John ToussAInt: Full Interview

FULL INTERVIEW TRANSCRIPT

The transcript has been lightly edited for clarity…

Ted Stiles: I’m joined today by Dr. John Toussaint. John is the former CEO of ThedaCare Health System in Appleton, Wisconsin. Under John’s leadership, ThedaCare pioneered one of the most successful Lean transformation efforts in recent history. Today, John helps other organizations navigate those same journeys via the ThedaCare Center for Healthcare Value, a nonprofit group. He’s the author of three books, his most recent is Management on the Mend. I’m pleased to have him here today. Welcome, John.

John Toussaint: Thanks Ted; glad to be here with you.

TS: You get to travel around and see a lot of hospitals and evaluate them on cost and quality. How are we doing as a nation?

JT: Well, we have a lot of improvements to be made, but I would say in the last two or three years, we’re starting to see more uptake of the principles-based approach to the Lean journey rather than simply the tools-based approach. In my travels, there are many hospitals that are actually trying to apply the tools now, but what they’re finding is to sustain the improvements and build the control, they need something else. That’s really why we’ve gotten into the whole management system piece because that’s what’s missing in most hospitals.

TS: If we backed out a bit more and looked at just the current quality of our national health system in the last 10 years, do you see any gain? We’ll talk about Lean in a little bit.

JT: We’re still making a lot of mistakes in the industry. We’re not a highly reliable industry, so we really need to focus on reliability. I think that’s what’s missing. There’s an article published recently in the Journal of Patient Safety that showed anywhere between 240,000 and 400,000 die in U.S. hospitals due to medical error every year. I would say we still have a significant way to go here in terms of trying to build systems that create reliable outcomes for patients.

TS: You were a hospital CEO, so you know what that feels like to be at the helm of an organization like that. Is that what you suspect keeps most hospital CEOs up at night?

JT: I think more and more the patient safety piece of this is what’s really driving the change. I think there are really a couple of different things happening: 1) The government is actually reducing payment now to hospitals, so you really have to do more with less. 2) The issue of mistakes and problems has really become universally understood now. Patient safety is becoming top of mind for every CEO.

TS: In the spring, the Senate passed the SGR fix. How is that important to the framework of this conversation?

JT: The SGR fix was a bill passed in the 90s that had to do with physician payments that basically cut their payments each year for a number of years, but Congress would always repeal it every year. This last March (2015), they decided to actually change that and fix that bill. What went into that bill were many interesting things that most people haven’t read about because it wasn’t big news for whatever reason. There were two things I think were the biggest news about this bill: 1) It changes the payment system for physicians. The ACA changed the payment system for hospitals and the SGR fixed bill changes the payments for physicians. Now, physicians are being rewarded for having better health outcomes – and this is how it’ll unfold for the next few years. 2) This thing we’ve worked hard for at the Center was to release the Medicare data so we can start to do reporting on individual physician performance and compare them throughout the country on cost and quality. That’s a big deal, and I think we’re going to start to see more of this transparency of physician performance coming very soon.

TS: Transparency is a part of ThedaCare Center’s mission as well.

JT: Yeah. We’ve been involved in three parts of the healthcare reform activity: 1) Redesign in care delivery processes using Lean / Toyota Production System. 2) Transparency. How do we get data out of all these data sources like Medicare, Commercial Claims, etc.? Then, build reporting mechanisms so those people can understand how they’re actually comparing to their peers – and we publicly report that so the customer / patient can see that. 3) Payment redesign itself. We have several experiments that we’re involved with to actually change from a fee-for-service payments to pay-for-health-outcome payments.

TS: The work in that space with those experiments – give me an example of how that’s been working.

JT: What we’re doing at the moment is working with a larger employer coalition and a few providers in two different markets to figure out how we can create a payment mechanism that would reward doctors and hospitals to deliver better health outcomes. Better health rather than more care. The other major reform initiative on payment is ACO (Accountable Care Organizations) programs that the Center for Medicare / Medicaid Services has been directing, and we’ve been involved in the pioneer program, which is the first one of the payment system changes the government has put together. There were 32 healthcare organizations involved in that first experiment. What it showed is that we can significantly reduce the total cost of care and Medicare can save tens of millions of dollars. We know there’s a great opportunity and we’re now in the experimentation phase on these different payment systems.

TS: If you look at those top-performing pioneer ACOs, is there a correlation between Lean and their performance?

