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THE MISSING LINK: TOP MANAGEMENT AS CHANGE AGENTS

ONE OF MY CEO BUDDIES was fuming about his company’s skyrocketing health care costs. He had participated in showdowns in Milwaukee between payer CEOs and CEOs of regional health care systems. They were angry shouting matches.

Still, when I asked my friend how much his company was spending on health care, he couldn’t come up with the number, either on a gross basis or per employee. The old management truism says, “You get what you measure,” so it was obvious that not much in the way of in-depth management of health care costs was going on in his company, despite his general passion and frustration on the subject.

In general, not many C-level executives are involved in management or leadership on health care issues. That holds true even though health costs are usually the second- or third-largest cost in the company.

Executives usually delegate that responsibility and authority to their human resources departments. HR people are generally good stewards of the existing plan, and they perform well in the system that is framed out for them by providers and insurers. But they are not often change agents in an economic sector badly in need of change. At Serigraph, the two managers of our health care plan in the HR department have become change agents, but they are the exception to the rule.

The health care system isn’t a system that works for payers or their employees. It’s an economic model that doesn’t work. It operates pretty well on the medical side of the equation, but it’s mayhem on the business side.

In that dysfunctional environment, routine stewardship is not enough. Because health care delivery, payments, and quality processes are hugely flawed, existing business models need to be completely re-engineered.

The missing link is management—aggressive management—the same kind of management that is applied in many other sides of successful businesses.

Many companies have professionalized their sourcing functions, often taking it to the level of global sourcing. Advanced degrees are offered in the field. So why not professionalize the sourcing of health care? Why tough, professional sourcing is rare in health care is a mystery to me.

Most companies simply run a routine bidding process among insurers every year or two and then take the best deal offered. Even self-insured companies, who are their own risk pool, use a similar routine bidding process to find a network and discounts. This is a shallow exercise that, more often than not, does little to change the practices of providers. Year in, year out, it’s business as usual.

Essentially, most private companies trust the big health plans to do their purchasing work for them. That model has not worked well, partly because the health plans are somewhat dependent on the providers for creating their networks. They have a foot in both payer and provider camps. They are middlemen in a busted business model.

I hate the phrase, but what’s needed is a paradigm shift. CEOs and CFOs need to grab the non-system by the scruff of the neck and shake it up.

Jim Hagedorn, CEO of Scotts Miracle-Gro, a lawn care products company, did just that. In 2007, he got religion on managing health as a way of attacking health costs. He uses the big-stick and big-carrot approach. Hagedorn is famous for firing an employee in the probation period because the recruit refused to stop smoking. At Scotts, you either listen to your health coach or your premiums go up. Their carrot is a huge investment in employee health: a $4 million per year wellness program and a $5 million on-site fitness and medical center manned by two doctors, five nurses, a dietician, a counselor, and two physical therapists.

At KI in Green Bay, Wisconsin, CEO Dick Resch broke the mold when he tied health premium levels to healthiness. There are A, B, C, and D levels of health, determined by annual health-risk assessments. The healthy A players incur very low monthly premiums; the Ds pay the highest rate. KI also promotes a wellness-fitness culture and has an on-site fitness center.

At Serigraph, I am heavily engaged in the promotion of health and the reduction of health costs. Many of our managers are fitness buffs, and we have played them up as positive examples in company publications.

I try to lead by word and by example. At seventy-one, I was on a team of eight older cyclists who competed in the 2008 Race Across America. We did the continent from Oceanside, California, to Annapolis, Maryland, in seven days and twenty-one hours. We raced in rotation day and night and raised $47,000 for the Make-a-Wish Foundation. In 2009, I cross-country skied my fourteenth American Birkebeiner, a hilly, thirty-two-mile course in northeastern Wisconsin.

But this is not about my athletic prowess. I have only modest talent and was slow in both events. This is about C-level leadership.

SEARCH FOR BEST PRACTICES

One of our most reliable management methods at Serigraph is to benchmark aggressively. We seek out best business practices in a broad spectrum of disciplines. We send a team to visit standout companies to learn what they are doing right and bring lessons back to our company for adoption. We have visited dozens of companies that have made innovative changes in health care management and we have adopted their best ideas.

Serigraph is a learning organization. We do not claim to have all the answers; we learn from others, as well as learning internally from each other.

