Ethical Responsiblity and Healthcare Transformation

How can we achieve Value for our health care dollars?
Some answers in the labor management relationship

A deep lesson that health care leaders are finally coming to grips with is that cost reduction of health care alone is not the answer. We must create much more value if we are to have a high quality and equitable health care system a healthier economy, and most importantly, a healthier population.

Yes, health care transformation, health care reform is about creating more value.
This is a central question for labor and management in health care to come to grips with. Cut cost or create value? Since it is often overlooked that there are about 2 million unionized health care workers in the U.S. with many of them working every day in this nation’s communities in the private and public sector, the unionized sector of health care can play a very significant role in the attainment of increased value in health care.
There are successful examples, too…

The issue of Value became a centerpiece in the largest single-employer collective bargaining environment in the U.S. in 2010 when the Unions of the Coalition of Kaiser Permanente proposed that Value Compass be placed in the collective bargaining agreement.

It was not a long or rancorous debate, and ultimately, through the highly developed interest based bargaining process; The Value Compass was placed in the Union contract.

At the time, it was a bit hard to foresee the significance of this proposal and inclusion in the nation’s largest single-employer collective bargaining agreement in the industry today covering 100,000 union members.

The Value Compass is a graphic representation of strategy…and as a bargaining topic, was re-defining an evolving collective bargaining trajectory, between KP and its Unions: one which was pushing the limits of traditional bargaining further and further.
The Unions were quite adamant about including the Value Compass in the CBA. Management countered that the “KP Promise” (“quality you can trust, convenient and easy access, caring with a personal touch, and affordable”) was already in the agreement, and the Value Compass was redundant.

The union’s interest in bargaining to include the Value Compass was directly linked to the union’s commitment to help create a shared vision at all levels of the organizations, and most importantly at the front line of care. To create a shared vision is the most essential and most difficult advance to be made in the labor-management divide.

Many observers and participants in collective bargaining question how it is even possible for there to be a shared vision between labor and management. Indeed others believe such an effort is contradictory to the labor and management relationship.

But the National Agreement between most of the unions and Kaiser Permanente had bound the parties together on a revolutionary journey in 2005. A joint strategic agreement was made through collective bargaining to develop unit based teams (UBTs) as a major driver of performance improvement. What was missing in the 2005 agreement was a strategy to make the idea of unit based teams come alive. Through a combination of union-led education of the union members about the crisis in US health care, placing the crisis in health care in the framework of broader economic crisis for all Americans, the groundwork was laid for a shared vision, and a strategy. It was becoming clear to labor and management that neither the KP Promise to its subscribers nor the Unions’ promise of a secure future for union members would be possible if the trajectory of health care cost continued on the trajectory it had been on for decades.

By focusing on patient-centered clinical quality and safety, patient experience, affordability, all the while maintaining the best place to work, the concept of VALUE creation as an equally balanced set of measureable outcomes to “all four points of the Value Compass” it became clear that a strategy had emerged which contained more than a “promise”…it contained a shared vision that met all stakeholders’ interests.

Indeed, in their article cited with the Value Compass graphic above, Paul Adler, Charles Heckscher, and Laurence Prusak placed this strategic guide as an important example at the center of the success for a “collaborative community.”

Those authors were clear in their analysis that a collaborative community must be seen as among the necessary and missing links for success in organizations, union and non-union alike. Indeed, moving labor and management to create “collaborative communities” remains elusive and rare. Far too often, while both labor and management express a desire for change and like the idea of working together, the paths for such collaboration rarely get far.

This article is an effort to urge parties to focus on Value and to do so collaboratively…before it is too late.

It should not be so difficult to create a shared vision, when we recognize the shared ownership of so many of the resources and outcomes of what our failed health care system has produced.

“In health care, the days of business as usual are over”. (1)

In the year since the publication of this article and going forward the discussion of patient-centered VALUE creation as a strategy for the U.S. healthcare industry is accelerating. And it should…let’s review.

For as long as any of us can remember, our nation has been frustrated and deeply concerned about the rise of the cost of health care.

We spend nearly 20% of our GDP on health care…Why is the amount and nature of our spending on health care bad for our economy? Are these not realities that we all must own?

1.) “If costs per enrollee in Medicare and Medicaid grow at the same rate over the next four decades as they have over the past four, those two programs will increase from 5% of GDP today to 20% by 2050. Despite the attention often paid to Social Security, spending on that program rises much more modestly — from 5% to 6% of GDP — over the same time period. Over the long run, the deficit impact of every other fiscal policy variable is swamped by the impact of health-care costs.”

2.) “In the past decade, health care cost growth has wiped out the hard-won earnings of workers and families”.

3.) Health care spending crowds out needed spending in other sectors of our economy such as education, and physical infrastructure .

