Health-care costs are strangling our country. Medical care now absorbs eighteen per cent of every dollar we earn. Between 1999 and 2009, the average annual premium for employer-sponsored family insurance coverage rose from $5,800 to $13,400, and the average cost per Medicare beneficiary went from $5,500 to $11,900. The costs of our dysfunctional health-care system have already helped sink our auto industry, are draining state and federal coffers, and could ultimately imperil our ability to sustain universal coverage.
Testing, Testing in The New Yorker
It’s no secret that the U.S. health system is hugely expensive and growing more expensive every day. What have Americans gained by paying more than twice as much for medical care as they did a decade ago? Gawande says: not much. He continues:
The health-care sector certainly employs more people and more machines than it did. But there have been no great strides in service. In Western Europe, most primary-care practices now use electronic health records and offer after-hours care; in the United States, most don’t. Improvement in demonstrated medical outcomes has been modest in most fields. The reason the system is a money drain is not that it’s so successful but that it’s fragmented, disorganized, and inconsistent; it’s neglectful of low-profit services like mental-health care, geriatrics, and primary care, and almost giddy in its overuse of high-cost technologies such as radiology imaging, brand-name drugs, and many elective procedures.
And where is the system heading, even with the recent health care reform?
At the current rate of increase, the cost of family insurance will reach twenty-seven thousand dollars or more in a decade, taking more than a fifth of every dollar that people earn. Businesses will see their health-coverage expenses rise from ten per cent of total labor costs to seventeen per cent. Health-care spending will essentially devour all our future wage increases and economic growth. State budget costs for health care will more than double, and Medicare will run out of money in just eight years. The cost problem, people have come to realize, threatens not just our prosperity but our solvency… If nothing is done, the United States is on track to spend an unimaginable ten trillion dollars more on health care in the next decade than it currently spends, hobbling government, growth, and employment.
Now that the problem of major gaps in coverage is to a large extent solved, the fundamental issue is out-of-control costs. What to do?
Reduce costs: The traditional management option
If there is one thing that traditional management is good at, it is cutting costs.
So a great temptation of the U.S. health care system is to say, “Let’s have some real management here!” In other words, start applying the cost-cutting practices of traditional management to health care.
What does this imply? Traditional management begins from the idea that the purpose of an organization is to deliver goods and services, i.e. in this case, health services. Productivity improvement is achieved through cost reduction, often through economies of scale. Through outsourcing and downsizing, the economies can be continued, albeit with declining returns. Rules can be put in place. Processes can be established. Structures can be built. Mistakes can be eliminated. If mistakes do occur, people can be blamed and punished. A predictable and reassuringly linear environment can be built. “The system” operates as a closed universe. The customer or patient is treated as a thing to be manipulated (rather than a person with whom the firm has a relationship) to buy the products and services generated by “the system”. Similarly, the employees (doctors, nurses and technicians) are treated as “human resources” to be mined and exploited and discarded as necessary.
There are three huge problems with this traditional approach to management, even as it manages to reduce costs.
- First the hierarchy and the bureaucracy of Dilbert style management don’t draw on the talents and energies of those doing the work so that workers become less and less productive.
- Second the approach frustrates the hell out of customers. That’s because when the goal of the organization is to produce goods and services, “customer service” is perceived as a cost center and something to be cut, or even eliminated. So management is systematically undermining customer service. As James Surowiecki put it in his New Yorker column, navigating the customer service department can be harder than negotiating the Kafka’s Castle.
- The entire scheme of management is antipathetic to innovation, because any significant innovation risks de-stabilizing the simple, linear, finite world that has been created. “The system” has become an end in itself. For much of the 20th Century, this worked well enough. But the world change: now change and innovation have become inescapable imperatives, and traditional management doesn't deliver.
Moreover it leads on to Dilbert-cartoon style management.
Dilbert-cartoon style management
Dilbert, the cartoon, was first published by Scott Adams on April 16, 1989, but its intellectual origins came earlier. The skill set and the attitudes of the Dilbertian manager were identified in a famous HBR article in 1977: Abraham Zaleznik’s “Managers and Leaders Are They Different?” Harvard Business Review. 1977, 82 (1), p74-81. The article has been republished a number of times by HBR, as recently as just this week, showing that HBR, at least, still thinks the piece relevant to today.
In the article, Zaleznik deftly describes the attitudes of the Dilbertian manager. First, the manager focuses attention on procedure and not on substance. Second, the manager communicates to subordinates indirectly by “signals”, rather than clearly stating a position. Third, the manager plays for time. With conflicting rules and procedures, and conflicts about priorities between different senior managers, managers have no way of knowing what the right answer is. CYA routines are played out, up and down the hierarchy.
These Dilbertian practices enable a middle level manager to survive. Scott Adams has made a fortune by depicting how these practices play out on a daily basis in large organizations around the world, while making things steadily worse for both employees and customers. Traditional management leads directly to Dilbert-cartoon-style management, and vicious circle of deteriorating organizational performance.
Reduce health care costs: the radical management option
Fortunately there is a better way to reducing costs than by traditional management. It’s called radical management. Firms managing in a radically different way and focusing everyone in the organization on delighting the customers (patients) by delivering more value sooner are able to operate at lower cost and higher customer (patient) satisfaction. The conflict between worker and customer satisfaction on the one hand and reducing cost on the other vanishes, as explained in George Stalk’s classic HBR article: Time--The Next Source of Competitive Advantage by George Stalk Jr. (Harvard Business Review, July-Aug. 1988).
How can costs go down when “customer service” is expanded to the whole organization?
