Transforming Health Care Systems for the 21st Century

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With Featuring Susan DeVore, CEO of Premier Inc., a leading US-based healthcare improvement company, and Beste Kucukyazici, former McGill professor of Operations Management
Susan DeVore: We have spent years and years working with the healthcare systems, because we don’t believe you can wait for the government or insurance companies to fix it. The healthcare system can only be fixed from the inside, where the patients reside, and where the providers are delivering care.
Host: Welcome to Season 1, Episode 7 of Delve: a podcast from McGill University’s Desautels Faculty of Management, where we’ll hear from management researchers and practitioners as they explore the latest ecological, social, and economic challenges that we face as a society. I’m your host Mo Akif and today we’re talking about modernizing our health care system. For the past year, our hospitals have experienced unprecedented strain treating the masses of patients infected with COVID-19 – a challenge that has revealed many important barriers to accessing quality care. So, in the middle of a pandemic, it seems only fitting that we’d explore the advances taking place to modernize health care delivery, many of which are powered by disruptive technologies. To tell us more about what this transformation could look like and how we can ensure that no one is left behind, we’re joined by Susan DeVore, CEO of Premier Inc., a leading US-based healthcare improvement company, and Beste Kucukyazicici, former McGill professor of Operations Management, who begins the conversation.
Beste Kucukyazici: You may already know that actually, healthcare expenditures accounts for roughly 11% of the overall GDP of Canada, and the growth rate is much faster than the growth rate of the GDP. The annual cost of healthcare systems to the Canadian economy is around $240 billion dollars a year, and if you only focus for the Quebec context, last year, the Quebec government spent more than 40% of its budget on healthcare.
Beste Kucukyazici: For most of the OECD countries, the healthcare expenditures account for a significant portion of their GDP, ranging between 9.5% to 16%. And in terms of the value of care they provide today of patients, it’s not satisfactory, as well.
Beste Kucukyazici: So, before diving into the details of our discussion related to the transformation of healthcare, or the redefining of healthcare, first of all, I would like to get your opinion about the challenge that we are facing. We are investing a lot in the healthcare system, but why are we struggling in producing the value from it?
Susan DeVore: I think the biggest challenge that most healthcare systems have is, they have evolved as extremely complex and complicated systems. I think if we could all blow it up and start over today, we would design a very different system. But because we have incrementalized it over the years, we’ve designed a system that’s very hard to change. In the US, and I’ll speak primarily for the US system, because I know it the best.
Susan DeVore: I think for us, it functions a little bit like a restaurant. Everybody that comes into the restaurant has to be served, whether they can pay or not. Everybody gets served by servers who don’t know what things on the menu cost. The people preparing the food have unlimited ability to choose ingredients, and it’s a system that really, if the customer isn’t happy when they leave in the US, they can sue the restaurant.
Susan DeVore: And so, you have this industry where there’s a disconnect between the service being provided, who’s paying the cost, and who has control over any of the pieces or parts of the system. Lots of different groups and people have decision-making ability about all the pieces and parts.
Susan DeVore: It’s kind of a common misconception that the US is a completely privatized system. It’s actually a hybrid model. It’s roughly half-and-half. Medicare and Medicaid, which are our universal programs for people over 65 and for the poor populations, are about half of the spend. It is a $3 trillion dollar budget in the US. We are distinguished by having probably the highest percentage of GDP in healthcare costs.
Susan DeVore: It’s an interesting statistic, though, because I think in the US we have very much a medicalization of social issues. And so, if you were to take the social care spend and the medical spend, and put them together, the US would be somewhere in the middle of the pack. But we spend a lot more money on the medical care piece, and a lot less on the social care piece.
Susan DeVore: And so, a lot of the challenges, I think, have to do with the complexity of the system, and the misalignment of the incentives and the accountabilities for various parts of the system.
Beste Kucukyazici: Actually, talking about the changing of the healthcare system, or healthcare reform, is not a new thing. But this time, actually, we are just taking it a step further, and we are discussing redefining the healthcare system. So, why do we need to redefine the healthcare system for the current and future generations?
Susan DeVore: Because it doesn’t work. I mean, it doesn’t work. My mother died of sepsis that was preventable. My grandson ended up in a hospital with a hip infection that we believe was from a vaccine. And it just doesn’t work. There are too many handoffs. There is too much overuse, too much misuse, too much underuse. And so, I think the reason we have to redefine it is because it doesn’t work, and because it costs too much, and because it doesn’t satisfy patients, and because it actually doesn’t yield an increase in longevity, and it doesn’t yield enough improvement in quality and safety in the healthcare delivery system.
