Reforming the healthcare

system from within.

Mark Vachon, CEO, GE Healthcare, Americas
 back-breaking challenges that healthcare leaders face and
Mark Vachon, CEO, GE Healthcare, Americas

At the risk of
the hard work and long hours they put in to serve patients,
sounding like
employees, stakeholders, and their communities. While
a hopeless
preserving cash and freezing spending have been the priority
optimist,
over the last year, those tactics will not drive more sustainable,
I believe this is a long-term competitive advantages in an organization. In many
great time to be cases, there just has not been the stomach for making core
in healthcare. Yes, changes that would disrupt the “usual and customary” ways
health reform is of operating—disruption that leads to true transformation.
ta k in g s h a p e an d
t he rep ercu s sio ns In that spirit, we offer four areas ripe for improvement in most
will unfold for many healthcare organizations—aggressive cost control, diligent
years to come. Sure, capacity management, radical improvement in quality and
the reces sion has safety, and much more robust strategic planning—and suggest
battered investment ways to approach them from a new perspective. Leadership
portfolios, dried up expert Stephen Covey makes a valuable point that speaks to
revenue streams, and brought us all back to the basics of our current collective need to re-examine the fundamentals
rebuilding our balance sheets. True, we are not better off now of healthcare. Management works in the system, he says, but
than we were three years ago. leadership works on the system.1

Or maybe we are. The fact is it’s human nature to wait until It’s time for us to work together on our healthcare system and
our backs are against the wall to make the changes we know lead it to a better place.
we need to make.

The recent downturn—a kind of global timeout—has given

the healthcare industry an unusual opportunity to gain
1. The game of
The last several months have been
interesting theater in Washington
as we watched the “health reform”
perspective, rethink strategies, and be more innovative in our cost shifting is debate unfold. In reality, what we
solutions. Frankly, this is a wake-up call to finally get serious over witnessed is an insurance reform
about addressing the quality, access, and cost issues that have exercise; there’s been very little
been plaguing the U.S. healthcare system since long before the debate on fundamentally attacking the underlying cost and
recession took hold in 2008. quality foundation of our healthcare system. While hospitals
will likely benefit from incremental volume as people currently
I say this with all due respect: As the CEO of an organization outside the system gain coverage, that volume is going to
that works with thousands of hospitals, I’ve witnessed the come at the Medicare and Medicaid rates the industry routinely

Healthcare organizations have a limited window of opportunity right now—before key

reform provisions become reality—to address the systemic quality, cost, and access
issues that continue to plague our industry. We believe core operational changes in
four key areas have the potential to transform the U.S. health system and the outlook
for every organization within it:

COST CONTROL: The game of cost shifting is over.

CAPACITY MANAGEMENT: Better decisions, not brick and mortar, will improve capacity
and financial performance.

QUALITY AND SAFETY: It’s time to take a lesson from aviation’s approach to safety.

STRATEGIC PLANNING: If you’re not scenario-planning, you’re not planning.

