Sunday, September 25, 2011

Should Hospital Boards Embed Generative Thinking into their Agenda?

Hospital systems and physician groups are faced with unprecedented change demanding decreased per-capita cost and increased quality in American health care. Boards of directors are underutilized resources that must be tapped more effectively in order for such organizations to survive in a time of industry consolidation. Generative thinking is a tool that can help organizations innovate in order to improve patient care and the financial bottom line.

Generative thinking is when a board becomes involved early on with management in trying to make sense of the current environment. For example, any US hospital must figure out strategies and tactics to deal with Medicare cuts, demands for higher quality, and migration away from fee for service to global payments in both the PPACA and the federal budget ceiling compromise that will result in at least $1.5 trillion or $1.2 trillion federal budget cuts staring in January 2012. Local events in each market will be different in each region. Western Pennsylvania hospitals, for example, must effectively respond to the Highmark purchase of West Penn Allegheny and the continuing tensions between Highmark and UPMC.

One way to encourage generative thinking in this setting is to make sure the board is present when a problem is defined because such a definition will affect strategies, policies, decisions, and actions to respond to the above described environment. Boards should help management decide what problems to pay attention to and not just respond to management’s understanding of the environment. Generative thinking has been described as getting to the question before the question and is about values, beliefs, assumptions, and organizational culture that will affect what problems we pay attention to and what strategies and tactics we choose.

The importance of framing the problem correctly was demonstrated by Clayton Christensen in The Innovator’s Prescription when he described the unsuccessful attempts by a company to increase milkshake sales. As Peter Drucker once wisely wrote: “The customer rarely buys what the company thinks it is selling him.” It turns out that 40% of milkshakes are purchased in the morning by long distance commuters who like the fact that it takes a long time to drink and that you can still drive with one hand on the wheel. By defining the job that the milkshake was being asked to accomplish, the fast food company was able to increase sales by making the shakes thicker so it would take more time to drink them on the long commute.

Generative thinking is not the only function of a board of directors. The three different modes of governance are fiduciary, strategic, and generative. The first two are self-explanatory, but the last mode is the least understood and the most neglected by non-profit boards.

Generative thinking requires a greater comfort with conflict and disagreement than is usually present on nonprofit boards. Because generative thinking is about deciding what the real problem the hospital faces in a confusing, unpredictable, and rapidly changing external environment, there needs to be conflicting viewpoints.

Alfred Sloan, GM chairman from 1923 to 1956, once stated: “Gentlemen, I take it that we are in complete agreement on the decision here. Then I propose we postpone further discussion to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.” John Wooden, the most successful basket coach in history advised, “Whatever you do in life surround yourself with smart people who’ll argue with you.” He won his first NCAA championship in his 16th year of coaching at UCLA when he stopped hiring yes men and instead chose Jerry Norman as an assistant coach who installed the zone press Wooden detested.

A hospital board needs to understand generative thinking and decide if it wants to be involved upstream in discussions about how the hospita should respond to the environment. If there is agreement about the need to improve this mode of governance, then different methods can be tried to embed the concept into the work of the Board.


Richard P. Chait, William P. Ryan, Barbara E. Taylor, Governance as Leadership: Reframing the Work of Nonprofit Boards. Hoboken, New Jersey: John Wiley & Sons, Inc., 2005.

Manda Salls, Why Nonprofits Have a Board Problem, Harvard Business School Working Knowledge for Business Leaders, 4/4/2005.

Michael A. Roberto, Why Great Leaders Don’t Take Yes for an Answer: Managing for Conflict & Consensus. Upper Saddle River, NJ: Prentice Hall, 2005.

Clayton M. Christensen, Jerome H. Grossman, MD, and Jason Hwang, MD, The Innovator’s Prescription: A Disruptive Solution for Health Care. New York: McGraw Hill, 2009.

Peter Drucker, Managing for Results, London: Heinemann, 1964.

Saturday, September 10, 2011

Reverse Innovation & The Cost Crisis of American Healthcare

The realization that the American health care system must simultaneously decrease per-capita cost and increase quality has created the opportunity for the United States to learn from low and middle-income countries. “Reverse innovation” describes the process whereby an inexpensive innovation is used first in countries with limited infrastructure and resources and then spreads to industrialized nations like the United States.

