Nikos Mourkogiannis: Purpose, Alignment, and Health Care

My Google alerts on the use of the word "purpose" increased dramatically once health-care reform captured the headlines. And in reading those alerts, I was fascinated to see how the thinking on the subject evolved.

Everyone seemed to agree that the health-care system would be shaped by the purpose that it would serve. Where the disagreement occurred was over what the purpose in fact was, with people divided by ideology. Some thought the U.S. should be true to its heritage of discovery and innovation and develop a new system of health care. There were those who spoke of extending to the entire population the excellent coverage that a lucky fraction of Americans have. Yet others saw this as an opportunity for altruism and wanted to guarantee for all the right to health care.

Eventually, however, as often happens when people master the courage to talk candidly about purpose, consensus was achieved. The purpose of health-care reform is not discovery or excellence or altruism. It is to control costs. And it will take heroism—a Herculean effort to bend the cost curve. That's why the responsibility has not fallen to the House and Senate committees that supervise health care but to those that control the purse strings.

More Than Universal Coverage In actuality, the politicians know that merely extending coverage to all Americans is easy. That does not require reform; it can be accomplished by legislation. But their mission is to come up with options on who pays and how much, so that specific minimum benefits are affordable to the average American.

And while the purpose is now clear, how it gets achieved—the strategy by which it gets accomplished—is less so. As is often the case with strategy, especially when a low-cost solution is required, it will come down to numbers. In this sense, matters of public policy are no different than corporate ones, except that politicians must worry about polls and voters, while executives have to worry about stock prices and shareholders (at least at publicly traded companies). In both cases, leaders have to align two sets of numbers: the cost of what they want to do and what the market (i.e., voters or shareholders) will bear.

There is no doubt that politicians are aligning the numbers—at least on paper—and that we will have a health-care bill in the fall. And then the real leadership challenges will emerge: The numbers will have to be aligned in a practical, workaday manner by the leadership team that will manage the health-care system. That team needs to be focused on strategy while never losing sight of its real purpose.

Single-Minded Purpose The success of this leadership team—which has yet to be formed—will greatly depend on how well it does this. The temptation to burden the new health-care system with objectives that don't fit its purpose will be great. People will keep asking for incentives for healthy lifestyles, for the elimination of disparities, for more innovation, and the like.

It will take enormous courage for the members of the team to keep reminding us that the key to cost control is standardization and that choice, innovation, and high-quality service are incompatible with the effort to keep costs down for the average American. Absent the courage to be single-minded, the team will fail.

Yet courage will not be enough to ensure success. The challenges for the leadership team that will manage the system will extend to resolving issues related to organizational design, people, compensation, control systems, and, most important, values that will need to be both espoused and practiced, all while keeping purpose uppermost in their minds.

If the team members are not aligned to the purpose, the reform will not work. The bill will pass, but eventually we will have another unsuccessful health-care system on our hands. The obstacles are many, and they include our own prejudices. Here are the 10 most important obstacles:

Large systems, like the health-care system we want to build, require hierarchies and bureaucracies. We despise these two words. However, we do not really know how to manage scale without these two things while keeping costs down. If we try to manage the system just through the market, as advocated by many, costs will increase. Markets are good for setting prices, not so good at keeping them down.

A lot of discussion to date has been focused on the insurance companies. However, if one wants to control costs, all suppliers in the health-care system have to fall in line. This includes doctors and hospitals, two factions that have considerable influence in the U.S.

A lot of suggestions have been made on how to control costs through information technology. There is no question that our hospitals are paper factories and that 30% of all health-care costs are administrative. However, to expect technology to solve the problem on its own is a folly. Taking costs out of they system will only happen when difficult decisions, each of which is bound to upset some faction, are made.

Controlling costs often entails challenging cherished beliefs and eliminating long-held practices. Because of the belief that life itself is priceless, many will oppose the rationing of access to care and a system that makes only some medications available or limits medications to certain group.

Doctors will oppose a compensation system that is not based on hours spent or procedures performed, although there has never been a large, low-cost system that has paid doctors in any way other than by salary.

Insurance companies will merge or band together to increase their power to negotiate higher premiums. As a nation we need to think hard about the structure of this industry. Especially now that we know (after the AIG experience) what happens to the insurer of last resort.

Pharmaceutical companies will innovate and will dare the system not to pay the bill. Resisting the new in favor of the old and tried is not easy. For some this is also un-American. Our love of the new will make it too easy for us just to cave in and pay the high prices the pharmaceutical companies will demand.

We will need a pipeline of warriors who are prepared to fight a never-ending war against health-care costs. While those who want to be warriors usually have other career paths in mind, they are the kind of people we need in politics, in management, in contract negotiations, and procurement for the new system to work.

A lot of people entered the health-care industry because they want to help others, and they are rightly proud of having compassion as one of their core values. Yet other values are needed as well, especially consistency and discipline. They are not prevalent in our health-care system yet will be essential to serving the purpose of making health care affordable to the average American. We all recognize the value of the doctor's intuition and the nurse's compassion. Yet lack of discipline in observing evidence-based procedures for four common conditions is associated with a lot of recurring costs—let alone hundreds of thousands of deaths each year.

The ultimate challenge will be introducing a culture of performance and accountability to the new system. Health care, unlike health or wellness, is subject to easy benchmarking. Our new system will be very comparable to universal coverage systems already in place in Europe and in countries whose per capita incomes and demographics are comparable to the U.S.'s. The leadership team that will manage the U.S. system must, therefore, assume the responsibility to give the American public a system that delivers the same benefits and at lower cost. For when it comes to cost, the scale of our system must work to our advantage.

The health-care system that will emerge in the next few years will change the U.S. forever. It will be as big as the entire British economy. And to take this step into the future, the U.S. has to look to its past. The country has seemingly forgotten how to produce on a massive scale and at low cost. The greatest achievement of this type is still Henry Ford's Model T.

If we allow ourselves the folly of believing that the purpose of health-care reform is something other than Model T coverage—basic, no frills, and widely affordable—then either universal coverage will not be achieved or we will go bankrupt.

Before it's here, it's on the Bloomberg Terminal.