Susan DeVore: I’ve been with Premier for 15 years. Premier was an organization that was actually started by healthcare systems, not for profit healthcare systems in the US. They were much like, I think, the Canadian system, and still are, with your 10 provinces and your three territories, and everybody has autonomy to sort of deliver healthcare, in some ways, the way that they want to. And therefore, there was no aggregation power, because it was all fragmented into the pieces and parts.
Susan DeVore: So, the thousands of hospitals got together and they said, well, we’ll form our own national aggregation entity. So, the 4,000 hospitals that are a part of Premier today basically owned 100% of the company, and the company was designed to aggregate all of their supply chain spending, meaning their drugs, their capital equipment, their medical devices, their commodities, everything, and help them negotiate better pricing to drive savings.
Susan DeVore: At the same time, they decided to start building analytic databases around clinical care, outcomes, cost, resource utilization. And so, now here we are 25 years later from the initial formation, and we have data on 45% of the patients in the country, and we aggregate $60 billion dollars of spend to help them negotiate better pricing. And that gives us a lot of visibility into what’s working and what’s not working, and so as we think about redefining the healthcare system
Susan DeVore: And the wicked question, I think, for redefining the healthcare system is, how do you simultaneously, not sequentially, not one piece and not the other piece, how do you simultaneously follow the evidence, and the evidence is changing at lightning speed, prevent mortality, prevent harm, improve quality, reduce readmissions, reduce cost, and satisfy the patient? And how do you do all six or seven of those things at the same time?
Susan DeVore: And so, we have spent years and years working with the healthcare systems, because we don’t believe you can wait for the government or insurance companies to fix it. We have a fundamental belief that the healthcare system can only be fixed from the inside, where the patients reside, and where the providers, all kinds of providers, are delivering care. You have to have payment models that incent the right behaviors, but the actual changing the way care is delivered has to sort of happen inside the system.
Beste Kucukyazici: You talk about mortality, reduction of admission rates, increasing safety and patient satisfaction, which are kind of new concepts to healthcare. So, can we say that in the redefinition of healthcare, it will be patient-centered?
Susan DeVore: I think it’s absolutely patient-centered, but I think that when we are in hybrid systems that are partially public, partially private, or in purely public systems, it’s too easy not to have the patient in the center.
Beste Kucukyazici: Yes.
Susan DeVore: And the bureaucracy is in the center, or the territory is in the center, or the individual role you play is in the center, and everybody is protecting their turf. And so, I think where the US has decided they need to go, mostly because of a cost problem, is new models of payment, which actually give a whole bucket of money to a system and say, you figure out how to deliver healthcare more effectively, and use the data and analytics that you have to deliver that healthcare more effectively.
Susan DeVore: So, when I was here in school, everybody was excited because Obama looked like he was going to win the election in the US, and when he won the election, he very intently implemented Obamacare, which essentially tried to at least provide access to healthcare for lots of people that were uninsured in the US prior to that time. And largely, we have accomplished that.
Susan DeVore: So then, President Trump takes over, tries to repeal and replace Obamacare, can’t get it done legislatively, and nobody would admit this, but Obama solved the access problem, and now the Trump administration thinks they need to solve the cost problem. And the Trump administration, in many ways, is thankful that Obamacare set up an innovation center, funded it with $10 billion dollars, funded it with the expansion of Medicaid, which is the program for the poor, and in that legislation, gave the power to the regulator, not the legislators, to innovate in the innovation center new payment models and new delivery models, and then port it over to mandatory law.
Susan DeVore: So, the truth is that the Trump administration, I think, is thrilled they have the innovation center, is thrilled that it was funded by somebody else, and is thrilled that they now have the regulatory power to test new models and then make them regulatory requirements. And so, I think that in the US, we’re going to see a lot faster movement to coordinated care models, accountable care models, and other models of healthcare.
Beste Kucukyazici: You mentioned the reforms in the payment models, which are basically shifting the risk from the shoulders of the purchaser or the payer to the healthcare providers.
Susan DeVore: Right.
Beste Kucukyazici: So, they will be accountable for the reduction of the cost. What will be the implications on the health outcomes?