4.) Though long overdue, with the passage of the ACA, we must now extend health care to millions of our people. With an already unsustainable spending trajectory, we do not have the luxury of being able to increase spending to meet this need.

…and further…We estimate that 30-50% of our health care spending is waste
Writing in Health Affairs five years ago, Dr. John Toussaint, MD, CEO of the Thedacare Center for Value in Appleton, WI, wrote that “every year there are 15 million instances of medical harm in the US, including drug errors, infections, and wrong-side surgeries. Throughout the care delivery process, doctors, nurses, and technicians are hamstrung by outmoded, cobbled together systems that encourage waste and do no favors to the most important figure in medicine: the patient”.

Clearly, the US health care system not only costs too much, but through its systemic wastefulness, the result is harm and tragedy. The problems are far more important than economics alone.

Sources such as the NY Times, and the Institute of Medicine and many other highly respected sources all agree that waste in US healthcare is at least $700 billion per year, and likely higher.

The major categories of waste include:

  • Unnecessary services…………………..………..$210 Billion
  • Unnecessary administrative cost…………….$190 Billion
  • Prices that are too high…………………………. $105 Billion
  • Preventative Missed Opportunity……………..$55 Billion
  • Inefficiency…………………………………………..$130 Billion
  • Fraud……………………………………………………. $75 Billion

Unknown to most, waste in US healthcare, and thereby among the root causes of the high cost rests in the nexus between a misguided payment system, fee-for service, which has dominated US health care reimbursements for 100 years, and has rewarded providers for services rendered regardless of outcome; and the delivery system itself which is based on intervention after illness or injury has occurred, and too often not based on prevention or on best evidence.

Chronic, mostly preventable conditions dominate our spending.
In his recent book, Don’t Let Healthcare Bankrupt America, former Kaiser Permanente Chairman and CEO, George Halvorson has written that:

  • 25 % of health care spending is on acute care
  • 75% is spent on chronic conditions (heart disease, asthma, diabetes, and many cancers) many of which are preventable.
  • Diabetes alone accounts for 40% of spending on health care, and 90-95% of diagnosed diabetes is type-2, the type that is preventable

5. The Robert Wood Johnson Foundation reports that 20% of Medicare spending is on elderly hospital patients who are re-admitted to hospitals within 30 days of readmission costing $26 billion annually. RWJ further estimates that $17 Billion of this spend is preventable.

6. Finally, 7% of hospital patients acquire a pressure ulcer during a hospital stay; that’s 7% out of 35.1 million hospital discharges in 2010 according to the CDC. Halvorson tells us that the cost of each pressure ulcer is $20,000-$100,000, and on average $40,000.
You do the math.


Of late there has been some promising news: the trajectory is changing…and to maintain these early indicators of downward cost trends, the work will only get harder and more urgent.

In the August 28, 2014, New York Times, we learned that the cost of Medicare is going down…for the first time since 1965!

Hopefully, patients, consumers, providers, insurers, clinicians, employees, executives, employers, policy makers, and legislators are learning that reducing the cost of health care is a responsibility that we all have….and that doing so is possible!

And in the excitement about cost reduction, we must learn that cost reduction is not the goal…improvement of our people’s health and improvement in the delivery and outcomes of care are the goals; that is, increased Value.

The drive for VALUE is transforming healthcare organization and management. We are seeing some acceleration from “management by outcome to management by design” as Dr. John Toussaint, MD of the ThedaCare Center for Value puts it.

Value Creation is NOT about cutting costs. According to the October, 2013 Harvard Business Review article by Michael Porter and Thomas Lee, The Strategy That Will Fix Healthcare, a better definition is: “achieving the best outcomes at lower costs”. The authors go to on say that “making this transformation is not a single step, but an overarching strategy”.

The National Bargaining in 2010 which placed the Value Compass in the collective bargaining agreement was a derivative of the Labor-Management Partnership (LMP) at Kaiser Permanente and its union partners in the Coalition. Those parties are on the right path…it is time for others to join.

To get started, we must find a way for labor and management to arrive at a place to enable such a collaborative community, labor-management partnership, or strategic alliance, and do so more quickly than it has taken thus far in the history of such efforts.

I suggest the time is NOW for labor and management to recognize the shared opportunities and responsibilities described above…the public nature of so much of our health care expenditures are, by definition joint assets, and frankly, the health of our communities must be seen as the responsibility of everyone. See the seminal work of Woolhander and Himmelstein, ”Paying for National Health Insurance but Not Getting It”, Health Affairs, July/August, 2002 , in which they show that more than 60% of health care spending is directly paid by government.

