At a time when the healthcare market is finally supposed to reward value, the vast majority of health system leaders are responding instead with moves from the traditional playbook. Across the country, we are seeing waves of morale-crushing layoffs, the addition of "facilities charges" to procedure charges without providing any additional value, and mergers and acquisitions intended to increase pricing leverage. At the vast majority of places, what Washington (and patients) have been hoping for - true care integration to improve outcomes and eliminate waste - remains a side show to the real strategy.
Is Anyone Surprised?
No keen market observer should be surprised. Policymakers may point to modest new financial incentives for doing better by patients, but most health care leaders are feeling only margin pressure. And when healthcare CEOs feel margin pressure, they go to what they know - cut costs and look for pricing leverage. That's always been what shows your board you are making the tough financial decisions. Also, leverage based on scale works in local health care markets (a fact which the feds have consistently ignored), and cuts have been what moves the numbers toward black when they hit the financial statements (if we ignore the medium and long term consequences).
But will the tried and true be enough this time? Whether or not Washington "wakes up" and puts the real pressure on, the signal sent by record CEO turnover and other tea leaves suggests that if CEOs want to keep their seats, they should consider moving value-creation for the patient from side project to "the" strategy.
The Peril of the Traditional Playbook for CEOs
Here's the evidence, followed by a single powerful step for CEOs and their teams to get refocused on "the right stuff." See if you agree with my description of the peril for CEOs, and my suggested initial Rx.
First, if you're not the biggest fish in your pond, you can't win with cuts or leverage.
- The big fish have more capital than you do, so you start with a deficit at the leverage game.
- Because job cuts destroy value from the minute they are executed, by profoundly harming morale and leading employees to hide process problems and inefficiencies, they hurt you - not help you - over the medium and long run. You are eating your seed corn when you need to be generating increasing amounts of cash flow internally.
- Consolidation is increasingly likely to cost you your job. New ACHE data show dramatic increases in CEO turnover in 2013, to the highest levels ever measured. Of course, it's the smaller players who are moved out first.
Second, even if you are the big fish in a local market, the top-down leverage strategy is not the right thing to do, for anybody, and will leave you without the knowledge and depth you'll need if payers really figure out how much waste is in the system.
- Playing the leverage game distracts your team from the job of getting it right for patients.
- It sends morally ambiguous signals that rob your staff and employees of a sense that they work for a place that does the right thing.
- Exploiting your local market position may increase revenue for now, but it leaves payers, communities and individuals reeling under unsustainable costs and looking to change the status quo.
- Job cuts damage your ability to sustain performance for the same reasons they hurt smaller players.
- By relying on leverage and job cuts instead of process excellence, you are depriving yourself of the chance to build the knowledge and skill to survive when payers stop paying for even more of the waste in the system. Think about it. If the past couple of years' 5% drop in revenue sent your institution into a crisis, will you know how to thrive when you have to increase value to patients by 20% to survive?
What's Held Us Back?
Why haven't more leaders bet on an all-out embrace of creating value for your customer as THE strategy already?
Most leadership teams have funded and cheered for improvement work, but never committed to the kind of deep personal involvement and leadership required to drive meaningful amounts of waste out of the system as a consequence of getting the process right for the patient. So "improvement" has never really moved the needle at most places, leaving leaders not knowledgeable or confident enough (ironically) to bet on that approach now.
A Single Step That Can Change Everything
To begin to overcome that legacy, here is a single step that CEOs can take to start getting themselves focused on the playbook that should win in the long term:
Get out and silently observe one of your key business processes end to end, through the patient's and then the staff's eyes. You will see that at least 50% of the total time, materials, and effort invested by your team does not add value to the patient, yet the staff will likely be very stressed by process problems that they don't have support to fix. Unlocking that 50% opportunity is your largest business opportunity, and it can only happen by focusing your leadership and support squarely behind your people to do it. If you don't know how to make your staff feel professionally safe while you observe in this way, or don't know how to look for process problems and waste afflicting your teams' ability to serve the patients, find an experienced coach with "eyes to see" to help you. Take just this one simple step to start, and then commit to the full journey suggested by what you learn, and there is hope you could be in the CEO seat, and feel good about it, for a long time.
Written by Value Capture
Value Capture supports chief executives who seek to transform the performance of their healthcare organization in safety, quality and profitability.