting. When I teach this case to medical students and I ask the question, “Well, what’s the most successful model?” They all say it’s got to be medical counseling, but it’s not because it’s infeasible. It doesn’t go along with the six factors and the business model. There aren’t enough doctors who want to do this. The few who do want to do it are a pebble in the ocean of the need. The compensation is much too poor. So sadly, medical counseling which should be right on top of the list, is not. It should be the one that does the best. It’s really horrible to say that the best remedy of all of these is surgery. To me, it’s never felt good. But when you look at the three pillars analysis, it does the most good for the most people. It is the most feasible and it’s a good business to boot.
BRIAN KENNY: Very, very interesting. Let me ask you this, Regi, and we’re having this conversation with the backdrop of a pandemic behind us. And there’s so much talk right now about virus discovery, trying to try to find vaccines to thwart this pandemic. Do you think that some of the barriers that are coming down as a result of all the innovation, frankly, that the firms are trying to do to come up with solutions for COVID-19, do you think that will extend to other areas of healthcare where maybe some of the risk averse approaches that we’ve taken in the past will fall to the wayside?
REGINA HERZLINGER: What a wonderful question. So, there are two areas where COVID-19, this horrible pandemic, actually has a silver lining. One is that tele-medicine, which just means seeing a doctor or nurse or some appropriate medical provider on your laptop or on your iPhone. It’s been around for a long time, but the status quo, bricks and mortar places, physician’s offices, hospitals, they really didn’t want it to flourish because the more tele-medicine flourishes, the more patients they’re going to lose. I am certain that seeing a physician face to face is, on the whole, higher quality than seeing her on a screen. I am also a hundred percent certain that millions more people can access their physicians because they see her on a screen rather than having to travel to her office. It’s also much more convenient for two-career families, one head of household families, sandwiched generation families that just don’t have the time to travel back and forth and wait and wait and wait for their appointment. So, President Trump, he relaxed the coverage requirements for tele-medicine, it used to be covered, meaning it would be paid only if it were provided in prisons or in rural areas. When COVID-19 came along, he made it available everywhere and he increased the pay. It’s called parity, it means obviously that the provider is paid the same if she does a tele-medicine visit than if she does an office visit. That sounds like the providers might be just raking in the dough, but in fact, tele-medicine equipment is quite expensive and requires regular maintenance. So, to do tele-medicine is an expensive thing to do. And I am very cheered by this temporary relaxation of both where tele-medicine is available and how much the provider is paid for doing it. People wonder whether it will be permanent after, we hope, COVID goes away. Will the federal government roll back these relaxations of its rules? Using my six factor analysis, I say no. And the reason no is consumers love it. And if you try to roll it back, it’s very hard to take things away as any parent knows, but once you’ve given this great benefit to the busy American consumer, there’s no way it will be taken back. It’s a miraculous and a great breakthrough. It’s especially great for people who have chronic diseases that need monitoring continually and for people with mental health issues, which unfortunately are much more prevalent, of course, during COVID.
Second big breakthrough is to speed up the timing for clinical trials, for diagnostic instruments, for therapeutic drugs and some devices, and for vaccines. Now the Food and Drug Administration, has to authorize the commercialization of most of these innovations, and it’s between a rock and a hard place. The rock is, do it now, I want it now. We want a vaccine, I want a therapy, I want a quick diagnosis. N-O-W. And the other side is, make sure that it’s safe and effective. I think they’ve done a fine job, myself, in threading that needle. And they have a procedure called the emergency use authorization where they’ll speed things up and lower their standards to get it out to the public. I think this mode of thinking will prevail that we don’t need to dot every “I” and cross every “T” all the time, and keep potentially very helpful diagnostics therapies, vaccines, off the market while we’re doing all of that.
BRIAN KENNY: I have one last question before we let you go. And that would be, what’s the one thing you want our listeners to remember about this case?
REGINA HERZLINGER: In healthcare, because it’s such an inefficient, variable quality sector, and too many people are denied what they need and deserve in terms of healthcare, there are infinite opportunities for innovation. But, if you build it they won’t come. It is very important before the brilliant people who have these innovative ideas, sit down and read my book, not to be hopelessly self-serving, to learn how they can judge whether people will come, or as in the case we discussed of Lifestyle Advantage, they will not.
BRIAN KENNY: Excellent. So good to talk to you again. Thanks, Regi.
REGINA HERZLINGER: Thank you, Brian.
BRIAN KENNY: If you enjoy Cold Call, you might like other podcasts on the HBR Presents Network. Whether you’re looking for advice on navigating your career, you want the latest thinking in business and management, or you just want to hear what’s on the minds of Harvard Business School professors, the HBR Presents Network has a podcast for you. Find them on Apple podcasts or wherever you listen. I’m your host, Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School on the HBR Presents Network.