Susan DeVore: That’s a great question, and so, if you remember the teachings of Henry Mintzberg, he would say governments are designed to control, and to protect, and to provide access. And providers are designed to provide care, and provide cure. And suppliers and insurance companies are people in the middle of all of that that have profit margins.
Susan DeVore: And so, if you say, you take these three components, and you try to create alternative payment models, how would you do that and protect quality and safety? I think the reality is, governments want a predictable budget. They want a predictable budget. We don’t have it in the US because we have this fee for service payment environment, and they can’t predict, and they can’t control it going to 17, 18% of the GDP.
Susan DeVore: Governments here, I’m sure, want a predictable line item for healthcare cost, and I think what that means is they will shift the provider delivery risk to the providers. And so, they’re trying to think of models that actually put providers in control of the risk, and also maybe give them, in the US, maybe not so much here, some upside if they perform well.
Susan DeVore: I think it’s a fallacy to say that higher quality healthcare costs more. Actually, our work in this area would indicate that higher quality care means fewer days in the hospital. It means fewer tests. It means fewer antibiotics. It means less variation. It means more primary care. It means more social determinants of health. It means more genomic testing, so you know which drugs work and don’t work, so you don’t spend a bunch of money on drugs that don’t work.
Susan DeVore: And so, all of our data would indicate that high quality care can be a lot more efficient. And so, I don’t actually think the alternative payment models necessarily will have a negative impact on outcomes of quality. I think they could have a positive impact.
Beste Kucukyazici: But under the condition that actually, my opinion, if you design the control mechanisms properly and make sure that the quality indicators are also taken into account while assessing the performance and the payment, pay for performance systems are also getting quite popular in that sense.
Susan DeVore: Yes, and I think it’s an evolution. I don’t think you move from a fee for service model to a global payment model. I think there are steps in between. So, in the US, they have something called value-based purchasing, value-based payment, which is a fee for service payment, and then you have a bonus or a penalty based on your quality metrics.
Susan DeVore: And then, they’re moving from there to something called bundle payment, where for an orthopedic procedure, you put the hospital, the doctor, the implant, the post-acute care, together in a bundle and pay for that bundle. And then, they have an even more evolved model that’s called an accountable care organization, where a health system, which includes hospitals, doctors, nursing homes, ancillary capabilities, signs up for a population, and to take care of that population for a certain amount of money.
Susan DeVore: And so, what’s happening in the US is, the healthcare systems are evolving themselves, experimenting, learning, building the infrastructure for these models, so that as that risk gets shifted to them, they will have learned how to do it, and they will have the data, technology and infrastructure that they need.
Susan DeVore: One of the problems in the US is, there are 900 different measures of quality and safety. And so, you have Medicare measures, you have 50 states who have their own measures, you have commercial insurance companies who have their own measures, you have employers that have their own measures. And so, it’s really hard, and it’s what Premier tries to do, really hard to standardize and normalize the performance across the whole country.
Beste Kucukyazici: And you already mentioned that to be able to have these kinds of reforms or drastic change in the healthcare environment, we need investments for the infrastructure, we need to measure the performance, which requires the technological investments, as well, and training of the staff. And so far, if you look at the expenses for the US healthcare system, 25% of the expenses are already administrative costs. These numbers are around 10-15% for Canada. So, what will be the implications of these infrastructure investments, and educational investments, on the healthcare costs?
Susan DeVore: Yeah, you all do a much better job on the administrative costs than we do, and I think it’s because you have more standardized measurement, even across the country, that the government influences. I think we’ll have more of that over time.
Susan DeVore: I think one of the advantages in the US, in my opinion, is the consumers and the disrupters in the US, like Google, like Amazon, like these companies that are using artificial intelligence and data to try to predict needs of patients. And I think that they can disrupt the market in the US, maybe easier than they can disrupt a healthcare market like Canada, because they can’t get in as easily as they can get in in the US. And I think that that disruption, which is going to be very patient-centered, because all of those companies live and breathe consumer. What does the consumer want? How can I make it more convenient? How do I make it more effective? And in the US, when they get frustrated, a disrupter gives them something to use as a catalyst to change the system.
