There is no denying the enormous impact of market forces on a mission-driven organization. In the health care industry, as in other industries, every organization must be competitive to survive. The turbulent marketplace is providing on the job training for people in all organizations. And we're discovering that lessons from the marketplace can be harnessed to enhance our social mission rather than diminish it.
Kaiser Permanente is what I know best. But the eight lessons that follow can apply to any mission-driven organization. First, a bit of background about Kaiser Permanente and the environment in which it operates.
Kaiser Permanente is the largest integrated health care organization, as well as the largest nonprofit organization, in the nation. We are a $15.5 billion enterprise with 90,000 employees, 28 hospitals, and more than 10,000 physicians serving 8.6 million members. Our roots go back to the 1930s, when the great industrialist Henry Kaiser started his own health plan for his companies' employees from construction workers on the Grand Coulee Dam project to shipyard workers in California. It was a group practice with prepaid services and an emphasis on prevention -- the forerunner of the modern-day health maintenance organization -- and offered an innovative and affordable alternative to fee-for-service medical care. In 1945, we opened membership to the public and began operating as a nonprofit organization with a clear social mission: to improve the health of our members and our communities. Much of our initial early membership came from labor unions.
Our integrated health care financing and delivery system is made up of three entities: the nonprofit health plan, the nonprofit hospitals organization, and eleven Permanente Medical Groups, locally based and organized as professional corporations or professional partnerships. These 10,000 physicians make all clinical decisions and set all clinical policies. The success of our enterprise is based on the strong partnership among the three entities.
In the 1990s, the economics of health care changed radically. First, big purchasers of health care services -- private employers and government -- waged a battle to combat annual double-digit percentage increases in health care costs. Second, years of expansion by health care providers created excess capacity in health care services and facilities. This oversupply enabled the creation of managed care organizations -- aggressive, well-financed companies that bought health care services at well below historic market prices, bundled and rearranged them in attractive packages, and then resold them at a profit. Throughout the decade, mergers and acquisitions have continually changed the face of the industry. And the rise of influential advocacy groups, such as business consortia and consumer organizations, combined with new legislative mandates, brought additional demands on providers and insurers. Amid these changes, Kaiser Permanente has remained one of a small handful of nonprofit HMOs; many nonprofit health care organizations in recent years have been purchased by or converted to for-profit corporations. It has been, in short, a time of profound change for the entire industry.
Events of the last decade provoked organizational "midlife crises" for many mission-driven organizations, including Kaiser Permanente. Was it possible to compete in the marketplace and, at the same time, remain true to our social mission? We're by no means finished answering this question, and we've gained some wisdom -- along with some bruises -- along the way. Following are eight lessons for mission-driven organizations to heed.Lesson One: No Margin, No Mission; No Mission, No Margin
Is it possible to compete in the marketplace
and at the same time remain true to a social mission?
hen I first became a senior executive at Kaiser Permanente, people used to tell me varying accounts of the same story, in which the leader of a nonprofit hospital would exhort the staff, "No margin, no mission!" We may be social entrepreneurs -- using every dollar of net income to improve the health of our members and our communities -- but we need to employ sound business principles to do social good. No matter how important the mission, it can't be achieved without sound financial management.
We need to employ sound business
principles to do social good.
Our organization has had to learn this lesson the hard way. We recently endured two years of large financial losses -- the first in our history. We suffered the double-whammy of keeping our rates too low to support the actual costs of providing care, combined with unanticipated surges in membership that required care beyond our capacity to provide in-house. With our continuing focus on continuous quality improvement and by making some major changes -- selling unprofitable operations, developing innovative purchasing practices, and more accurate forecasting of industry and membership trends -- we recorded a positive first quarter margin in 1999 and expect to end the year in the black.The corollary to "no margin, no mission" is "no mission, no margin." Our mission -- to improve the health of our members and our communities -- remains our touchstone and represents an important source of confidence for our members. They know we're not in this to enrich shareholders or investors. To abandon our mission would be to abandon our competitive edge.
Mission-driven organizations need only look at the success of corporations such as Motorola, Toyota, and 3M, known both for the quality of their products and their long-term results, to see that quality, cost, and waste are really a single issue. It is particularly apt for health care, where variation in practice and quality is high.
Quality, cost, and waste are really a
Don Berwick, MD, president of the Institute for Health Improvement, declares that "improvements in American health care are both feasible and can contribute to substantial double-digit reductions in the total costs of care." In the United States today, the sad fact is that your geography is your health care destiny. Medicare breast cancer patients in Elyria, Ohio, for example, receive breast-conserving surgery 48 percent of the time. Those in Rapid City, South Dakota, however, have the option of such surgery less than 2 percent of the time. The solution to high variation is to base decisions on the demonstrated effectiveness and benefit of specific treatments. (While most lay people assume this is how physicians practice already, the huge variation in practice shows this isn't always the case.)