We can only solve the conditions that create poor health as an ethical responsibility owned by a broad community in which labor and management play a central role.
The New York Times reported on August 28, 2014 that the Congressional Budget Office (CBO) now projects substantially lower Medicare expenditures by 2019. “The difference between the current estimate for Medicare’s 2019 budget and the estimate for the 2019 budget four years ago is about $95 billion. That sum is greater than the government is expected to spend that year on unemployment insurance, welfare and Amtrak — combined. It’s equal to about one-fifth of the expected Pentagon budget in 2019. Widely discussed policy changes, like raising the estate tax, would generate just a tiny fraction of the budget savings relative to the recent changes in Medicare’s spending estimates.” According to the CBO analysis, this trend in lower Medicare cost is at its beginning stages for the first time since 1965!

There is a well-known school of thought that advocates for a substantial reduction in the percentage of the nation’s GDP (by far the largest such percentage in the world), while improving outcomes for the people of the nation. For more than a decade the U.S. Continues to rank 37th in the world in patient outcomes according to the World Health Organization. In addition to suggesting a vision of reduced cost and improved outcomes for patients, the call for reduction in GDP expenditure is a call for finding the means to cure other of the nation’s ills, among them job creation, mass transit, and improved opportunity for everyone in education, housing, retirement, public safety, environmental protection, as well as rebuilding the nation’s physical infrastructure.

Quoting from the NY Times article, we can see that the lower cost trends are pegged largely to changes in the way medicine is being practiced (emphasis added).
“…much of the recent reductions come from changes in behavior among doctors, nurses, hospitals and patients. Medicare beneficiaries are using fewer high-cost health care services than in the past — taking fewer brand-name drugs, for example, or spending less time in the hospital. The C.B.O.’s economists call these changes “technical changes,” and they dominate the downward revisions since 2010.

In all, technical changes have been responsible for a 12 percent reduction since 2010 in the estimates for Medicare spending over the decade ending in 2020. In dollar terms, that’s over $700 billion, which is more than budget cutters could save by eliminating the tax deduction for charitable giving or by converting Medicaid into a block-grant program or cutting military spending by 15 percent.

How long this all will last is a source of great debate in the world of health economics. There have been a series of analyses on the spending slowdown, some of which peg the Great Recession as a major cause. If those studies are right, the trend may reverse itself as the economy improves.

But the analysts at the Congressional Budget Office say the economy is playing a negligible role in what’s happening in Medicare, meaning that they’re more confident that the practice of medicine really is changing. And those changes, if they persist, will do more to reduce the federal deficit than nearly any policy option budget cutters talk about. (emphasis added).”

Another fundamentally important impact of reduced cost of healthcare is that this means a potential reduction in the cost coming out of employees’ paychecks and employers’ payrolls. As of 2011, the cost of family health care was over $20,000 and our nation’s median income at that time was just under $50,000. Unchecked, the health care cost trajectory vs. the flat wages of Americans would continue to erode the standard of living for the majority of people in the nation.

These macro dynamics, reduced spending on Medicare leading to lessening the burden on the federal deficit, freeing much needed resources for social and economic needs other than health care, and the potential for improving take-home pay are very important elements of social mission beliefs and values that labor and management can and should share. Such a discussion can help parties agree on an essential foundation for a changed relationship.


Returning to the essential need for the creation of a collaborative community, central to this process is for the parties to achieve a shared vision. A well-known practice to assist parties in the achievement of a shared vision is to utilize interest-based bargaining and interest-based problem solving.

When labor and management engage in such an interest based dialogue to identify interests, having them begin by sharing clarity about their respective missions is the place to start. Experience has taught us that these respective missions tend to be at risk when we understand the changing landscape of health care affordability, quality, patient experience, and the quality of the workforce experience (the points of the Value Compass).

The majority of health care delivery in the US remains overwhelmingly either not-for-profit or public. As such, organizations with strong social missions can and must find business models to enable the success of their respective social mission.
At the healthcare giver-patient interaction, as in every point of production is where value is created. How care is organized and delivered, understanding unit costs, and most importantly understanding the patients’ needs, all determine value at each and every patient interaction that goes on every day.

What is being done to empower value creation at each and every interaction? What is standing in the way?

These are the central questions in the dialogue that must take place between labor and management to enable value creation: with each patient interaction rolled up to strategic goals for the patient population of the health system as a whole in key areas of patient safety, clinical quality, patient satisfaction, while enabling the elusive and essential element of high employee engagement.

In my experience many obstacles stand in the way of a new culture of patient-centeredness which leads to increased value. But two stand out rooted in similar foundations of thinking and behavior.

