DISCLAIMER: The views and opinions expressed are those of the interviewee(s) and are not necessarily those of McKinsey & Company.
In 2017, total healthcare spending accounted for 18 percent of the US economy. We are on track to reach 20 percent of the US GDP by 2027. Numerous factors have been blamed for our higher healthcare spending, but one that has been largely overlooked is poor productivity within the healthcare delivery sector.
One example of this? Between 2001 and 2016, healthcare delivery contributed 9 percent of the growth in the US economy—but 29 percent of the net new jobs. Put another way, an added employee in healthcare gave only a third of the productivity value that an average US employee delivered.
By many metrics, the US healthcare delivery industry is not efficient and has not kept pace with the productivity improvements of other US services industries. We believe that the healthcare system in the United States could cumulatively save $1.2 trillion to $2.3 trillion over the next decade if we were to double down on improving productivity.
At face value, the problem is simple: Getting the right care to the right people at the right cost—but anyone who has touched or worked in the industry knows that it’s a lot more complicated. As part of our productivity series, we explore the opportunities to improve healthcare productivity—and the steps that leaders across healthcare could be taking today to seize these opportunities. In today’s episode, McKinsey partner, Pooja Kumar, MD, is joined by Ron Walls, MD, of Brigham Health.
An edited version of their remarks follows.
Pooja Kumar: Today I’m joined by Dr. Ron Walls, who’s the executive vice president and chief operating officer of Brigham Health, to discuss his perspective as a major hospital operator. Ron, thanks so much for joining me today.
I’m going to ask one unrelated question, which is I’d love to just have you play back the story of how you got into medicine overall.
Dr. Ron Walls: When I was an undergraduate, I was in math and computer science, and my goal was to do an MBA and think about business applications of computers. I happened to go on a long car ride from the small town I grew up in in northern British Columbia to Vancouver to try to find an apartment for my next year in university with a guy I didn’t know.
He had just finished his first year of medical school and his father was one of the two general practitioners in my town. He talked to me about medical school in that ten-hour car trip. When I got in the car at the beginning of the trip, I was just going to finish my fourth year. By the time I got out I was trying to figure out the logistics of taking all of my prerequisites in one year.
I thought, “I’ll apply once, and if I get in, I’ll go. And if I don’t get in, I won’t apply again; I’ll just carry on with Plan A.“ I got into medical school and away I went.
Pooja: And look where you are today. Ron, from your perspective, why has the healthcare industry struggled to address productivity?
Ron: Part of the challenge is that a lot of these big, complex organizations like academic medical centers started with the same principles as community hospitals: small numbers of departments, relatively small operations, not too complicated. As they’ve grown the prowess and reputation of a manager has really been attributed to their span of control, rather than necessarily their abilities.
So, you see these very capable managers managing several units, and you’ve got a troubled unit so you add it to that manager. And that person continues to accumulate this portfolio, and having the portfolio is at least as important as making sure that each element in the portfolio is optimized. I think we haven’t really kept our eye on the ball in all circumstances about how we make each one of these units really work well.
Pooja: How much do you think the productivity problem can be solved, particularly by academic medical centers versus others in the system?
Ron: An academic medical center probably is the best positioned to address these issues because we like to do analysis, we like to work with data, we like to measure results, and we like to perform to measurable outcomes. If an AMC [academic medical center] can really focus on what it needs to do to get better, it probably has the best environment of all to succeed at that.
Pooja: Given how unique AMCs particularly are, I imagine that the bar is even higher?
Ron: It is. We have an obligation to advance care and deliver all this advanced expert care, but to do it in an increasingly value-based and demanding environment. I think in some areas we’ve been really, really good at that, and in other areas not so good. Now it has to be a major focus now for all of us.
Pooja: In your opinion, what do you think are the two or three biggest gaps that AMCs have to address to achieve a more productive health system?
Ron: The biggest gap, I think, is this conflict between productivity efficiency, earning, margin, versus mission. And we have had, I think, a convenient excuse to look at mission and say, “We’re here for the greater good. We’re here to take care of people, we’re here to do research, advance knowledge, train the future generation. We don’t have to be, or we shouldn’t be as efficient and productive as those people who are not there for that mission.“ I just think that’s the completely wrong way to look at it.