Susan DeVore: And so, I think that this infrastructure thing, in many ways, is going to be driven by technology companies, data companies, with infrastructure that actually does a better job at helping a health system figure out how to take that risk. You know we can all be critical of our healthcare systems. I don’t think 10 years ago, we would have been in a place where we could do that, and I don’t think you would, either. We had 20% adoption of EHRs electronic health records 10 years ago. We have 80-90% adoption now. If you don’t have an electronic health record, it’s really hard, if you don’t have that infrastructure to coordinate the healthcare.
Susan DeVore: So, I think I’m the luckiest girl alive, because we’re in a place and a time, with artificial intelligence, with cloud-based computing, with technology infrastructure, with empowered consumers, and we just have to figure out how to get the governments and the insurance companies to allow the evolution to happen. But I think that infrastructure thing is a totally different dynamic today than it would have been 10 years ago.
Beste Kucukyazici: Now, having understood the current challenge of the healthcare system, and the urgency of this transformation, I would like to ask your vision about the future healthcare system. So, how do you paint the picture of the future healthcare system? How will the healthcare system be in 10 years from now?
Susan DeVore: I have to bring my uniquely American opinion to it, which is that the best system in my mind is going to be a hybrid system. When I was at McGill, I wrote my papers around what I was learning, and what the strategy for Premier would be. And the ah-ha moment to me at McGill was this concept that you could have a very important social mission, but that you could figure out how to execute that social mission with business principles.
Susan DeVore: And so, to me, the best possible outcome is that you have access to care for all, so everybody has access, either through Medicare, Medicaid, commercial insurance, insurance exchanges, but you have access to healthcare for everybody. That you have minimum benefit plan design, so you know you have at least the right healthcare benefit plan design. I think your layering is challenging, because you’re missing some of the big pieces that might make it unaffordable, the layer two, layer three healthcare coverage.
Susan DeVore: And then, I think that you take those federal or state dollars in global payment models, and you force the delivery system to a risk-based model, where they have to figure out how to most efficiently and clinically effectively deliver the care within the level of investment a country decides they’re going to make in healthcare. And I think nobody has, or at least we haven’t decided how much investment we’re willing to make to the detriment of education or other programs, infrastructure, roads, other programs in the country.
Susan DeVore: So, you define the investment level, you create these global models. You then send it to the private sector, in my mind, that enables competition amongst and between different parts of the system, because it keeps us all on our toes. I mean, Premier does $60 billion of supply chain buying, and who do you think I worry about every night? We buy drugs, we buy supplies, we buy commodities for hospitals, for doctors, for nursing homes, for all kinds of people.
Susan DeVore: Amazon, right? Amazon’s a huge disruptor. Amazon sees that $3 trillion dollars of spend in the healthcare industry. And I think it’s a good thing that it keeps me awake at night, because it makes me keep thinking about who’s going to disrupt? Who’s going to create an Uber? Who’s going to create a product or a service that is more efficient, more effective, patients and consumers like it better, and it delivers better outcomes?
Susan DeVore: So, I believe that these hybrid models, where you take those fixed budgets and you enable parts of the system and competitors to keep each other honest, and you foster innovation, and you foster new models, and you foster experimentation. But it’s messy. It’s not easy.
Beste Kucukyazici: So, if we shift our focus to the Canadian healthcare system at this point, actually, I would like to make the clarification about the Canadian healthcare system as well, to avoid any misperceptions. Since we have a universal healthcare system, most people believe that we have a public healthcare system, but in Canada, we have a public/private hybrid healthcare system as well. So, in terms of delivering quality healthcare, the private sector is delivering the healthcare. The physicians and most of the hospitals are private entities. However, the government exercises certain authority on these healthcare providers while they are delivering their healthcare.
Beste Kucukyazici: In the meantime, regarding the financing of healthcare, it’s not fully publicly financed, publicly funded. 70% of the healthcare is financed by the public through the Medicare insurance programs of the provinces, where 30% is funded by the private sector. But thinking about this hybrid model, which is very specific to the Canadian healthcare system, because once we look at the other examples, other countries which have universal healthcare systems, Canada could be the only one in which the private sector delivers the healthcare. What will be the challenge, what will be the basic steps that you have to go through?
Susan DeVore: Well, I think one of the challenges you have is the same as we have, and I think your provinces and territories are like our states. And so, we have 50 different programs, and you have 13 different programs. It’s really interesting, because I do think if you put 50 people in a room together, you should be able to come up with a standard of measurement for a healthcare system. Multiple measures, but one standard.
