04 Apr 2011  Research & Ideas

Attention Medical Shoppers: What Health Care Can Learn from Walmart and Amazon

At a Harvard Business School panel discussion on health care management, experts looked to the retail industry as a possible model for delivering medical services more effectively. Participants included Harvard's Robert Huckman, Raffaella Sadun, David Cutler, and Atul Gawande. Key concepts include:

  • Five percent of patients in America account for 60 percent of health care costs. There is a huge opportunity to service this group more efficiently.
  • In terms of financial incentives, health care traditionally has focused on goods far more than on services. Great retailers incentivize to use good services and not just more services.
  • The health care system underutilizes IT, while the use of information is the real secret to success in retail.
  • Good management is correlated with better clinical and financial performance.

 

In order to get its financial and management woes under control, the health care industry might want to peek at the playbooks of retail giants like Walmart, Google, and Amazon.com.

This was a key conversation point at "Perspectives on Health Care as a Management Challenge," a March 31 panel discussion held at Harvard Business School, where several experts talked about how to treat the troubled industry at a time when the year-old Health Care and Education Reconciliation Act of 2010 is still in its relative infancy.

"Health care is the most information intensive industry in the economy, but it uses IT the least." —David Cutler

"We're not really in the post-reform era yet," said HBS professor Robert Huckman, faculty co-chair of the HBS Health Care Initiative. He introduced the three panelists: Harvard Kennedy School economics professor David Cutler; Harvard Medical School professor, surgeon, and New Yorker staff writer Atul Gawande; and HBS professor Raffaella Sadun, who has led an international research project on the role of management in acute care hospitals and medical schools.

David Cutler peppered his presentation with some damning statistics: The average wait for a primary care visit in Massachusetts, world renowned for its medical facilities, is a whopping 50 days. Only 3 percent of American physicians regularly e-mail their patients, less, he said, than the percentage of priests who regularly e-mail their parishioners. And one fifth of Medicare recipients who are admitted to a hospital end up back at the hospital in less than a month.

Studies have shown that the frequency of those repeat stays could be reduced drastically if a doctor or nurse followed up with patients a week or two after checking them out, Cutler said. The problem is that the system isn't set up to incentivize health care workers to do that.

"The reason it's never done is that nobody gets paid to do itů.there's no incentive to do anything," Cutler said.

Services not emphasized

In terms of financial incentives, health care traditionally has focused on goods far more than on good services, he said. He illustrated this point with a list of billionaires in various industries. Health-care billionaires, like the heirs to the Stryker fortune, generally make their money from unique products. (Stryker founder Homer Stryker invented a bedsore-preventing hospital bed for immobile patients and a rubber heel for walking casts.) But retail billionaires such as Walmart's Walton family generally make their money by figuring out the most effective ways to manage goods and services, even if the goods they offered were not unique.

"The real secret to Walmart, to Google, and to Amazon.com is the use of information," Cutler said. "They incentivize to use good services and not just more services."

He added that hospitals in general need to take much more advantage of technology, not just at a medical level with new devices, but also at an organizational level, with databases and other communication tools. "Health care is the most information intensive industry in the economy, but it uses IT the least," he said.

Atul Gawande reminded the audience that health care is incredibly complex simply because of the myriad ways—13,360 and counting, according to research—that the human body can fail.

"The delivery of health care is arguably the delivery of 13,360 different service lines, town by town, of anyone who needs care," Gawande said.

He then told the audience that 5 percent of patients in America account for 60 percent of health care costs. Furthermore, when comparing health care at US hospitals, "The bell curve for quality and results does not match the bell curve for costs," he said. "There is a huge opportunity—in fact, a necessity—for us to be able to find solutions in places that manage to get the best results with the lowest costs."

"In the end what we're looking for is the first community that actually lowers health care costs without harming a soul." —Atul Gawande

Gawande brought up the hopeful example of Jeff Brenner, a physician in Camden, New Jersey, who designed a program to reduce health care costs by focusing on providing better care to that 5 percent—often those patients who rack up exorbitant costs with repeat emergency room visits. In a New Yorker article, Gawande writes that for an initial study group of 36 "super-utilizers," Brenner's team managed to reduce their hospital visits by 40 percent and their hospital bills by 50 percent. Several hospitals, including Boston's Massachusetts General, are now using government funding to finance better management of care for the most expensive patients. In the past three years, both ER visits and ER costs have dropped significantly.

The power of checklists

Gawande also stressed the importance of implementing checklists in health care. (Gawande is the author of The Checklist Manifesto.