Pooja: How would you suggest that your peers start to have a conversation about it? Because I think the point that you’re raising is a critical one, and that has been the headline for so long. You know, “We’re focused on mission, we’re all about mission.“ How would you kind of raise this point?
Ron: I don’t think you have to disaggregate them. I think they fit together really well, in fact. And when I came into this role four years ago, we had some real financial and operational challenges. Our balance sheet was a little weak; our operations weren’t super effective. That was putting our mission at risk. It was risking losing the resources we need to have the richness of mission that we all believe in. In having conversations with the various departments, I went around to each department and met not just with the chair and the leadership, but the departments, the faculty members, and just told them the truth.
“Here is where we are. And if we want to get into the future as a really productive, healthy enterprise that can meet all the mission needs that we all have together, we have to do better. We have to do better now and we have to build a foundation for the future.“ On some levels it was probably too financially or operationally focused, but at a larger level I think people got it. [The message was] If we don’t do well, we can’t do what we want to do.
Pooja: It sounds like you’ve already started down this journey. You spoke a little bit about the conversations you had. I’m imagining more with chairs and other leaders, managers in your organization. How do you think the concept of productivity translates down to the frontline—maybe more junior managers, but also, for frontline healthcare workers?
Ron: It’s like it is in any other operation. If you can’t set a direction and model a behavior and have everyone feel like they’re consistently performing to a common goal, then I don’t think any of it can work. So, it isn’t about the senior managers, or the junior managers, or the frontline workers; it’s about all of those people. And one of the things that we did that has given us a real success is we created a program called Active Asset Management that gets a group of senior leaders around a table including six chairs and two vice chairs, every Wednesday for an hour, and we look at how the organization’s performing. We look at how it did last week, we look at how it’s doing this week, and how it’s going to do next week, and the week after that.
That gives everyone a clear understanding of what kind of actionable items have arisen, that they can head out then and work with their teams to improve. As those teams see and measure and hear about those improvements, everybody gets excited and the whole thing sort of lifts together. That has reached right down to the frontline staff.
Pooja: That’s great. One of the issues that we see sometimes within the industry is that you have efforts that start and then they filter out over time. I’d love to hear how we can actually think about maintaining efforts around this theme.
Ron: People create this burning platform concept that everyone, or a lot of people, believes is so necessary for change. The problem is that when the platform fire goes out, so does the enthusiasm. One of the things that we’ve really focused on is what are our long-term goals? If your long-term goals are to be better, to rebuild your balance sheet, to operate more efficiently, to make a higher margin, to be able to channel more of that margin into mission work: If those are long-term goals, then you never really reach an endpoint with them.
You can reach milestones, and the milestones are exciting. I get people reenergized to go for the next milestone. But I think when you create too much of a sort of crisis mentality or burning platform mentality people start to feel like they’ve dodged that crisis and they can back off. I think that holds organizations back.
Pooja: How do we actually drive something like that versus crisis here, crisis averted, crisis here, crisis averted?
Ron: The continuous improvement culture I think also is wearying for people. It makes people feel weary that no matter what they do, they have to do more. I think there’s something in-between the burning platform and continuous improvement, when you have people feeling like they’re really marching towards something, and they’re getting farther and farther along with each day, or each week, or each month, or each measure.
Pooja: That’s great. When you think about how you, today, think about productivity and your role, versus how frontline folks in your organization think about productivity, is there a difference in those things?
Ron: I think there’s a big difference because we’re looking at the same thing through two different lenses. At the senior management level, we are looking at productivity, and measuring it, and thinking about how that affects our performance. At the frontline level, they’re thinking about efficiency. What helps them get through their day? If you think about a physician in a practice, for example, we tend to expect that physician and all of the people around him or her to just work harder, and do more, and see more patients.
In reality, what we should be doing is sitting down with them and saying, “What ruins your day? What keeps you from being efficient?“ When we do cost reductions in healthcare, we often look at the lowest common denominator, people who don’t do direct patient care or the supplemental-to-direct patient care.
And those are the very people that enable the providers to really do what they can do. So, from our senior perspective we’re thinking about productivity and generation of margin, or efficiency, or high patient satisfaction or high quality. We’re thinking of all of that. At the frontline, they have those considerations, but I think it’s really about efficiency. It’s about, “How can I do what I do so well without all these distractions and all the interference that the system normally creates for me?“ We have to be accountable to them for that.
