Managing the Most Complex Organizations On Earth

Peter Drucker called hospitals “the most complex form of human organization ever”. Here’s why.

Healthcare represents a huge and growing sector. But it faces unique management challenges that you believe have not been adequately addressed. Please summarize them.

Brian Golden: In most systems, healthcare is seen as a cost rather than an investment — and that is tragic. One of the great challenges right now is getting people to adopt a new mindset around what great healthcare can do for an economy. The fact is, excellent healthcare drives prosperity.

The second issue is a problem of inequity. We have what I call ‘postal code healthcare’: You are very fortunate if you happen to live in a place like Toronto, New York City or Los Angeles — which have some of the best healthcare in the world. But good healthcare is not spread evenly, between countries or within them. There are ways of overcoming that, and we are starting to see some progress thanks to rapidly expanding virtual care and an increasing appreciation for the contributions that different healthcare professionals — not just physicians — can make.

A third challenge is that healthcare markets are highly imperfect. In a perfect market, there is intense competition based on free-flowing information regarding quality and costs. We see this in for-profit sectors, where resources go to the providers who create the most value. Healthcare should be viewed as a market, too. We should be flowing resources and taxpayer dollars to the providers that offer the best care for the dollars being spent. The problem is, it is very difficult for buyers — insurers or the government in this case — to determine high-quality versus low-quality care. Even end-users have difficulty making that distinction. We need healthcare to operate more like other robust markets, and that’s going to require a cultural shift and investments towards performance reporting.

The last thing I will say is that in every developed country, healthcare is highly siloed and fragmented, and that is due mainly to the payment models and incentives. These are some of the fundamental challenges we face in this nine-trillion dollar global industry. The good news is, we can overcome them, and we have made some progress over the past decade.

The late Peter Drucker famously said that hospitals are the most complex form of organization that humans have ever attempted to manage. What does this complexity derive from?

BG: There are a few factors at play. The first is that we aren’t producing widgets; healthcare is an imperfect science. Each year, we improve our understanding of how to care for patients, whether through pharmaceuticals, therapy, or surgery. And every year we improve, but it will always be imperfect. Mental health care is a perfect example: Even today, there are debates between leaders

in the field around how to treat patients who present with some of the most common mental-health challenges.

The second and related issue is the multi-disciplinary nature of healthcare. We bring together lots of smart, well-educated, caring people, but depending on how they were trained, they often see the world in different ways. They may agree on the objectives at hand, but because of their engrained mental models, they approach challenges differently.

The third thing I will say is that healthcare challenges are manifestations of numerous societal challenges, so even the most effective healthcare systems will always be challenged by the lack of education in the community. In Canada, we still have inadequate clean-water systems and access to nutritious and affordable food access in some areas. These are just some of the ‘social determinants of health’, and they are significant predictors of ongoing health challenges. But because these problems derive from policy failures or failures of non-healthcare systems (e.g., education, criminal justice) it is next to impossible to avoid some of the problems that our healthcare system is actually designed to fix.

And lastly, there is complexity of demand. If you’re running a manufacturing operation, you can decide to produce 40 MRI machines next month, and you can do this with precision and schedule for it. But we can never quite know who is going to show up at the hospital, when they will arrive, what their condition will be, and what skill sets will be required to care for them. There is significant uncertainty involved trying to design a system with so much unpredictability. Artificial intelligence has definitely helped, but we’re not there yet, compared to most industries. This is one area where Canada can make a signficiant contribution to the world.

Talk a bit about the role of public-private partnerships in addressing these issues.

BG:

In Canada, we often struggle with looking across the divide between public and private systems. The private side often feels the public system is under-developed and unsophisticated, and the public system feels the private side only cares about making money. I would argue that neither is true — and that there are real advantages to these kinds of partnerships.

It is true that the public system has difficulty thinking beyond election cycles and taking risks; and at the same time, private corporations often get slammed by investors if they’re not focusing on the future by investing in R&D. The private sector has the resources to invest in more risky ventures — and they can diversify those ventures to balance risk, as well. They often have the ability to bring together financial resources that the public system can’t.