We have not gone as far as KI on A-B-C-D premium levels, but we do charge smokers 10 percent more for their monthly premiums. There has been little adverse reaction from our declining number of smokers, probably because they know full well that their health care will be more expensive than for non-smokers.

Like Scotts and Quad/Graphics, we have an on-site clinic and fitness center. Our clinic has been staffed by a nurse practitioner, a nurse who also acts as a health coach, a dietician, and a chiropractor.

Like Miller Electric in Appleton, Wisconsin, we have established a direct link with a health care system. Aurora Health Care co-manages our diabetic population.

We learned about consumer-driven health plans from Humana.

Like Highsmith in Fort Atkinson, Wisconsin, we have an elaborate point system to reward wellness. The two hundred people at this now-closed distributor of school and library products used the company’s fitness program and facilities to help push their health costs 20 percent below the regional average. Taking a page from their book, co-workers at Serigraph can earn up to two “wellness days” off for pursuing healthy lifestyles.

Like S.C. Johnson, we steer our people to centers of excellence that offer the best values for different procedures.

We’re totally pragmatic. We find good practices, and we try them out. If they work, they’re kept. If not, we toss them.

HEALTH METRICS TRACKED

Any self-respecting management system is grounded in good numbers and analysis. So Serigraph tracks its health and health cost metrics with great rigor. Our consultant compiles an annual dashboard on our key metrics. It is derived from our claims data and sliced and diced with an analytical tool called “Health Plan Intelligence.” It is a trove of good information on how we are doing.

Maybe one difference is that the managers at Serigraph take these findings very seriously, and we act on them. As an example, the analysis of 2008 data revealed that 10 percent of our claims were related to unhealthy behaviors. That led us to intensify our attempts to get our co-workers to eat better, to exercise more, and to smoke less.

In the end, lowering health care costs is all about management and a proactive bias versus abstract theorizing. We are not academia or a think tank. We read the theories, but we apply them in the here and now.

CHANGE MANAGEMENT NEVER EASY

It’s textbook stuff that the first step in change management is to create a sense of crisis. It serves as a platform for change.

We certainly had no problem outlining the crisis in health care, since health costs were screaming upward at double-digit rates as we entered the decade. Both employee and employer were getting hammered. Our co-workers got the message that we needed an innovative approach to health care.

Our managers, including our HR managers, have learned that starting small with a pilot program is a good way to get the change process started. So, our first year of consumer-driven health care was entirely voluntary. And one option resembled our old standard plan with fairly low deductibles and co-insurance.

The initial round of change worked, so we were emboldened to get even more aggressive in the following years. Along the way, I continually encouraged our health care managers to be bold, to break the mold, to not get stuck in the unacceptable status quo. They are now passionate about reforming the system inside and outside Serigraph.

And we are finding potential savings everywhere in the broken delivery system. We look forward to many years of mining nuggets of savings that will more than offset the general medical inflation.

Politicians talk endlessly about who’s covered, who pays, and where to find more money to cover everyone. They miss the main point about controlling inflation because only a few are professional managers. They aim to please, not to solve fundamental problems. They make points, not innovations. Unlike politicians, we have to deal with the real issues: poor health and runaway costs.

The medical side of health care is often brilliant. There is spectacular innovation and intimate care giving. That is not where the problem lies, though there is much room for improvement on quality, including elimination of errors. It is the economic side that’s bankrupting the country—all for want of aggressive management, better business models, and realigned incentives for improved economic performance.

CEOs should be embarrassed at how they have allowed health costs to run wild. They would not allow that to happen in any other part of their businesses.

As an example, lean disciplines, backed by quality management tools, have only begun to be applied to health care systems. In other purchases, CEOs insist that their supply chains meet international quality standards like QSO 9000 or TS 16949—the gold standard certifications.

Many will only do business with vendors that have adopted lean disciplines. They often teach these methods to under-performing vendors. But no such demands are made of vendors of health care. Why not?

At Serigraph, we have learned to guide our people to lean vendors. It’s part of our MedSave steerage program.

Executives need to understand that the present course of health care inflation is unsustainable. In ten or fifteen years, at present trends, health costs will exceed base pay for employees.

Some engaged CEOs have already bent those trend lines. In short, CEOs can insist that management disciplines be brought to bear on both the payer and provider sides of the equation. Where they have done so, health improves and health care costs come under control.