Pooja: You know, one of the things that some of my colleagues and I talk about is the fact that there are many parts of healthcare where the fundamental chassis has not changed, but we just add more and more to that chassis. So primary care is one example, right, where if you look 50 years ago that interaction with the patient and the physician in that doctor’s office was happening.
If you look now, that same interaction is happening maybe even shorter time periods but the fundamental chassis is there. Do you think that there is a fundamental unlock there? Or do you think that, you know, we just need to think about healthcare differently?
Ron: One of the challenges we have in healthcare is that we have these intrinsic beliefs that we think are inalienable from the standpoint of the physician or the patient, for example. So, we tend to think we can change things around that inalienable section, but we can’t touch it. Until we can think differently about how we do—you’re talking about primary care—long-term management of hypertension, and long-term management of lipids, and diabetes, and all of those conditions. Think about how we handle mental health issues and behavioral issues at the same time as we’re handling overall health. Because it’s all one thing. Until we can think differently about that, I don’t think we can iterate in a way that is going to make us effective. We can be more effective than we’ve been, but we’ll never actually be effective.
Pooja: If you step back and think about everything that the Brigham has done and everything that you’ve led here, what are you most proud of for what Brigham Health has been able to achieve in terms of productivity-enhancing initiatives?
Ron: I mentioned Active Asset Management a few minutes ago, and I think that is by far the thing of which I’m most proud. Because it brought us together as a team and allowed us to really take on challenging issues that we had not really been able to effectively and collectively take on before.
We’ve seen over 50 percent increase in our net margin year-to-year over the last four years. We’re operating at a very different level than we were. We’ve been able to grow without adding cost by being more effective at the bedside and through the entire operation. That’s given people, I think, a real sense of pride of being on a winning team.
The productivity imperative for healthcare delivery in the United States
Pooja: That is quite a testament. Ron, I’d love to ask you a little bit about capital and capital investments, which are another theme in healthcare over the last decade, have been significant at the system, as they have in other systems across the country. How should hospital executives such as yourself and your peers think about large capital technology investments in the context of productivity?
Ron: It’s really tough because most healthcare systems in most hospitals are operating on a pretty thin margin and trying to figure out how to capitalize something big is really challenging. If that really big thing has such obvious merit that it has to be done for example, going to a single integrated electronic record has such obvious merit, I think you find a way.
When it’s something else, though, that might drive a lot of innovation or transform patient experience, but it’s tough to measure what the real impact of that is going to be in terms of generating return on that capital, that gets a lot harder.
We have so much we could do on innovation in everything from how a patient enters a practice, how that practice is conducted, and all the way back home again. It’s tough to find that capital because the investment return is not so easy to determine in advance. You have to be ready to fail, and healthcare as a risk-averse industry is not so ready to fail.
Pooja: What would that look like to you, if you take the example of, say, a supplier of capital equipment?
Ron: I could see a future where our intellectual property and knowledge, say with big data and with AI interpretation of images, for example, could pair with the platform delivery people, the vendor, and create a completely different kind of patient experience in terms of how the imaging is managed, and also quality and safety in terms of how it’s interpreted.
At the front end of that, we have to be able to rebuild the entire patient experience. We have to think of how patients enter our system, how they interact with it, how much we’re doing online, how much we’re doing automatically, or kiosks when people are checking in, how much we’re monitoring them remotely. We really haven’t even begun to scratch the surface of that. When you compare us to other industries with pretty high quality and safety expectations like the airlines, we’re pretty far behind.
Pooja: One of the other debates that I think several institutions like yours are having is around the question of whether you need to bring in leadership or views from outside healthcare and perhaps whether there are other industries who have done a better job at solving these problems, and how can we learn from those? I’d love to hear your perspective on that.
Ron: I think it’s really important to bring people in from outside the organization, and from outside healthcare, where it’s appropriate. For example, three years ago when we were looking for a CFO here, I specifically instructed the search firm that I wanted someone from outside healthcare. Because I wanted someone who could think completely differently about how we operate as a business and how we think about finance as a strategy and management tool, rather than simply a reporting function, which is often what it is in healthcare.
We ended up getting someone who was ideal because he had been both inside and outside healthcare, and he transformed how we think about these kinds of decisions you’re asking, like how we spend capital, and evaluating things that we’re undertaking to see if they really do carry the kind of return or the impact that we want.