First, much of what happens in hierarchical bureaucracies and Dilbert-cartoon style management is internally driven. Feeding the bureaucracy entails huge costs. When a organization is truly focused on delighting customers, then a lot of apparently essential work just evaporates. Much of what happens in a hospital is driven by the hospital’s internal bureaucracy.
Second, delighting the customer often means doing less, not more. Southwest Airlines doesn’t provide more services: instead, it focuses on providing low-cost on-time travel, and consistently makes profits, while its traditional competitors struggle in an out of bankruptcy.
- In health care, much of the hugely expensive treatments that are given in the last few months of life fail to prolong life and make the quality of life for the patient far worse. Atul Gawande in his New Yorker article, Letting Go, argues persuasively that wiser decisions based on authentic conversations with the patients and their families would lead to drastic savings—something that would be impossible under the tactics of traditional management.
- Similarly, a large proportion of the high costs of the U.S. health system are due to lifestyle issues—diet, exercise, smoking, substance abuse—to which traditional management practices can do nothing: by contrast, radical management, through its focus on developing relationships with patients, has a chance at influencing patients and so getting to the root cause of the expenditure increases: the Fast Company article, Change or Die.
Third, in hierarchical bureaucracy, only one in five workers is fully engaged in his or her work. When everyone in the firm is motivated to delight the customer, then the level of service is dramatically different. Although workers in the health sector may start out idealistic and motivated, the stultifying rules and process of hierarchical bureaucracy can kill anyone’s spirit. By contrast, radical management generates disciplined execution while also creating the space whereby those doing the work can exercise their full talents and energies.
Two examples of radical management from the health sector
To see how this works in practice in the health sector, look at two examples in the health sector drawn from Mark Graban’s book,Lean Hospitals : a center that provides outpatient chemotherapy treatment to patients with cancer and a laboratory that provides test results to doctors.
At the outpatient center, patients have appointments in the morning to have their blood tests, see their oncologist, and make sure that they are ready to receive a fresh chemotherapy treatment. If everything is okay, they go to another part of the building where the chemotherapy treatment is given intravenously to them while they sit in lounge chairs. It’s not a pleasant experience, so patients like to come in the morning and get it over with as soon as possible.
In principle, patients would have the blood tests, see the doctor, receive their chemotherapy treatment (which often lasts for several hours), and then go home. In practice, by the middle of the day, all of the lounge chairs for patients were full and the nurses so busy rushing about, monitoring the intravenous flows and changing the drugs for each patient, that a number of patients would end up having to sit around waiting their turn. Why, they would ask, did they have to sit around for so long in addition to several hours of chemotherapy treatment? The complaints grew so loud from both patients and staff that management was considering expanding the facility and hiring more staff.
What has happened here? The chemotherapy center encountered a phantom work jam! Analysis showed that too much work was coming into the system, causing it to freeze. It also showed that although the center was overloaded in the middle of the day, it was underused later in the afternoon.
Why was that? The oncologists worked in another part of the building separate from the chemotherapy treatment center and didn’t see patients waiting for too long. It turned out that they prepared their schedules on the assumption that most patients would want to start their chemotherapy treatment in the morning and get it over with. This would have made sense if the center was dealing with only a few patients. But when all the oncologists were proceeding on this basis, they unwittingly created a phantom work jam.
Once the problem was understood, the oncologists were able to space their appointments more evenly throughout the day, and all the patients could be treated immediately and finish their treatment without any extra waiting. The nursing staff found the even workload easier to handle. There was no need to expand the facility or hire extra staff. In order to give a higher value experience to patients, they simply had to slow the intake.
In another example from the health sector, a regional laboratory at Kaiser Permanente laboratory would receive a giant cooler of specimens from twenty-nine medical centers at 3:00 P.M. They would receive a second one at 7:30 P.M. and a third one at 10:30 P.M. The lab facilities and staff were overworked from late afternoon to early morning. In some cases, doctors would be waiting for the results to decide what treatment step to follow, but they wouldn’t receive news of abnormal results until three or four o’clock in the morning.
Everyone was frustrated. The workers in the lab were stressed by the sudden huge influxes of work. The doctors were frustrated because they couldn’t get their results in a timely fashion and so critical decisions were being delayed. And the patients were left worrying.
They were experiencing phantom work jams! Analysis of the situation showed that both the staff and the lab were underused in the late morning and early afternoon. After that, too much work was coming into the system and causing it to freeze. The underlying problem lay in sending a few large containers of specimens to the lab. This made sense to those responsible for deliveries because it saved on the cost of shipping. But that decision to optimize the cost of shipping caused suboptimal performance for the system as a whole.
For the system as a whole to perform faster, the intake into the lab had to slow down. The courier service was asked to deliver smaller and more frequent batches of specimens starting in the morning. When they did that, the cost of delivery increased, but the lab was able to complete most of its work in the afternoon shift, thus reducing overtime. The lab was also able to call doctors about most of the abnormal results by 5:00 P.M. or 6:00 P.M. the same day, thus enabling the doctors to decide on the next steps in treatment sooner and patients found out sooner what was needed.
Those who had originally organized the shipments of samples were looking at work from the perspective of a thing: how to perform the shipment more efficiently. They weren’t asking themselves: “Who are the people we are doing this for, and how can we get more value for them sooner?” If they had asked those questions and considered the needs of the doctors and patients, they would have seen that bulking up deliveries was causing a phantom work jam. They were making the work of the lab staff and the doctors more difficult, causing frustration and delaying critical decisions for the ultimate client: patients. By not having a clear line of sight to the people for whom they were doing the work or focusing on getting more value to them sooner, they ended up causing suboptimal performance.
To learn more about radical management, go here: