Entrepreneurial Drivers in Health Care: Comments Posted on Intel Health Care Blog Feb 17, 2010

I posted the following comments on the Intel Health Care blog dealing with the topic Healthcare Reform: Too Big To Fail (Eric Dishman) and the need to seek new ways of approaching solutions here - my comments were published on Feb. 17, 2010.

Feb 17 | Paul B. Silverman said:

Let’s keep the discussion going here- good exchange of ideas.

We all know we have serious problems in our health care system and need some new thinking here. I am pleased to offer the following thoughts:

Most of our current health care debate starts with questions about what new applications can be developed using new technology, e.g., mobile apps, home telehealth, remote patient monitoring, WBAN’s, Zigbee, other wireless technologies and so on. But the real starting point should be what are primary and secondary business processes and key metrics that define our health care system. After this is defined, the secondary question is what is recommended process changes,what technology works best, what is cost benefit and ROI

The above is ‘Business Process Re-engineering 101’ – don’t be seduced by technology that is not driven by a strong business model that secures management support. We learned that lesson years ago with Electronic Data Interchange (EDI) and e-commerce promising to reduce cost for paper-based transactions. (I played a key role in C&L,, Booz Allen and also served as US CEO for a Netherlands based global management consulting company addressing these areas). Real savings came from changing business processes- many of the 100+ EDI technology companies that entered the market at that time missed the mark. I see many parallels with today’s health care technology market.

Consider hospital operating rooms which many do not know are a profit center within hospitals. Studies suggest these facilities today operate at less than 60 percent efficiency. Why? Changes or delays in patient admittance means facilities become available but this information is useless unless it can be managed, disseminated and acted upon to reschedule surgeries, identify the location of hospital assets and maximize use of resources. Imagine a hotel where a cancellation occurs and it takes hours to reschedule other customers to use the room. These problems occur in every sector today and are solved by robust, agile information systems driven by well proven business process re-engineering techniques. Think about the positive impact of a national initiative which offers incentives to modify processes for reducing total hospital costs by 5 percent, and this is a conservative target.

Many statistics confirm that other nations are doing a better job in efficiently delivering high quality health care services.

New Entrepreneurial Management Seminars Starting May 2011

I frequently  receive requests to assist senior management in understanding today's market changes, new strategic directions and related strategy management issues. Looking at today's business environment, we can cite many examples - here are some perspectives I frequently share.

Today’s explosive Entrepreneurial Age is morphing markets, companies, technologies and industry sectors. Emerging companies are creating new businesses; traditional companies are holding on to survive, and today’s business thinking is challenged. Most struggle to understand what is happening and where we are heading.

Look at Dell, Microsoft, Home Depot, Apple, Amazon.com and Starbucks. All created new market sectors or dramatically reshaped existing ones. All launched as entrepreneurial ventures in the past thirty five years, some even started in a garage. 

Consider the Google revolution. Founded in 1998 by two Stanford university students, started as a basic search engine, ramped up sales to $22 billion in 2008, and achieved a market cap of about $96 billion in January 2009. Compare that to

Health Care Rx: New Technology and Creative New Ventures

In an October 11th interview, Senator Debbie Stabenow (D- Minnesota) noted we need to employ new technology to improve our health care system. In a letter I recently shared with the Senator, I emphasized that her comments were right on target and offered the following observations:

-- The health care sector has lagged behind all others in using leading edge technologies to improve operations- vested interests have really not worried too much about costs; these were just passed on to consumers, directly and indirectly.

-- We learned lessons years ago with the e-commerce revolution where companies replaced paper with electronic transactions. Moving from paper to electronic changes processes, creates new way of conducting business, and these are the real benefits. This point has been missed in much of today’s health care dialog.

-- U.S. hospitals are, by all measures, the most expensive in the world. About one-third of all private hospital expenses look like what you may expect in a hotel business – costs for check-in, room service, reservations, meals, cleaning and check out. Years ago I was involved in a major health care study which also reinforced the same points- not much has changed since. Hospital costs are the largest component of health care costs; administration and support costs are a major component of hospital costs- if we set the objective of reducing hospital costs by perhaps 5 percent and with proper incentives, we can achieve real measurable cost benefits. We are far behind the curve and should look at best practices elsewhere. In early 2009, I was invited to participate in an Israeli hospital management company which used Israeli logistics 'best practices' to optimize scheduling for all perioperative procedures to efficiently handle large patient volumes- these same new processes have excellent applications in US hospitals.