Knowing that the manufacturing industry was familiar with procedural checklists, Gawande and a team of colleagues at Brigham and Women's Hospital worked with safety experts at the aerospace and defense giant Boeing, and developed a checklist for surgeons. Among the heretofore commonly-missed items on the list: making sure everyone in the operating room was introduced by name, making sure the OR teams\ knew the goal of the procedure, and making sure they had ample blood available.

Since the checklist system has been deployed throughout several operating rooms, he said, there has been an average reduction in death of 47 percent.

Raffaella Sadun underscored the points of the other two speakers with her presentation, "Management Matters in Health Care," which proved, using data from randomly selected hospitals in seven countries, including the United States, that it absolutely does.

Her research showed a definitive link between high heart attack mortality rates and low-quality management practices at the hospitals in the study. And good management was correlated with better clinical and financial performance. Importantly, the research showed that those hospitals with a high percentage of degreed clinicians as managers tended to have the best management practices.

"If you look at the data, you'll see that improvement is possible," she said. "The clinical training of managers really matters for management practices."

The data also showed higher quality of management in private hospitals than in public hospitals. And as with other industries in the private sector, the quality of hospital management seemed to improve when there were many local competitors.

"The drivers of good quality in hospitals seem to be similar to the drivers in private firms—in manufacturing and other non-hospital settings," Sadun said.

The private sector industry comparison held strong throughout the panel discussion.

"In the end what we're looking for is the first community that actually lowers health care costs without harming a soul," Gawande said. "If we have the first, the rest will follow. It's like when Walmart opened its first store."

About the author

Carmen Nobel is senior editor of HBS Working Knowledge.

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Comments

    • Ashwin Hurribunce
    • Executive Director, The IQ Business Group

    The education and training of medical practitioners the world over is largely functional and disease-based. Although the study of physiology inherently points to the systemic nature of the humab body, and the study of pathology premised on the impact on diseases on this same body, very little of the systemic nature of medical science is revealed and imbued in the undergraduate years of study; let alone the study of formal management sciences as it relates to health care. Get this right and medical pracitioners can stand abreast of other sectors when it comes to achieving world-class results in health care services.

     
     
     
    • Dr George Cheriyan
    • CEO, American Mission Hospital

    Much of what is presented is well known; the unacceptably high avoidable complication rates, poor follow up that leads to high readdmission rates and the discordance between high cost and quality as is seen in the US. Solutions though are not straightforward for a complex problem where much of the outcome is determined by factors outside of what planners and providers can do. Significant behavior modification through incentive programs for patient engagement in prevention and management of their own disease is something that needs to take center stage before we embrace Walmart and Amazon where customers have a choice of what to and what not to buy.Critical illness very often leaves very little choices.

     
     
     
    • Mehmet G. Hizarci, MD,MBA
    • CSO, ExHealth

    The healthcare delivery has to start from somewhere, learn, adopt and utilize the information better to increase the quality and outcomes and motnitor cost that will be reduced by doing the right things right at the first time. Once the mindsets are in that directions, solutions for other issues will have to follow.

     
     
     
    • Joe Rosen
    • HBS Alumni

    Studies indicate that 70% of all health care costs are the direct result of behavior: that 74% of all costs are confined to four chronic conditions (cancer,cardiology,obe- sity, and diabetes) and that 60% of cancers, 80% of diabetes and cardiovascular conditions, and 90% of obesity cases are preventable. Individual responsibility and incentives seem to be the answer.

     
     
     
    • Anonymous

    Healthcare is a human right as enshrined in a hundred constitutions worldwide, thus not a new idea, but the method of acheving it is not to be imposed by any authority, in Francis Bacon's words, "Truth, not authority, is the daughter of time." In the context of human rights concerns, the only force owning the right to select which comments to publish is natural selection.

     
     
     
    • Anonymous

    Let's recoop some of the "70% of healthcare costs" from the companies like Walmart, Google, and Amazon.com that make it so easy for us to be slothful and obese. In his comment above, Mr Rosen states that most of our healthcare costs are the result of preventible cancers, cardiovascular conditions, obesity, and diabetes, and that the answer [to reducing healthcare costs] is individual responsibility and incentives. I say the answer must also include holding responsible the companies that spend millions to more-and-more effectively persuade us to buy gagets and junk food that make them so financially successful.

     
     
     
    • Anonymous

    This article brings to mind the question: how can we focus on increasing the self-confidence of a nation to the point where they feel they are worthy of making healthy choices, are ready to embrace healthy change and have the tools to do so? There are no easy answers to this question, but I believe it starts with a shift in the mentality towards health services. It starts, as Gawande suggests, with ensuring that those who are sick are receiving coordinated and holistic care focused on the root of their problems -not simply telling them what they should be doing, but working with them to solve problems. In other words, it is not about forcing change on a population, but about working with patients to embrace change and supporting them in accessing coordinated care.