Pooja: Are there one or two other things that you think are especially interesting to you, as you think about productivity-enhancing initiatives that you are undertaking, or that perhaps you’ve seen elsewhere in the industry?
Ron: Well, I’ll come back to Active Asset Management for a moment, because everything that we do in that regard really falls under that umbrella. The great thing about Active Asset Management was that it was borne of necessity. We really had to get a lot better. But as we laid it all out, we had ideas from lots of different people, and those ideas became really mainstream in how we thought about reorganizing ourselves and doing better.
It was creating an environment in which people felt like there was a framework and that they could contribute to that framework. The framework was divided into areas that were really understandable so that operating units really looked and felt like operating units, and we could measure them.
The key to that was having really sophisticated data reporting. So, people understand week to week exactly where we are. We go through an enormous amount of data; it’s visually presented so that really easy to follow. We can see things and make decisions now in four or five minutes that would’ve taken us (and I’m not exaggerating) two or three months of committee or taskforce meetings before to just understand what the problem was. And we’ve seen improvements in the operating room, and the Cath [catheterization] lab, and the EP [electrophysiology] lab in endoscopy. We are working now on inpatient flow, which we’ve also affected very favorably. And we’ve redesigned some of the infrastructure like care continuum management with a view to saying, “What do we need to think about in 2019 that is going to enable these kinds of changes and functions?“
Pooja: There’s a critical person aspect to it, and I think you also raised a really important data aspect to it. One of the issues is how do you actually get the right data to the right people? And to your point, there’s something about how do we actually collect data that’s meaningful. How do we make sure that people are using that data?
We recently heard from the CEO of Oscar who spoke about the way his company thinks about using data in terms of dashboards and getting the right information to the right people. One of the concepts he talked about was around time-limited dashboards. How do we actually become so future-thinking about data that we recognize that dashboards might only be relevant for two or three months, and then we’re off building the next more relevant one? I have two questions for you stemming from that. First is how do we think about actually shifting mind-sets in healthcare, that we can even start to consider a future where this might be how every worker thinks? Second, what will it take to actually mobilize all the data that we have such that we can even develop the right insights?
Ron: There are two fundamental reasons people produce and use data, one is to avoid making a decision and the other is to make a decision.
When you synthesize the data down to a really actionable format then that defines the steps that people will take using those data. And if they make those changes and that system fixes or self-corrects as a result, then those dashboards should go away. In our Active Asset Management program, we have something that we affectionately call the tweak of the week. Because even with data that we were looking at every week for 30–40 weeks in a row, on week 41 someone would say, “Have we ever thought of looking at these data this way?“
That would lead to a couple of questions and a short conversation, and by the next week our data analysis group would have a new presentation of those data that would answer yet another question. When we do that, we typically stop looking at things as well, so that overall over time, the amount of data we’re looking at has grown. But we have added data that has become much more actionable, and we’ve taken away data that are not.
I think getting people really focused on what is it we’re trying to do. The theme that we keep coming back to is, “Is this actionable? What are we going to do about it?“ For example, we look at how the OR [operating room] schedule is building two weeks out and we say, “Look what’s happening on Wednesday and Thursday, two weeks from now. What are we going to do about that?“ Those kinds of conversations lead to big changes, like we fundamentally changed how surgical block time is allocated because of those kinds of conversations that happened in those Wednesday meetings.
Pooja: Ron, I’d like to step back and think about, you know, Active Asset Management again as one example on one side of the spectrum. On the other side of the spectrum, you have the fact that at several health systems around the country we can’t even measure the clinical FTE [full-time equivalent], or the amount of time that our most precious resource—physicians and other caregivers—should be allocating to their jobs and to seeing patients. Can you just talk a little bit about that dichotomy to me and what it will take to actually solve some of the fundamentals as well?
Ron: It’s a real challenge in academic medicine because it is something we just traditionally have not had to take on. Everything kind of just moved ahead at its own pace and each department was individual, and the department chair would make the right decisions to have the faculty meet their academic and educational, clinical goals, and everything just sort of worked. Now we’re in an environment where everything is being measured externally and only with very crude outcome measures like, “How much does it cost?“
One of the things that has to happen (and some of it can happen gradually and some of it maybe more abruptly) is just changing the fundamental focus from what does it mean to be an academic department in an academic medical center today? What does success look like?
