Newtown, CT – December 2, 2011
A Perspective by Bohmer in this week's NEJM identifies four habits of successful high value health systems, that can be summarized into two management principles — organizations (large and small) need relevant and timely feedback loops on their performance, and effective managers are provided with clear boundaries for their management, accounting and accountability. These principles have been in place in successful companies in all other industries for several decades and are, in large part, the reason for their success. And these principles apply at all level of the organization, not just the top. For example, a plant manager for GE Aircraft Engines in Durham, NC, has ample timely feedback loops about the key products made there and delivered to customers. She has line of sight on and responsibility over all of the key processes that will impact her ability to deliver high value products. She knows the cost of delivering each of the very complex, hand crafted products delivered to customers, and she's responsible for every of her engines failing. And the stakes are high, for a failing engine can cost the lives of well over a hundred people. She is not, however, responsible for what happens in the Cincinnati plant. Nor is she responsible for what happens with GE Healthcare or GE Power Systems, even though a part of her compensation might be tied to the performance of GE as a whole. A high value health system works the same way. An ortho service line leader is responsible for the surgeries that are delivered in that department; she has line of sight on and control over all the processes that are essential to the high-quality delivery of the surgeries and the costs of producing each. She has an accounting system that helps her track the input costs for each surgery and the margin per procedure. She motivates the surgical teams with compensation not just tied to production, but to outcomes. However, she is not responsible or accountable for oncology care. And her compensation, while partially tied to the performance of the health system, is tightly linked to the profitability of the ortho department. This is all about creating clear and manageable boundaries for each manager's locus of responsibility in delivering a high value product or service. If the boundaries are too wide, then it's very difficult to create that accountability. And if they're too tight it will lead to duplication of effort, bureaucracy and lack of value. Today's delivery system is mostly in this latter category.
What this means to you — one can count on two hands the number of provider organizations that function as high value systems, and yet there is virtually no publicly traded company outside of healthcare delivery that don't use the two management principles outlined. So why is that? Partially it's because in the rest of the economy, companies have to deliver value or they go out of business. And what makes delivering value a mandate is the transparency in price and quality of products and services offered by these companies, as well as the warranties offered. In fact, they can no longer compete unless they offer value. That's what bundled payment is all about, and that's what makes it so challenging. It fundamentally changes the business, management and structural designs of today's provider organizations. And it also provides consumers, payers and purchasers with meaningful pricing information. In other words, it creates a market for health care services at a level that is relevant to patients — the customer. That market is finally emerging thanks to the courageous efforts of all who have agreed to embrace the goal of delivering high value healthcare services. Join them.
Francois de Brantes
Health Care Incentives Improvement Institute, Inc.