Susan DeVore: So, it was so interesting when we built this collaborative. Nobody was measuring harm. There were not standard measures of harm at that time. So, we decided to get 50 physicians in a room, and we wanted to develop 20 or 30 measures of harm. We were going to build them into our technology, and we were going to measure them.
Susan DeVore: So, how long do you think it took us to get to 25 measures of harm? And this was just for 400 hospitals. This was not even for a country. One year. One year.
Susan DeVore: We did the measurement, and we were measuring 25 or 30 forms of harm, and then we did this index called the harm index, so that you could compare health systems. So, how many of those 25 measures do you think actually moved the harm index for a health system? Four.
Susan DeVore: And so, there’s this concept of we should all be able to get to standard measurement. It’s fewer measures than we think. And we have the technology. We have the technological ability. So, this is all about people, culture, turf, politics, money. It’s about all those other things. It’s not about the ability to actually define what a high-performing healthcare system looks like.
Susan DeVore: We built this collaborative where we were measuring all these things. We got 400 hospitals to agree to a common definition observed to expected mortality; common definition of harm; common definition of cost, like what are the elements you’re going to include in cost; common definition of patient satisfaction; common definition of readmissions; common definition of the evidence-based care, a checklist of things that we were got measure; and we identified the top 20% high-performing health systems as the bar.
Susan DeVore: And we ran that collaborative with those 350-400 hospitals for six years, saved $18 billion dollars, just with 400 hospitals, and reduced observed to expected mortality by 200,000 lives. And so, it’s not that this is not doable. The question is, how do you create the will, and how do you create the environment for people to collaborate, and people to improve?
Beste Kucukyazici: So, as I mentioned before, although healthcare is delivered by the private sector, the provincial government exercises a certain authority in the Canadian system, compared to the US. So, is it a good thing for us or a bad thing, do you think?
Susan DeVore: I think it’s such an advantage for you. I think if the federal government defined standards of technological interoperability, if they defined standards of quality and safety and cost measurement, if they had a block-granting process that was fair and equitable and adjusted for socioeconomic factors for different markets, and that sort of thing, and then if they said to the healthcare system, you go figure it out. All of the first part works. It’s that last part that’s really hard, right?
Beste Kucukyazici: This transformation does not only include changing the payment models, this transformation requires a big cultural change in the healthcare environment, as well?
Susan DeVore: Yeah. But the healthcare environment, I don’t know. My sense is, when you put the data in front of physicians, or in front of hospitals, or in front of other practitioners, public health, they want to get to better outcomes. They just either don’t know how, or they don’t know how to work through the barriers, or they don’t have the data.
Susan DeVore: And so, actually, in our world, we created these collaboratives, and there was no government mandate to do it. There was no payment associated with it at the time that we did it. And we said, who will sign up to one, be transparent with each other, all 400 of you; two, agree to standard measurement; three, participate to drive the performance improvement; four, use standard technology to do it, so you have standard measurement?
Susan DeVore: And they all did that, because they wanted, and maybe this is the market competitive environment in the US, they wanted to be able to say, I have the best mortality scores, the best harm record, the best quality, the best evidence-based care, the lowest rate of readmissions, and if you come to my healthcare system, I’m not going to kill you, I’m not going to hurt you, I’m not going to give you non-evidence-based care. I’m going to try to satisfy you as a consumer.
Susan DeVore: And so, the progressive thinkers said, it doesn’t matter what the government does, or what the insurance companies do. That’s what I want to be. But it was 400 out of 4,000. So, the real challenge for all of us is how you scale that improvement.
Beste Kucukyazici: And to close the loop, I would like to get your opinion regarding the measuring the success of this transformation.
Susan DeVore: To me, you have to figure out what the accountabilities are, and I think in most countries, it’s very confusing. So, what is the accountability of the federal government, and what would those measures be? The federal government might be able to access care, it might be percent of GDP, it might be total cost per capita, it might be life expectancy, it might be infant mortality. So, figure out the accountability first, and say, okay, that’s what the federal government owns.
Susan DeVore: And you all have the ability to standardize that across the country. I mean, we have the ability to do it for Medicare. We don’t have the ability to do it for Medicaid, because every state does it their own way. We can’t force the commercial insurance companies or the employers to do that at this point. So, I actually think you should lead the way. You should lead the way for the world in standard measurement and accountability for the various buckets of healthcare.