JT: The top-performing one is ThedaCare ACO and of course ThedaCare’s been in the Lean journey for a dozen years. They were able to reduce the total cost of care for 20,000 Medicare beneficiaries by 4.6 percent in one year. Using the principles of process improvement, they were able to drastically reduce the cost and improve the quality. CMS actually reported the quality performance metrics last fall for all the ACOs, and ThedaCare ACO was No. 1 in the country. There’s evidence when you really apply these principles, you can improve population health and reduce the cost of managing populations. That’s a pretty big deal because we’re moving to this population health-base thinking and payment system, and now we’re starting to see evidence the organizations that are down this methodology path are the ones performing the best.

TS: For some of our viewers who may not be familiar with some of that new model shift, explain why it’s so different, or perhaps better than where we currently are with this fee-for-service model.

JT: In the fee-for-service model, we’re basically paid to do things to people. So, when the hospital’s full, we’re happy as healthcare executives. The more heart surgeries and catheterizations we do, the more we get paid. But, the scientific studies show we actually overutilize in heart care and orthopedics care – and there may be as much as 30 to 40 percent overutilization in some of the areas. What we really need is a payment mechanism that allows us to do the right thing at the right time, rather than more things at the wrong time. That’s why we need to move from this fee-for-service to a health outcomes approach, which is more about not being, “Well, wouldn’t you not want to be in the hospital? Well, we can keep you out of the hospital if we have the resources designed to do that.” From a patient perspective, I’d rather be at home with homecare and other services than be in the hospital. There’s a way for us to start to redesign services to actually deliver better health outcomes. Those are the payment mechanisms we’re experimenting with – how can we build something that would reward health executives to keep people out of the hospital.

TS: It sounds a little similar to some of the early stories in manufacturing when Lean was first taking hold in the United States. In some organizations, people were paid based on how much stuff they make versus what the customer wanted or needed. You have these incentives in place that were driving the wrong and wasteful behaviors that revolved around building inventory that wasn’t needed. That was a real roadblock – it wasn’t until you could change that until people started thinking about a pull system based on actual demand.

JT: I think there are a lot of similarities there. We are doing unnecessary things; we have more inventory than we need; our hospitals have more patients than they need to have; and what we need to do is build a system that’s patient centered that takes the patient’s needs and wants into play. Right now, the way we get paid doesn’t account for that, so we need to change that.

TS: If you look at this experimentation that ThedaCare did, and others like Virginia Mason early on, there’s clearly a growing body of evidence this works in different health systems. Talk a little about what you see on that front.

JT: We work with 60 different health systems around North America at this time that are very committed to applying this Lean methodology to their operations. What we’re seeing is dramatic improvements. Sutter Gould, which is one of our healthcare value network members, used this methodology over the last four or five years to become the highest rated clinic in all California for customer service and quality. We’re starting to see world-class performance results emerging from well beyond the Virginia Masons and ThedaCares. The Palo Alto Medical Foundation has done some tremendous work on their mission to satisfaction and quality scores. They rank very high on consumer reports.

For example, Gundersen Lutheran has been using these principles for a long time in Wisconsin, they have the lowest total cost for Medicare patients in the nation. So, it doesn’t matter where you are in the country or what kind of organization you work for, we’re seeing this happening from rural hospitals all the way to large academic medical centers. These are real results, not just trusting the marketing department. They’re third-party either government or consumer reports reported results.

TS: Which is exciting, and we’ve certainly seen that from where we sit. I remember when we started working in the healthcare space in 2006, it was very exploratory and there was a lot of early thinking that said, “Well, we’re different. That can’t be done here.” Which, by the way, we heard in manufacturing as well. Some things never change I suppose. What was the original vision of the Center and how have you had to change its focus through the years to be there and help support these organizations on their journey?

JT: I started the Center in 2008 after it became clear to me this methodology has the potential to transform the whole industry. If we go back to the errors that we talked about earlier, it is unacceptable this industry is injuring and killing people when it’s not necessary. It doesn’t have to be that way, so we need to change that. The learnings we got when I was CEO – that we really could get to zero defects, and we got to zero on several different things related to patient safety. In 2008, I said in the Board at ThedaCare that you need to go spend more time with the industry and teach them what you’ve learned and will continue to learn.

We started with the idea we simply wanted to raise awareness and there’s a different way to manage an organization in healthcare. We started by building a summit where people could come and learn from each other and network about Lean in healthcare. We started writing books and articles and built this network of peer-to-peer learning called the Healthcare Value Network. For about five or six years, did nothing by awareness building within the industry. Today, Lean is part of the mainstream of healthcare. I’m not saying a lot of people know how to do it, but at least the thinking is out there now, and people understand there’s a different option.