For management, there is an inherent and historical belief that it is their sole responsibility to achieve outcomes for the enterprise. While there is often attention paid to the need for high employee engagement, as we know, employee engagement scores stand at about 30 out of an optimal score of 100. Time and time again, management will go to its employees in town hall meetings, send around videos, or have managers share the business challenges of the moment and suggest new “strategies” to fix them.
Too often, and frankly understandably, the employee reaction is “we’ve heard that before”, shoulders shrug, and not only is improvement not achieved, but lack of trust and lack of engagement grow deeper in the workforce.

For Unions, the struggles over the years in the relationship tend to overshadow all else. Grievances, arbitrations, picket lines, strikes, organizing campaigns, and overall day-to-day contract enforcement creates an environment of mistrust.

At the same time, the management has its mission and the union has its mission, missions that in today’s world of health care are clearly at risk.

The parties must enable a dialogue that allows for a joint analysis about whether or not their respective missions are being achieved. This is the best way to enable a broader dialogue that enables a patient-centered, value based discussion.

When we look at just one, but one huge influence on business models and the ability to achieve mission, health care finance, it should be possible for parties to embrace the social mission of reduced cost to American society as envisioned in the ACA, and thereby create a new joint mission-driven dialogue between and among them.

Sound simple? To have parties with a long history of mistrust and acrimony come together to chart a new path based on a joint realization that the economic, public policy, social, demographic, and competitive environment is not conducive to the full attainment of their mission statements?

It is not simple at all.

The joint realization if, once achieved can become a weight on the parties, a weight to get out from under because the parties realize they are talking a new language, entering uncharted territory, and they begin to have fears of giving up power and position, role clarity, and career security. While the environment is not conducive to enterprise success, the idea of a trusting collaboration seems…well, something not to trust!

And the parties wonder, what will all this change process cost?

Labor and management in the health care sector are already on a deep collision course. The forces in place to reduce costs, to recruit and train the workforce of the future, the daunting changes in technological advance and delivery of care models have unions and management in the industry in a hyper state of conflict and mistrust.

This is bad for patients, bad for the care-givers, bad for the community, and bad for the public policy goals that the ACA envisions.

The Kaiser Permanente-Coalition of Unions Labor Management Partnership has been in existence since 1997. About half way through those years, the parties committed to the mobilization of the front line union members, managers, and members in a unified march toward team-based system-wide improvement. Since that time, Kaiser Permanente has achieved some of the highest marks in the industry, and the 100,000 union members have seen wage increases above inflation and full protection of their benefits all these years.

Examples of success include, as of 2012:

  • JD Power and Associates rank Kaiser Permanente in CA, CO, and Mid-Atlantic States as #1 in patient satisfaction in health plans
  • NCQA identified KP as # 1 in 29 measures of quality
  • The Leapfrog Group identified 16 of the 53 top hospitals in the U.S. as Kaiser Permanente
  • And in 2013, KP was the only health plan to receive the Medicare 5 Star rating in all of its regions.

For a comprehensive look at the achievements of unit based teams, please see Thomas Kochan, The Kaiser Permanente Labor-Management Partnership, 2009-2013, Figures 2,3,4,5,6,7,8,9,10,11,12, Institute for Work and Employment, MIT Sloan School of Management, September, 2013. These illustrations show significant data-driven relationships between the systems put in place through collective bargaining to promote joint problem-solving at the front line of care, higher employee engagement, and improved outcomes for patients.

As health systems and their unions look for the means to engage in the dialogue so necessary to find ways of attaining their respective missions and to create a “collaborative community”, they wonder, does it have to take so long and what will it require in terms of time and resources?

Indeed the Kaiser/Coalition model seems daunting to many.

I think this perception misses the point.

Whole systems change is needed to attain the Triple Aim of improved health for each patient, improved health for the population, and in achieving this improvement, cost will be reduced.

Porter and Lee remind us that all the incremental approaches of the past have not been successful:

“Health care leaders have tried countless incremental fixes-attacking fraud, reducing errors, enforcing practice guidelines, making patients better “consumers”, implementing electronic medical records- but none have had much impact”. It’s time for a fundamentally new strategy. At its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost.”

Another incremental fix, or more accurately a short-cut to avoid is the traditional focus on “labor cost-saving” as ultimately antithetical to value creation…since at the heart of value creation is the necessary ingredient of high employee engagement to fully empower knowledge and experience in the processes of improvement…the essence of the “collaborative community”. If employees feel threatened in the process of value creation, their trust and engagement will be destroyed and with it the essential ingredient in success! Labor can become a participant in systemic cost savings through their participation in quality improvement, productivity, efficiency, and waste elimination.

Labor and management have an opportunity to use their respective missions to achieve a new joint one: create value, and in so doing remove the waste (lack of quality) in every patient interaction, guided by a joint strategic vision and execution that will achieve a healthier population, great jobs, high employee engagement, and lessons learned for a long time to come.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s