Success to me now is being able to meet those critical parts of the mission, and to do so in a way that promotes and advances faculty, that has faculty wellness and a feeling of mutual and community success among the faculty. It’s also about creating a great patient experience and is an effective part of the organization that is really making the organization as a whole, better.
When I was a chair, I used to think a lot about my own department and how it worked, and much less about the organization as a whole. Now, of course, I’m the other way around.
Pooja: Ron, one of the beauties of healthcare is that it is a patient-facing business/mission at its core, and because of that, the cost structure of any health system is largely devoted towards labor, as it should be given the fact that we fundamentally touch patients in this industry. How do you reconcile the concept of productivity in healthcare and the fact that healthcare systems are often the largest employers in their geography?
Ron: Other than the government, I think we’re the largest employer in our geography. Coming from that background, I think the question is not how many people do you have doing something, but what are they actually doing? What we tend to do, is create practices that grow up. I don’t mean necessarily patient-care practices, but I mean operational practices that grow up. And as they grow up and we look at them, and they’re pretty inefficient, we throw resources at them. We don’t fundamentally change how they work.
And going back to the beginning of the design of that and saying, “How do we make this actually do what it’s intended to do? Rather than make it 5 percent better at doing what it already is doing, how do we make it do what it’s intended to do, and what kind of design features do you need to be able to do that?“ That’s the work that we have to do to balance the labor force and the demand and the need for value in the system.
Pooja: If we switch tacks a little bit now, I’d like to think about you and your role as an educator. And you spent a large portion of your career in the role of a chair, as you said. And in that role and in leading up to that you spent a lot of time with residents and medical students. How would you think we need to change the way that we actually do our training to emphasize these concepts around productivity, that will be so critical to getting the system sustainable going forward?
Ron: I think students and residents and faculty have to learn the right way to do things, the right way to work together, the right way to communicate, the right way to be members of a team, the right way to put the patient first.
I don’t think there’s any point in sitting down and having sessions on operational efficiency or effectiveness, and then sending them off to work in a very inefficient system, where they’re just seeing that what they learned around the table versus what they’re seeing in practice are completely different. In 2010, we redesigned how the emergency department worked because we had an overwhelming demand for services and we didn’t have the space to deliver it.
By redesigning the system, we were able to drop our median door-to-doctor time from 74 minutes to 14–16 minutes, and improved our Press Ganey scores from the 30s, and sometimes down into single digits depending on the question, to the 99th percentile for our peer organizations. We then kept it there for 11 months in a row.
And that wasn’t because we added resources. We just redeployed and redesigned. I think our residents really saw in that an opportunity to learn themselves as well, that you can take something that you’ve worked in, and know really well and you just completely redesign it. But you have to be willing to sort of tear the whole thing up and start over.
Residents are very different now than when I was a resident, and even when I was a chair. And I think they’re more engaged on all levels. There was an almost blinders-on focus to, “What do I need to know? What’s medical content?“ Now it’s much more about, “What is my role in the world? Also, how do I become part of an effective delivery system, and how do I contribute to that?“
Pooja: Ron, what have you learned in your role as COO that you either didn’t know or didn’t think about as much when you were the chair of your department?
Ron: When I think back to where I was as a department chair, I think the great thing about that is investing in your faculty and building the careers, and talents, and abilities of people in your department, almost to the point of making yourself completely irrelevant or redundant as a chair. That really carries over well into senior management, where you can develop and advance the other senior managers
From the department chair perspective, if I were to give advice now or if I would have gotten advice when I was a chair I would’ve said, “Have a lot more focus on the hospital. You know, think beyond your department and really emphasize developing your people. Because those people that you develop as leaders in your department are poised to become leaders in the hospital too.“
I think that’s a mission that we have as department chairs. Some people, I think, embrace it more than others do. We have to break down some of the parochialism that’s existed in departments where people are a little bit more focused on really, “What’s the best thing for my department?“
Interestingly, the strongest lesson I probably got out of it is that having some kind of term-limit issue around chair terms is really important.
I think that’s another lesson: We need to refresh these leadership positions more regularly, like other industries do, and have a more clear sense of, “When’s the beginning, when’s the middle, and when’s the end? And what’s supposed to be accomplished during that time?“
Pooja: Well, thanks so much for your time, Ron. We appreciate your taking the time with us today.