InReview – Issue 73

Transforming Health Care: Virginia Mason Medical Center’s Pursuit of the Perfect Patient Experience
by Charles Kenney. CRC Press. 2010. xxiii, 205 pp.

Charles Kenney is the author of 10 books with a recent focus on health care. He is a former reporter with The Boston Globe and the Boston CBS television affiliate.

The Virginia Mason Hospital in Seattle was struggling in 1998, having lost money for the first time in its history (going back to 1920). The concern was not financial, however, but there was also an issue with quality care and this troubled the leaders for the hospital even more. When Gary Kaplan became CEO in 2000, they took on a new initiative to improve both, seeking to become a patient-centered medical institution, and to develop effective and reliable systems following the model of the Toyota Production System. It may seem a bit of a stretch to think that a hospital could be run on the principles of a manufacturing company, and it did, in fact, require significant adaptation to make this work.

This book tells the story of the steps of transformation for Virginia Mason from the first idea in 2000, to the trips to Japan to observe and be trained in lean manufacturing principles, to today’s practice. It chronicles the effort through the positive steps of reduced costs and increased quality. It does not skip past the failures along the way including a woman who died from a hospital error, but openly discusses the case and the lessons from it. It works through the challenges of change management, when many leaders in the hospital thought the team was on the wrong track and some key doctors left the hospital.

At this point, Virginia Mason has opened its first facility with no waiting rooms (waiting rooms represent waste since nothing productive happens there), had created standard procedures for many of its practices, and has been recently identified by The Leapfrog Group as one of two hospitals of the decade for its high quality and low costs. The book ends with the discussion about the future journey, since the path to higher quality health care at lower costs simply does not end.

This is an outstanding book on many levels. It provides great information about a surprising journey to transform health care. The book includes personalities and stories, which makes it meaningful and personal. And while it is focused on health care, it would be valuable reading for those in other industries. I could see others applying the ideas of this book to education, retail clothing, a consulting business, or a software business. It can also be viewed as a primer on change management: How do you introduce radical change to an organization and bring others along?

My only quibbles with the book are its price (almost $40), which will keep some people away, and its health care focus, which will make it seem irrelevant for other types of businesses.

This is both a great story and a great teaching tool for leadership. I highly recommend this book.

Reviewed by Al Erisman

After the Fall: Saving Capitalism From Wall Street and Washington by Nicole Gelinas. New York: Encounter Books, 2009. xi, 227 pp.

Nicole Gelinas is a chartered financial analyst, a Manhattan Institute senior fellow, a member of the New York Society of Securities Analysts, and a contributing editor to City Journal. She has a B.A. in English literature.

After the Fall does an analysis of what happened in the economic crisis of 2008. Her analysis starts in the 1920s, looking at the factors that led up to the Great Depression. After Wall Street fell in 1929, the government instituted a series of policies aimed at protecting speculators — and others they would drag down with them — from themselves. No longer could they borrow all of the money to buy stocks, assuming they would always go up. By the time Wall Street fell, “investors” were leveraged many times over. Community banks, who had joined the speculation binge, were separated from the investment banks, assuring that speculation could be isolated and contained. The goal was not to keep banks, or other companies, from failing. Rather, it was to allow them to fail if they managed poorly, without taking down the whole financial system with them.

“Depression-era regulations, because they encouraged free markets rather than smothered them, served the country well for more than half a century,” she writes.

But in 1984, when Continental Bank in Illinois became distressed, the government rushed in to save the bank, preventing the banking system from collapsing. “The era of ‘too big to fail’ thus began.” she argues. Encouraged by the implicit promise of government support, banks began to ratchet up their irresponsible behavior. “The trend of breaking down the Depression-era separation of banking and securities businesses only accelerated,” Gelinas writes. By 1999, when Glass-Steagle (the law that separated the roles of banking from securities) had formally been repealed, it was only a formality. Many of the key pieces had already been compromised. Banks had won concessions from the government because they couldn’t compete for talent or customers with the more “high flying” securities houses. And this new banking industry demonstrated the maxim that speculators like to bet with somebody else’s money more than with their own.

The parallels to the current economic crisis are clear. People were buying homes like they used to buy stocks back in the 1920s: no money down, a good bet since home prices will always go up. And the moral hazard initiated by the government in rescuing Continental Bank simply enabled these bankers to speculate and leverage even more, knowing there was no downside risk.

Gelinas key message is that capitalism needs clear rules in order to flourish, and that must include allowing bad businesses to fail. Bail outs only encourage further bad behavior, and what we have seen in the recent financial meltdown is simply a lesson forgotten from what happened in the 1920s and ’30s.

She suggests a small bit of self doubt near the end: “If the nation thinks that it has no choice but to protect lenders to financial firms from market forces, it should treat the industry as an arm of the government … But surely, before Washington permanently nationalizes finance, so important to the economy, it at least should try the other approach first.”

This bit of self doubt about her own very logical argument may be rooted in two big weaknesses in the book. The first is how to deal with a crisis. Given the situation in 2007-08, what should be done now? It makes no more sense to talk about policy and government rules at this point, than it does to lecture a heart attack victim in the emergency room on the need for better exercise and diet. There will be a time for that, but not now. Further, we don’t have the luxury of experiment here. Letting some of these banks fail just to see what happens can’t be “done over” if it doesn’t work.

The second weakness may be more important. She seems to operate from the assumption that the government can set up a perfect set of rules and then businesses can safely operate to the margins of the law, failing if they go too far and succeeding if they get by. In this age of technology and complexity, it would seem that this is a recipe for disaster. There is no way to anticipate all of the “innovations” people may try in the name of profit maximization. There remains the importance of moral leadership, a subject she doesn’t mention.

This book is worth reading. Its elegant argument is well crafted and draws deeply on history. But I believe in spite of this, the book has a fatal flaw.

Reviewed by Al Erisman