Where we’re moving next at the Center is being more specifically involved with the transformation process in organizations. We’re spending more time directly coaching CEOs who want to go there because frankly, they just don’t know what they don’t know – and they need some help. We have a whole team of executives now who have been at it for years, and we think we can help them accelerate their journey.

TS: This team includes other healthcare CEOs as well.

JT: Yes. Former and current CEOs. We’re trying to collect the best of the best who have the knowledge base to push the industry forward faster.

TS: In our work, it appears that Lean, in some form, is touching at least half the hospitals – perhaps a little more in this country – but a lot of it still seems very tactical and tools based. It’s not surprising many are feeling they’re plateauing and throwing more effort to maintain the same level of impact, and they’re having trouble sustaining things. We have our ideas why that is, but I’d love to hear your ideas on what they’re missing.

JT: I think at least in healthcare, as Lean methodology was introduced to the industry, it got the reputation as being simply a series of tools. Lean does have a toolkit associated with it, but the real component of the cultural transformation is the management of and leadership systems; the way we act and behave differently; and to build a culture of continuous improvement. What’s happened is the leaders and CEOs have delegated a Lean expert to go to some kaizen events and value stream maps, so now they’re doing Lean. Of course, you can’t delegate the Lean aspects of this down into the organization. You have to actually be directly involved as the leader and CEO – and I think that’s where we see most of the organizations failing. They don’t recognize there’s an overall management system that’s required for success, which is why Management on the Mend was written because it’s bigger than simply a toolbox. It’s really about cultural change; leadership behavior change; and a management system that supports daily continuous improvement.

TS: Diving a little deeper into that, to those who are uninitiated into the thinking, what are the high-level hallmarks to the new management system for the top-third of the organization?

JT: One of the key principles of this management system is leading with humility. What does that mean? It means you don’t have all the answers. You are actually trying to understand the current state background conditions before you jump to the wrong solutions. We need to get out to the gemba – where the value’s created for our patients – and understand the barriers and problems that our front-line workers are facing. I see so many CEOs sit in their offices all day long, and they don’t really have a clue about their businesses. We need to get out and see the business. We need to get out to the emergency room and see how long our patients are waiting, or how many barriers our nurses have. That’s a different behavioral characteristic than what we usually see in healthcare executives. “Oh that’s somebody else’s job.” No that’s actually your job to understand the business. So, that’s leading with humility.

Respect for people is another one of the principles. What we’re saying as a senior leader is we respect our staff members to identify and solve problems every day. What usually happens is a staff member or front-line nurse identifies a problem, then it ends up on the manager’s desk. Sometimes the manager gets to it, but most of the time they don’t. The manager is getting all this stuff from the top saying “do this and this and this,” when what we really need to do is shift the whole thing to what do our workers need to deliver value to the patients? Part of what they need is to have the power to solve problems every day, and we haven’t given them the opportunity to do that. These are all different leadership behaviors; it’s a leadership paradigm where the CEO is on the bottom and the staff member is at the top. The CEO’s job is to support those staff members.

TS: Were you on the other side of that line when you were coming up? Did you have to learn that?

JT: Definitely. I was a product of my environment, so the behavior model with me was the “buck stops with me” and blaming, controlling, it’s not about the process it’s about the people – all of that what I call white-coat leadership. What we really need is improvement leadership: mentor, facilitator, teacher, coach and student. That’s how we should be acting. It’s been a huge shift for me from this autocratic top-down world to my job to be the support staff for my front-line teams. That’s a completely different role.

TS: As we work with different health systems throughout the country, I’m always shocked how many different approaches and angles the organizations try to accomplish. As you point out in the book, the experiment has gone on long enough over the last 10 years that we can see some themes that represent common denominators of successful transformation efforts. When you’re visiting a hospital, what does that look like? What are some visual cues you see?

JT: The way I break it down is there’s some really key leadership that’s required. I’m looking for standard work at the leadership level. Is there visual management? Do I see leaders going to the front line, and not just telling people what to do, but find the barriers? Do I see very clearly displayed true north metrics? I went into a hospital the other day, and they had 55 “true north” metrics. I said, “Are you sure you’re going to get all 55 of those things approved this year?” Of course, everybody’s going, “uhhh”. So the point is, we have to create clarity. That’s what I’m looking for at the leadership level – have they created clarity, and most organizations have not. We don’t know what we should be working on and the problems we should be working on.