An example of this is Iora Health in the U.S. Its founder and CEO was a student in our Global Executive MBA for Healthcare and Life Sciences, and in class he spoke of Iora’s mission to make primary care accessible and affordable across the U.S. He described how he had to go to the private sector — which embraced his mission — for investments that will only have returns down the road. These investors can make bets on the longer term.

We also know that the public system depends heavily on the private system for resources like technology and new ways of working. Take our current situation with COVID-19. We’ve seen that the supply chain capabilities of our best private sector organizations are critical in bringing things like PPE and vaccines to communities. Can any of us imagine what our world would have been like during this pandemic without the private sector? The development and dissemination of vaccines is a testament to how public and private organizations can work together very effectively. We need more of that.

For those who aren’t familiar with the term, please define value-based care (VBC) and its key principles.

BG:

We talk about value-based purchasing in many industries, but for some reason, we haven’t thought about whether or not we are getting good value for the dollars we spend in healthcare. When we invest a million dollars in a particular set of services in one part of the system versus another, are we getting the best outcomes for those dollars? Value-based care addresses this. It is very much about paying for outcomes as opposed to paying providers to do specific tasks.

This mindset has expanded in recent years, and it’s incredibly promising. We first saw it in the U.S., where they have more effective markets for healthcare, but at the Rotman School we’ve been working with our colleagues in healthcare leadership (government and providers) for about seven years now, spreading

Good healthcare is not spread evenly, between countries or within them.

the gospel of value-based care.

We did some work with St. Joseph’s Health System, based in Hamilton. The promise that St. Joe’s made to the Ministry of Health was this: Give us the funding you would otherwise provide for thoracic surgery, COPD or orthopedic care; don’t pay us to do particular things in these areas, pay us instead for the outcomes experienced by our patients. St. Joe’s took those dollars and brought together a team of surgeons, homecare workers, physiotherapists and primary care physicians, and they were responsible for allocating all of these resources. That was an early experiment, and we’ve since seen it work in orthopedic care at the University Health Network in Toronto.

On the private side, we’ve also seen significant advancements in value-based care by innovative companies. In medical devices, for instance. Insurers or government payers often want to see years of data on outcomes before they will switch funding from a tried-and-true method to a new, innovative device. The dilemma is that these are innovations, so by definition, the providers don’t have years of outcome data to provide. Companies like Medtronic and Johnson & Johnson have been able to overcome this. They understand the science and the engineering of their products better than the potential buyer, so they can say, ‘Don’t worry, we will take the risk here: Pay us up front, and if we don’t achieve the promised outcomes, we will pay you back every dollar’. Again, the private sector, with its ability to make investments and diversify across a variety of products and services, can do that.

You led a team that attempted to implement VBC in Ontario. Describe how your Integrated Client Care Project played out. BG:

That was a great learning experience, but it did not result in the outcomes we had hoped for. What we were trying to do was bring together providers in a home care setting for patients with venous leg ulcers or diabetic foot ulcers. Usually, these patients are not very mobile. They are in considerable pain and their home care is expensive. At the outset, all sorts of healthcare providers and physicians were involved in each patient’s care — from nurses to physiotherapists — but none of them were connected to each other. The patient would be visited by different health professionals throughout the week who weren’t communicating with each other. They were getting paid to make a visit and perform a specific task — but no one was fully accountable for each patient.

We worked with the Ministry of Health and the home care sector to try to bring the various parties together under one umbrella. As indicated by the St. Joe’s example, there would be a ‘broker’ who would receive one consolidated payment to cover all the care the patient needed. Where we were not successful was in changing the way the Ministry thought about payments. They agreed that we should bring these providers together and that there should be a single accountable party. But we could not convince them to change their payment methods, and that was a by-product of some very challenging discussions they were having at the time with the Ontario Medical Association. Undertandably, they were reluctant to get into conversations about changing payment models while they were negotiating a new payment schedule for physicians. The other challenge was that we didn’t have proper systems in place across Canada for determining what particular services should cost. As indicated earlier, there are no real market forces at play.