The traditional model of innovation has involved the creation of high end products by companies in industrialized nations and the spread of these products to the developing world by adapting them to function in low and middle-income countries. Reverse innovation reverses the direction of spread with the United States borrowing new ideas and products designed for less wealthy countries in order to deliver health care more efficiently. (1)

Resource challenged low and middle-income countries are different from the United States in at least six ways that can serve as catalysts for such reverse innovation: 1) affordability, 2) leapfrog technologies, 3) service ecosystems, 4) robust systems, 5) new applications, and 6) the absence of intermediaries. (2,3)

These nations can’t afford expensive goods so they have to find inexpensive materials or manufacturing options. They also lack 20th century infrastructure and so they have leapfrogged to newer technologies such as mobile phones or solar energy instead of landlines and petroleum based energy sources. Service ecosystems develop in developing countries because entrepreneurs have to rely on others for help by creating new partnerships like video-game caf├ęs where gamers test new products. Emerging markets require products that work in rugged conditions, and 
customers in poor countries have few product choices, providing market openings for add-ons that update and extend the lives of existing merchandise. (2) Intermediaries such as venture capitalists, universities, and regulators are also often underdeveloped in poorer countries. (3)

An example of how an absence of intermediaries can spur innovation is the Medtronic approach to chronic disease management in nations without adequate medical school capacity to train specialists in heart disease. Sixty nine percent of deaths in such nations are due to chronic disease, but the building of medical training programs takes decades. Medtronic designed a low-cost, pill-sized pacemaker inside a stent that can be put into the heart instead of the invasive intercardiac leads used in the US to electrically synchronize the heart. Remote sensors in the pill-sized pacemaker transmit signals via any smartphone to a cloud-computing infrastructure. Although this new technology was developed for India that has one billion citizens but only 100 electrophysiologists, Medtronic intends to market this low-cost pacemaker in the United States and Europe. (3)

General Electric has embraced reverse technology as a way to survive in an era where economic growth is slowed in the United States and Europe, but growing rapidly in India and China. GE developed a $1,000 handheld electrocardiogram device for rural India and a $15,000 PC-based portable ultrasound machine for rural China. These devices are much more affordable and rugged than their American counterparts, and they are now being sold in the United States. (1)

General Electric has also partnered with Embrace to distribute a low-tech infant warming device that consists of a sleeping bag, a sealed pouch of wax, and a heater. In contrast to traditional incubators that cost $20,000, this new device costs $200 and will help warm the 20 million low birth weight and premature babies born around the world. (4)

OneBreath is a rugged, low-cost ventilator that was designed for use in developing countries that experience large influenza pandemics. By measuring and controlling airflow with software rather than hardware, OneBreath was able to reduce the cost of ventilators from $40,000 (with $180 replacement tubes) to $800 (with 50 cent replacement tubes). (5)

Procter & Gamble is now marketing a honey-based cold remedy created for Mexico in the United States and Europe, and the Center for International Rehabilitation has developed low cost prosthetic and orthotic devices that can be used in rural areas where highly-trained specialists are not available. (6) JaipurKnee has developed a $20 high performance prosthetic knee joint for amputees in India who cannot afford the $100,000 titanium knee joints routinely used in the United States. (5)

The Stanford University BioDesign Program has developed a $20 device for delivering fluids or intravenous drugs into the bone marrow when vascular access is unavailable. The device was invented in India, but it could be used in rural America as well. (7)

The United States is now faced with the challenge of decreasing per-capita cost and increasing quality. Many believe that the high cost of American health care is the major reason that the United States is facing a large federal deficit problem that is hampering the ability of American companies to compete in a global economy. Some believe that the high cost of American medicine also is a major factor in causing and prolonging the current recession. The high cost of health insurance is a problem for employers who then do not give salary increases to their employees. The employees borrow money in order to continue to support their lifestyle. Stagnant employee wages have been cited as a reason for Americans defaulting on their mortgages and car payments, which resulted in the current recession that started in 2008.

American health care organizations are facing decreased revenues due to decreased volume of hospitalizations and office visits by unemployed workers, Medicare cuts contained in the Affordable Care Act, and cuts resulting from the budget deficit ceiling compromise passed by Congress that will result in January 2012 with either a $1.5 trillion or a $1.2 trillion decrease in federal spending. At a time when it clear that health care providers will be receiving less revenue, it would be wise to adopt inexpensive innovations that have been created for less developed countries. Reverse innovation may be one way that American medicine can decrease per-capita costs and increase quality at the same time.