There’s no clarity about strategy. I was in another hospital three months ago. I asked them to identify all their strategic initiatives. They had 248 strategic initiatives. No wonder the place is a disaster. There are those kinds of things at the leadership level that we’re really looking for, and you can walk in and see that in about five minutes. It’s the leadership standard work and it’s the leadership behavior; it’s leading with humility, are we seeing that?

Then I’m looking for are we doing model cell work? Within the tool-based approach to this method, you have a gazillion things going on that aren’t connected to anything. What I’m looking for now is really an inch wide mile deep approach to redesigning in a radical way the work that’s being done. Whether that’s in a clinic, emergency room or surgical suite – I want to see a radically redesigned and improved set of processes that are delivering better value to the customer. When you add those leadership pieces together with a model cell, and then once the model cell is created you start spreading that, that is the framework for success.

TS: It’s encouraging to see more of those conversations happening. We’re beginning to see more of that in our own work as well. Leaders are starting to understand they might be missing that component.

JT: I would say, one of the main problems we have in the industry today is we don’t have the operational expertise that’s required. That’s the work that you do. Try to bring operational expertise and Lean thinkers into these organizations. In most cases, and ours was no different, we had no knowledge. So I really believe, and what I’m recommending to CEOs today, is to bring someone in who actually knows what the Lean methodology is. Someone that has operational experience; understands the principles; and has had success. That’s a really important piece we did too late in our journey – it needs to be done earlier.

TS: You’re talking specifically about people, perhaps from other industries, where this has been road tested.

JT: It could be from other industries. We have now about 10 years of experience in healthcare, which we can start pulling people who have been at it for a few years. I think it can be either. We went to industry because 12 years ago no one in healthcare even heard of this. I still think that’s a very reasonable play. We have to match the person with the position culturally because manufacturing folks don’t understand healthcare culture, but if culture can be matched, I think that’s a great strategy.

TS: It’s interesting. People in manufacturing know there’s something happening in healthcare with this methodology and management system – and some are very interested. They’re hitting this point where in their own careers they’re saying, “Do I really need to spend the next 15 years taking seven seconds off how fast we make this widget when I now know there’s a pathway to leverage this thinking in a way that improves care and people’s lives?”

JT: That’s a value that Stiles Associates has, where you can match those people ready to make that leap to organizations that need that expertise. We’re seeing that more and more. I get calls regularly from really good people in manufacturing who are saying, “I’ve proved I can do it on widgets, now I want to prove I can actually make a difference in healthcare.” Frankly, we need a lot of help.

TS: Yea it’s an exciting time for that. You talk quite a bit in the book about the central improvement team. That team is the pillar for a lot of this work – why is it important that report goes up to the CEO versus the CFO or HR?

JT: There are a couple reasons why that really needs to be in the CEO’s hands. CEOs don’t know what they don’t know, so they’re going to learn. The central improvement office can be a place they’re actually learning. I went into this having no knowledge; couldn’t even spell the word “Lean.” I read about the Toyota Production System but had no clue what it meant. I had to start from scratch – I needed coaches and to understand what we were building as a set of competencies for this team. Then, I needed to be involved with the team so it was clear to the rest of the organization that I was serious about this.

So many times we start these little projects – like the management flavor of the day – and our staff were tremendously skeptical of these flavors of the day. They should be because most of it flames out. If the CEO is not directly involved in learning the competencies of the central improvement office, then it’s going to be considered another management flavor of the day. And frankly, if the CEO’s not going to get trained then it might be the flavor of the day because after a couple years: “Yea, we did some kaizen and got a little improvement over here, but otherwise it didn’t work so now we’re done.” Well, that’s because the CEO never really had a clue.

TS: I like that in the book, you also mention the importance of viewing the rotational role in the central improvement team – if you’re doing this right as we see in manufacturing – that’s where you will groom and develop your Lean leaders, which is what you want. They come in and then have a pathway back into operations. Am I characterizing that [correctly]?