EMR : Right Answer, Wrong Question

The administration is moving at warp speed to improve our health care system by pursuing new EMR initiatives-one key component of the administration’s health care reform bil. The objective, reinforced by President Obama: computerize all medical records within five years. Proposed benefits include reducing waste, eliminating red tape, reducing the need to repeat expensive medical tests and helping reduce costly medical errors. So if these are the benefits, and these are the right answers to the how can EMR help, why is there ‘pushback’ on EMR and reluctance to aggressively pursue new EMR initiatives.

Maybe these are the right answers but maybe we have the wrong question here. Fixing the system makes sense when you look at today’s health care system problems. Many studies exist- I find the University of Maine study (2001) reviewing OECD and WHO data particularly insightful. Look at some of the statistics; 42 million uninsured in the U.S.; we spend about $4,178 per capita for health care in the U.S., more than two times the median cost of $1,783 in OECD countries and much more than Switzerland which is next on the list at $2,794; we spend 13.6 percent of our GDP on health care vs. the next highest at 10.6 and 10.4 percent in Germany and Switzerland.

So with these investments you may assume our health care system should be world class. Unfortunately the same study, and many others, tell a different story. Overall health care system satisfaction among the population ranks reasonably high in many OECD countries; Denmark, Finland, and the United Kingdom are at 91, 81 and 60 percent respectively. Canada, notwithstanding any commercials we have seen, shows a 46 percent satisfaction rate. Most countries are over 50 percent some are over 60. Compare these to the United States where only 40 percent of the population is satisfied with our health care system- small comfort that we exceed only Italy where only 20 percent are satisfied with their system. Some may argue this is perception and studies are subject to error in design or methodology. What is more difficult to challenge, and I find particularly insightful, are ‘hard’ statistics such as infant mortality rates where the U.S. ranked 26^th among all industrialized countries with 7.2 deaths per 1000 live births. Compare this to Japan, Norway, Finland and Sweden which are all under 4, and the United Kingdom, Canada and Germany at 5.9, 5.2 and 4.9 respectively.

Now related to EMR, one statistic I find most insightful is U.S. hospitals, by all measures the most expensive in the world, spend about 19.3 to 24.1 percent of their total budget on administrative costs. For private, ‘for profit’ hospitals this increases to about 34 percent vs. 19.3 percent for public hospitals. I do not see these statistics mentioned. What this means is about one-third of all private hospital expenses look like what you may expect in a hotel business – costs for check-in, room service, reservations, meals, cleaning and check out. Given this model, which I believe fits well based on my experience, we need a new operational paradigm to shift the focus from the benefits of reducing paper to changing business processes. Virtually all other industry sectors learned years ago in the e-commerce revolution that replacing paper is not the cost saver. Business re-engineering of processes is how firms drive bottom line improvements to achieve improved performance. You spend more to create efficient operations structures then you save by reducing operating costs.

So given the above and going back to EMR, I suggest we reframe the EMR question – the additional cost to implement EMR is an issue but should not be. The real EMR question should be what are the primary and secondary business processes that will be enabled by EMR and what are the investment and process improvement metrics?. That should be the key question, not implementation cost of over $100,000 per physician office or other cost metrics. Other sectors migrating to a paperless environment all show cost increases which are often dramatically offset by process improvement savings. When today’s average private hospital is spending about 34 percent of total budget on administrative costs, we can clearly see the opportunity to achieve dramatic efficiency improvements.

As one example, consider hospital operating rooms which many do no know are a profit center within hospitals. Studies suggest these facilities today operate at less than 60 percent efficiency. Why? Changes or delays in patient admittance means facilities become available but this information is useless unless it can be managed, disseminated and acted upon to reschedule surgeries, identify the location of hospital assets and maximize use of resources. Imagine a hotel where a cancellation occurs and it takes hours to reschedule other customers to use the room. These problems occur in every sector today and are solved by robust, agile information systems and solutions driven by well proven business process re-engineering techniques. That is the real opportunity I foresee today in the U.S. health care sector. We are now well positioned to make substantive changes in our health care sector driven by national leadership and vision, new technologies and the opportunity to dramatically reshape health care sector business processes.

Paul B. Silverman

November 1, 2009