This was seven or eight years ago, and I’m happy to report that we’ve improved upon all of these capabilities. We now have more sophisticated systems in place to determine what the ‘right price’ should be for caring for a patient with a particular condition, for risk adjusting, and also for creating the governance mechanism required to bring the various providers together. We are now seeing a new movement starting with Ontario Health Teams (OHTS), whereby providers come together from the hospital sector, primary care, home care, physiotherapy and longterm care to care for patients within a particular geographic area. They will work in partnership to improve patient outcomes — and we like to think our early experiment was part of the inspiration for this.

Describe the role of ‘bundled payments’ in this model. BG:

I’ve basically described them without saying the term: Bundled payments entail determining what the care for a particular medical condition should cost, on average. So if it’s a hip replacement, we know approximately what the average hip replacement should cost, if best practices are followed. Bundled payments ‘bundle together’ the amounts that would have

previously be paid to each provider involved. Say the bundler receives $18,000 for a complex surgical procedure like a hip replacement. They have an incentive not to pay all the providers under the traditional model, but to put together a customized team and look for the least expensive qualified care givers and providers for the necessary care. And they can also add helpful tools to the process. Importantly, outcomes are measured, to be sure quality is maintained.

In our experiment with the leg ulcer patients, we found that we could invest in a $100 shoe insert that would allow patients to heal more quickly and receive less home care. Fewer nursing visits saved thousands of dollars. By giving the bundler the discretion to buy that insert rather than having to follow a prescribed course of care (i.e. ‘17 nursing visits over three and half weeks’), the system was better off, the providers were better off (because they weren’t providing unnecessary care) and certainly, the patients were better off. Bundled payments are about putting financial incentives in the hands of the healthcare providers who are closest to the patient and giving them incentives to provide the best care for the lowest dollar amount. That’s what value-based care is all about.

What key leadership lessons have emerged from the global pandemic thus far?

BG: We’ve learned that a different kind of leadership style is demanded during a crisis. I teach a course at the Rotman School on change management, and prior to the pandemic, when I was working with healthcare leaders, they would ask questions like, ‘How can we effectively implement a new digital platform or a new HR system in our hospital?’ These were all tried and true processes, so it was possible to manage the process effectively with careful planning. My advice was largely about ensuring good communication and training people up. It was what I would call ‘anticipatory change management’.

In the time of COVID-19, there is no playbook. Ron Heifetz of Harvard’s Kennedy School talks about the need for adaptive leadership in times of uncertainty. In traditional times of change, we look to those in positions of authority to tell us what to do, and there is a playbook. But in times of crisis, we need more involvement from the grassroots level. Leaders need to acknowledge the uncertainty, experiment and increase their risk tolerance. And they have to admit that they may be wrong as often as they are right.

Ron likes to use the analogy of a pressure cooker: You have to allow the pressure to build enough so that people are creative and innovative — but not so much that the lid just blows off. Managing that pressure, letting people experiment and supporting them, is important. But at the same time, you have to keep the train running, so you end up with two systems: Your normal operating system, which requires a more traditional leadership style, and the adaptive leadership approach, where you’re innovating, taking intelligent risks, and learning very quickly.

We have seen lots of innovation throughout this pandemic. What will be the lasting effects on healthcare?

BG: For one thing, virtual care is not going away. Just as many of us have learned to work from home, many patients have learned to receive care from their homes, and physicians have learned not to worry about providing quality care with these tools. I spoke earlier about the inequity that exists in the healthcare system, in part because of where you live. With the advent of virtual care, we can provide urban-quality care to patients across this very large and diverse country. And that is a great thing.

One thing I can say with certainty is that this will not be the last crisis we face. We didn’t learn enough from our experience with SARS, but I do believe the lessons from COVID-19 will be widely embraced and remembered, based on the profound impact this virus has had on the world.

Brian Golden is the Sandra Rotman Chaired Professor in Health Sector Strategy at the Rotman School of Management, the University of Toronto and the University Health Network and founding Academic Director of the Sandra Rotman Centre for Health Sector Strategy. He co-directs Rotman’s Global Executive MBA in Healthcare and the Life-sciences. For details about this program, visit rotman.utoronto.ca.

In times of crisis, leaders have to acknowledge that they may be wrong as often as they are right.