JT: Yes, that is what one of my mentors, George Koenigsaecker, suggested we do. Since I didn’t know any better I did it, and it worked pretty well. In the book, I also describe different ways of putting together your central office, so if you go to Health East where Didier Rabino (former Anderson Windows Plant Manager) is working with the CEO, he wants to keep that office small and go deep with the managers to make sure they’re trained effectively. He’s got a team of highly qualified folks that are really working hand in hand with the managers to teach the principles as well as the tools, and that’s a different approach. The points I’m making in this book are here’s the framework for a successful transformation, and part of that framework is the central improvement office. How you deploy and design that central improvement office will be situational. The key is you got to have the core competencies there in the central office, so if you choose to use that as your leadership development program – fine. Or, if you choose to do it like Health East is doing it like a deep-dive training center in the real work for the management team – that’s fine. But, you got to have the expertise because this stuff is hard.

TS: We see a pattern where most of the successful organizations we get a chance to visit are usually doing both. They have some external consultants who have a lot of expertise in this area matched up with an internal office and expertise. I know ThedaCare took a similar path. How critical is that?

JT: I think there are some leaders now who are actually quite knowledgeable, so when the leaders who actually understand things, they can go hire the internal people they need. They may be hiring them from manufacturing and bringing them in this expertise, but they know enough as leaders where I don’t think they need them as external consultants. However, for the lion’s share of CEOs in healthcare today, they need external help because first of all, they don’t even know who to hire internally. They need that external help to help build that expertise over time, which allows them to get rid of the external help. That should always be the goal – to build your own system so you don’t need those external consultants, but for a time, most places are going to need external consultants.

TS: It certainly seems to be the way you have to start. In the beginning, some of the messaging – particularly to leadership – is probably pretty unpopular and it’s hard to do that from the inside.

JT: We don’t get any training in this. I had no training in quality improvement 101 in medical school or residency. Still today, except for a few places like Michigan and Stanford and a couple others, they’re still not teaching this stuff. Now I think in the MHA schools this is becoming more of a mainstream activity, but it’s still tools-based and not transformation-based thinking. The reality is until our education system catches up, we’re going to need external consultants.

TS: This is the third book you’ve written, and I know you’ve published a lot in journals as well, what did you want to accomplish with this book?

JT: This book is written specifically for healthcare executives on the transformation journey. I’ve studied 11 organizations, although I’ve been to 162 now in 16 countries, so I’ve been really a student of the work that’s been going on throughout the world in this transformational activity. This book is a companion of the learnings from all those years of work, and it’s a guide. What I’ve written in this book are the core elements of a successful transformation. I don’t tell people exactly how to do it, but I do give examples of how organizations have done it.

We have three different Lean central office examples in this book. We have three different examples of model cells – all of which have been very successful. We try to find how people are doing this while thinking about it from a transformation standpoint. The best-known way today – I’m not saying next year I’ll come out with an update – is the best thinking for a healthcare transformation from my perspective.

TS: You’ve been such a champion of this movement and thinking of adoption of the Lean Management System for several years. Are you hopeful? How are you feeling about hospitals around the country looking to make this happen? Do you see this going someplace good?

JT: I think it’s a bit too early to tell, but I do think there are emerging best practices throughout North America. If we continue to see that acceleration, these places will be acting as the models for the nation to follow. The Secretary of the VA – the former P&G CEO who’s been at this a long time and understands  operational excellence –  came out three weeks ago to the entire VA and Congress and said we’re going to be using Lean methodology to transform the VA to deliver better customer service to their veterans. That’s kind of a big statement to make. Patrick Conway, the leader at the Center for Medicare / Medicaid Services did the same thing last week. He said in an article in “Health Affairs” that the Lean method is how we’re going to transform not on the activities in the CMS, but the rest of the delivery system.

We have leaders at the very highest levels of the government saying this is going to be the way we do things. What I’m seeing in the private sector is now an acknowledgement we have a problem. The acknowledgement is we have two paths to take. One is slash and burn: go fire a thousand workers, half of them nurses. Do you think that quality’s going to improve when you fire half your nurses? The other way is to apply a methodology that’s been shown to improve quality and lower cost, and to do it every year. I’m optimistic we’ve identified this methodology that can actually lead us to overall health outcomes. We’re starting to prove that in scientific studies, and I think that’s where the industry is going to go. Like I said, it’s too early to tell. We have places that are doing great things and we need a few more before everyone gets on board. I don’t think there are many other options.

TS: We’re big fans of the work you do, and we’re encouraged by the path that’s unfolding in front of us. It’s hard work, but you’re really doing a great job and we commend that. For anybody interested in reading more on these topics and the Lean management system, we highly recommend this book as well as John’s other books. They can all be found on the website for ThedaCare Center for Healthcare Value. Thanks again, John.

JT: Thank you.