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Long-term Success Requires Re-examining our Beliefs about How Things Work

With a view to solving rather than compounding the problems of managing healthcare, Dr. Michael Rohwer explains how inappropriate models have brought us to our current unsustainable position and will continue to produce unsustainable cost increases.
June 22, 2015

OPINION-- In facilitating the business of healthcare, I see many good things happening. The Oregon CCO experiment is on the right path. Electronic Health Records now provide critical infrastructure and we are starting to see new payment models. Universal health insurance coverage is improving. There is less fragmentation. Simultaneously, however, cost continues to climb and the most important workforce—healthcare practitioners—are becoming demoralized and abandoning the active practice of medicine. Despite all the hard work and good intentions, healthcare management today is on a collision course with reality.

The unusual cost of healthcare is blamed on new technology, faulty education, uncooperative consumers, bad habits, malpractice, corporate greed, income inequality, and the list goes on. These are important cost drivers across all of society, yet in the general economy we don’t see cost so out of control. Technology, as an example, creates value and increases productivity while lowering cost (the personal computer and development of the internet are prime examples). So we need to ask some questions. Why don’t we see what’s happening in healthcare everywhere?

There are several reasons, I believe, and all of them stem from the fact that we are using the wrong management models. Modeling may seem like an academic exercise (and it is), but all human thought uses internal models to organize and simplify. When faced with new situations, we often borrow from models we already know. Over time, the models we use become part of how we think about certain situations or problems. Most situations can be modeled in several ways, but not all models lead to success. When things aren’t working as we expect, we need to look at the assumptions we have modeled into our thinking. As noted in our first article, healthcare management uses a traditional model, which has its roots in the machine metaphor.

The machine model of management

The machine metaphor is very successful in manufacturing. If you go to the Victory Motorcycle plant in Spirit Lake, Iowa, you will see a process centered on the creation of the each motorcycle. The hub of this domain is a mechanized assembly process where every step is designed and fully understood. The people at each station serve the assembly process “machine” and not the other way around. The machine metaphor fits this situation perfectly because this manufacturing process is a machine with human components. This ability to define, understand, and control each step leads to economy of scale and high-quality products. Healthcare, on the other hand, is another universe.

Every consumer of healthcare is unique, and the complete condition of that person is practically unknowable. This is also true for every practitioner providing services. Furthermore, practitioners use judgement to make the most important decisions. The system is vast and every person in it exists in a variety of overlapping social groups, each with its own microenvironment of problems that must be accommodated. In addition, every personal action influences others. From these interactions, new and unexpected behaviors occur that are often unrelated to the purpose of healthcare. The traditional management model doesn’t work because healthcare is not a machine, but a living Complex Adaptive System.

The payment model based on effort My most recent article discussed the current payment approaches. These are models based on effort and not value delivered. Bundled payment is the latest model that seeks to alter incentives, yet its price calculations use encounters that are actually measures of effort based in fee for service. This model is Time and Material without a maximum price. In business, we prefer competitive pricing based on a transparent assessment of the actual value delivered. Competition results in greater value delivered to customers at lower cost. The payment model in healthcare has incentives and assumptions that consistently drive costs higher. We’re using the wrong model.

The progress tracking model based on intermediate process

The model we have chosen to monitor progress is also flawed. Healthcare has only one “true north” or purpose. That is to achieve the best possible result in the member or patient. This is what was referred to in Communities are the New Centers of Innovation and Learning as an Actionable Metric. Measures of outcomes are difficult, so instead we have chosen to track process measures. It is human nature to seek to improve performance, and this leads to increasing (yet rarely productive) activity. These are Vanity Metrics. Work to achieve Vanity Metrics is paid using the same inflationary model described above. These activities are often believed to lead to improvements over the long term, but this is usually not tested. So, many problems remain, leading to “new and improved” processes, more vanity metrics, and higher payment. There is no substitute for focusing on the results delivered to the member. The correct model must measurably drive results or it will drive cost.

Dis-economies of scale We also inappropriately apply concepts of economies of scale to healthcare (see Healthcare Organizations as Complex Adaptive Systems and The Development of Progressive and Sustainable Human Complex Adaptive Systems). Complex Adaptive Systems are organic and do not benefit from scale. In fact, there is a dis-economy of scale since emergent behavior increases exponentially as systems grow. In healthcare, this is seen with up to 20% higher costs associated with large hospital-centric systems. The original purpose for these larger systems was to achieve better integration, and so the model of a large single corporation was chosen. In practice, however, what is achieved is market dominance and control. In addition, while hospitals often receive the blame for this activity, a recent article in Health Affairs demonstrates large consolidated provider groups create the same effect.

We have chosen a solution before understanding the problem. It is time to change!

We have chosen the wrong model because we have not fully understood the problem. As a result, faulty concepts are embedded in the strategies of powerful organizations that are vested in the status quo. So how can we transition to something better without making it worse and before it’s too late?

The foundational step just may be to admit that the familiar traditional method of management does not apply to the healthcare situation. This is not easy for healthcare professionals, who are some of the brightest and most dedicated people on the planet. But only as we understand and implement the science of Complexity and Systems can we begin to reorient our healthcare system to one that grows

using the nature of nature. Based on the experience of other industries, this will lower cost while adapting to the needs of members and those of us who work in healthcare.

I’ve spent a lot of time in this series explaining what is wrong and suggesting alternative models or approaches. Yet I know that this is not enough because we all need to be able to see a better future in order to work for it.

Next, I will do my best to put all of this together to explain what that future might look like if we can make better choices and build on the demonstrated success outside healthcare.

Dr. Rohwer is chief executive officer of Perfomance Health Technology Ltd., and former medical director of Mid-Valley IPA. He also practiced medicine in Salem for 20 years.