Another disturbing example of the costs of poor quality is hospital medication errors. In his book, Demanding Medical Excellence, Michael Millenson describes a 1991 study of the hospitals of New York State by researchers at the Harvard School of Public Health. They estimated that 180,000 people die each year as a result of in-hospital medication errors, of which 120,000 are preventable. This is the equivalent of a fully loaded jumbo jet crashing and killing 329 people every day of the year.
While quality improvement is needed throughout the health care industry, many efforts are beginning to make a difference. For example, our premature birth prevention programs have averted one in four premature deliveries. Babies get a healthier start by being carried to term, and neonatal intensive care -- with costs more than ten times those of a full-term newborn nursery -- has been reduced by 25 percent.Continuous improvement efforts also must influence organizational practices. Using rigorous quality measurement tools, for example, our physicians set goals for annual improvements in immunizations, mammography, and other preventive care. In addition, we have begun linking compensation to group performance; simply put, doctors will be best rewarded when patients have the best outcomes.
How does one's mission help set strategic decision making? For Kaiser Permanente, a 40-year history of sponsoring clinical research stems from our mission to improve the health of our members and the communities we serve. During the past two years alone, our researchers have authored or co-authored nearly 400 research publications and participated in more than 1,000 research studies. Each year, we commit 3 percent of revenue to improving the health of our communities. In recent years, our direct community benefit investments totaled between $300 million and $400 million, and have focused primarily on children, the uninsured, and health services research.For an organization like New York's Common Ground Community, a clear and compelling purpose -- to transform a squalid residential hotel in Times Square into a safe low-cost housing -- led the organization to address broader questions of homelessness and joblessness. Through strategic partnerships with area businesses, Common Ground operates the Times Square Jobs Training Program. Its training, counseling, and job placement services for hotel tenants are less expensive than most government-sponsored programs. And 78 percent of those placed -- formerly chronically unemployed -- remain employed after two years.
In the private sector, General Electric, one of the most competitive and admired corporations in the world, learned the value of employee engagement and capacity for change. Ten years ago GE's stated mission -- to be first or second in every market in which it competes -- clearly depended on the ideas, energy, and commitment of the workforce. CEO Jack Welch's famous Work Out program broke new ground in workplace dialogue and set new standards of accountability for both management and staff. In The Human Equation, Stanford Business School professor Jeffrey Pfeffer presents compelling research showing that more open, participative management practices produce better results than purely financially driven approaches (see also "The Real Keys to High Performance," Spring 1998).
In a service industry like health care, employee participation is essential to quality improvement and organizational performance. Yet as a marketplace grows increasingly competitive, labor relations often grow more adversarial. That was our experience. As one of the most highly unionized organizations in the nation, with some 50 collective bargaining agreements covering 70 percent of our workforce, we have had our share of labor-management turbulence.
However, employees demand and deserve a voice in the future of an organization. In 1997, the AFL-CIO and Kaiser Permanente agreed to the most ambitious national labor-management partnership ever, covering 26 union locals across multiple markets. These unions include 55,000 workers including nurses, optometrists, and pharmacists, as well as technical, clerical, and service workers. We have pledged to better the work environment and job security for workers, involving employees and their unions in decision making, and promoting Kaiser Permanente as the health plan of choice for labor.The Partnership is one way we hope to gain new ideas. Another method has been infusing our organization with new blood at the senior management level. About one-third of Kaiser Permanente's executives have been with the organization less than five years. This has been an intentional effort to balance the experience and perspectives of long-term Kaiser Permanente executives with people from outside our organization who bring fresh points of view. It is supported by two key mechanisms -- an aggressive recruiting strategy and a redesigned professional development program for executive leadership. The goal is to invigorate our culture while keeping focused on our mission.
Employees demand and deserve a voice
in the future.
A rapidly changing marketplace requires rapid response. An organization's board of directors can play an active role in shaping that response. Traditionally, our board was a caretaker for an organization that changed slowly. But, beginning in the early 1990s, we began shifting the board's focus to strategic issues, and we changed the composition of the board to bring in a broader range perspectives and expertise. I now consider our board to be my thought partners, and while, as an activist board, they demand more from me, they are helping me do a better job. For instance, the board has collaborated with management to integrate the formerly autonomous and disparate information technology operations across our organization nationally. It also has demanded that management develop more rigorous and focused capital investment decisions, as well as financial and performance control systems.Our medical groups have also made governance changes. They formed the Permanente Federation, giving the various Permanente Medical Groups a more consistent voice, and helping our organization make faster decisions.
lthough it can feel chaotic at times, and failures do occur, innovation must be encouraged if an organization is to remain competitive. In any large or complex organization, the challenge is to move best practices across local markets and throughout the enterprise.
Corporate skunk works, spin-offs, and job rotations are all strategies for promoting innovation. World-class companies like Nokia, which quickly gained dominance in the mobile phone market, achieve strategic innovation by asking managers throughout the organization to study, debate, and propose new ways to serve the market.
The ability to collect, manage, and make sense of available information is key. In the patient care arena, for example, our Care Management Institute studies clinical conditions such as asthma, diabetes, coronary artery disease, and depression, synthesizing knowledge from both within and outside Kaiser Permanente on the best clinical approaches. It then helps practicing physicians implement programs -- tailored to the individual patient -- by working with physicians and health care professionals at the local level.An important technological innovation is the development of Kaiser Permanente Online, a restricted Web site that allows members to research health conditions and medications, get advice from a nurse or pharmacist, request appointments, join moderated discussion groups, and more. It started as a pilot project in 1997 with 1,000 Kaiser Permanente members in Silicon Valley, and by 2000 it will be available nationally to nearly all Kaiser Permanente members with Internet access.
In recent years we have learned the value of forming partnerships with key stakeholders. By doing so, we are better able to meet purchaser and member needs. For example, we are now partnering with purchasers like CalPERS, the California state public employees' benefits system, and the Pacific Business Group on Health, a consortium representing key West Coast employers who purchase health benefits. We meet quarterly with CalPERS management to review our financial results and business plans. Similarly, we meet regularly with PBGH and are active participants in its ongoing quality measurement projects. It is one of many alliances we have with employers, community health organizations, and national consumer groups.
For small, community-based business and nonprofit organizations, partnership is even more essential. The Pain Management Program, sponsored by Children's Hope Foundation, helps children with HIV/AIDS cope with the often painful side effects of their medical treatment -- pain that often was overlooked or undertreated by their caregivers. Working with 95 hospitals and community agencies, PMP has grown from a one-time symposium to a training program and seminar series that has benefited more than 2,000 children.Project Health-line is a partnership between Phoenix House, a national substance abuse prevention program, and the Bridge, a New York City housing and rehabilitation service for the mentally ill. The program provides coordinated, on-site medical care to every Bridge resident. It has improved clients' physical and mental health, has reduced the costs of care to a hard-to-serve population, and led the Bridge to establish similar partnerships with other nonprofit agencies.
Integration of services gives providers the ability to manage variation and ensure greater continuity. This has been demonstrated again and again in manufacturing. GE has grown dramatically in recent years by providing training, maintenance, and technical support for the equipment it sells -- everything from x-ray equipment to jet engines to entire power plants. Dell Computer revolutionized its industry by creating new, fluid relationships with both suppliers and customers, eliminating the need for dealers who often added little value. Amazon.com not only sells millions of books and CDs (and now almost any consumer product) but also has created a database that lets it track and cater to the tastes of individual customers.
But integration applies just as much to health care, where specialization can lead to fragmented (and, to the patient, bewildering) treatment. Kaiser Permanente's pediatric asthma management program is one response to this challenge. It is a jointly developed treatment plan that involves monitoring by the physician, instruction in use of home diagnostic tools, a 24-hour telephone advice line, and hospital emergency department staff trained to reinforce self-management, intervening with appropriate clinical support. This same integrated web of support works with chronic diseases, cardiac care, pregnancy care, or diabetes care.
On a larger scale, Kaiser Permanente's National Clinical Information System, currently under development, will allow all providers to determine at a glance when a diabetic patient is due for a foot or eye exam, or other checkup. It will show all the other health problems and medications associated with the patient. Best of all, diabetic patients will be involved in their own care through tailored health education and reminders of when it's time to see the doctor again.
The great irony about managed care is that most of it isn't. It manages contracts and benefit design, but not really health care delivery. True management of health care delivery requires system integration. This is still a rarity, in health care and in most other industries.
The great irony about managed care
is that most of it isn't.
Mission-driven organizations are in a unique competitive position. Yes, they must respond to market forces if they are to survive. Like any other business, they cannot be complacent. But they possess a treasure that must be carefully tended -- the trust of their members and customers.
In these times of major change, organizations have choices, and those choices can serve to build -- or erode -- that trust. Do the choices we make as leaders involve employees in setting the direction of our organization? Do they resolve conflict with more collaboration and less acrimony to maintain the focus on organizational goals? Do they take chances with innovations that might fail? Do they partner with stakeholders to the mutual benefit of all parties? How we choose to meet today's challenges will determine the level of trust we attain, and therefore, our future success.
Copyright © 1999 by David M. Lawrence, MD. Reprinted with permission from Leader to Leader
, a publication of the Leader to Leader Institute and Jossey-Bass.
Lawrence, David M. MD "Maintaining a Mission: Lessons from the Marketplace" Leader to Leader. 14 (Fall 1999): 36-42.
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