grumbles about. Given the surging deficits and trillion-dollar
price tag that will accompany reform, it is not a big leap to
assume that over the next decade those reimbursement rates
will head only in one direction—down—and private payers are
sure to follow.
The traditional response to Medicare/Medicaid reimbursement
issues has been to offset shortfalls via the commercial payers—
the familiar cost shift equation. While politicians and many in
the industry vilify the insurance companies to justify the cost
shift, the reality is that there are many companies on the other
side of that equation that are the true payers. Companies like
GE, a corporation that employs hundreds of thousands of
people in the United States and pays almost $3 billion annually
for employee health costs.
In 2009, a year that saw the worst economic cycle since the
Great Depression, GE employee health costs surged almost
10% even though utilization of services was virtually flat. That
should concern all of us, because it is becoming an issue of
national competitiveness. At GE, we are thinking long and hard
about whether to expand employment in communities where
we see this spiraling cost equation. We have launched a CEO-
led company-wide initiative to hold our health cost inflation to
the level of CPI, or about 3%, which is roughly one-third the rate
we are currently experiencing. Other companies are watching
GE and will be sure to follow. The cost shift equation will not be
a viable long-term strategy for dealing with Medicare/Medicaid.
With the right strategic planning and initiative, we believe this
dynamic can be a great opportunity for providers. Those that
aggressively drive productivity measures, rigorously manage
capacity, and continuously improve quality will be able to
differentiate themselves with employers looking to do business
with health systems that provide the highest value equation:
that is, value = cost and quality. In industry, we seek to build
relationships with suppliers that provide us with the best-
quality goods/services at the best prices, and forward-thinking
providers should be able to leverage this model. Employers also
are looking to keep their workforces healthy and productive—
another opportunity for health systems to play a valuable role.
Building community partnerships and coalitions with local
employers, civic leaders and, in some cases, competitors should
be an essential part of every provider’s strategic plan. At GE, we
have launched this concept in markets where we have large
concentrations of employees. Clearly, incentives will need to
change and stakeholders will need to engage in give-and-take
to drive alignment and win-win outcomes. But ultimately, what
is good for the employers will be good for the community and
for providers, leading to more jobs and more commercial-pay
customers. This will be how real health reform happens.
2. Reform legislation and govern-
mental intervention will strain
Reforming the healthcare system from within
Better decisions, the industry in ways that are
not brick and just beginning to emerge. With
mortar, will 30+ million uninsured Americans
improve capacity gaining health coverage as
and financial a result of reform, how will
performance health systems handle this influx?
Capacity management is a key
vulnerability in our industry.
Simply trying to scale up current care delivery processes to
meet post-reform challenges will backfire. Costs will continue
to increase, and there will be no progress toward making
healthcare more affordable. The opportunity is now to put
a critical eye on system logistics, patient flow, and asset
management—factors that together have a significant impact
on capacity, quality, and cost. Attacking these issues in the
“breathing space” before the next reform provisions become
reality will give organizations time to develop, learn, and embed
new processes that will be essential to their success.
First and foremost, providers need to take a hard look at how
they are utilizing inpatient capacity. More than three-quarters
of U.S. hospitals operate below 80% utilization. Just as the air-
lines can no longer fly planes that aren’t close to full, we believe
hospitals need to move utilization to 90% or higher—and do so
in a way that is safer for patients and more sustainable for staff
than current performance.
Important to note is that many of our nation’s hospitals
“feel” full. This false sense of working at or beyond capacity
is due to ineffective workflow processes: because the ICU is
oversubscribed early in the week; because variation in the
elective surgical schedule creates a chaotic environment that
unnecessarily strains the staff; because misaligned discharge
and admission cycles drive up ED length of stay; and so on.
Improving utilization is the single most powerful lever available
to hospital leaders to improve financial performance. In some
cases, this means caring for more patients with existing staff
 and infrastructure. For example, GE’s work with one hospital
Mark Vachon, CEO, GE Healthcare, Americas
delivered millions to the bottom line by improving operating
room utilization: caring for more patients with the same staff,
same number of ORs, and less overtime. Similarly, a recent
article in The Boston Globe described another hospital’s six-
year journey to improve utilization—and the $100+ million
benefit realized. We have worked with a number of community
hospitals that have significantly increased their utilization,
even with flat volumes, by re-engineering their infrastructure.
This usually involves improving performance and then slowly
rightsizing capacity over time.
Improving utilization is not easy; doing so requires specialized
approaches and new tools. We use the framework of
scheduling, governance, and process improvement to organize
our work with clients. In many cases, providers have internal
capabilities to improve process, but scheduling and governance
lag behind and limit success.
The challenges of scheduling are underappreciated. Allocating
block schedule time for a large surgical department, for example,
is far more complex than designing Major League Baseball’s
annual schedule. Yet hospitals almost always attempt it by using
manual processes rather than the sophisticated computer-
based simulation and constraint-management models that, in
our experience, are more suited for the task.
Governance refers to the systems and structures through
which change is driven, decisions are made, and performance
is measured. This includes the network of committees that
govern each department and service line and the operational
control systems that guide their decisions. To succeed, both
retrospective and prospective information must be available
to relevant decision-makers. This is possible by combining
three classes of information: (1) real-time information about the
location of staff, patients, and devices with room-level specificity,
(2) clinical workflow information, including the patient’s care plan
and pathways, and (3) predictive information about the likely
status of hospital capacity, looking many shifts ahead.
The last category—predictive planning—holds great promise,
and research at the GE Global Research Center is being piloted
with key partners in the provider community. It involves using
sophisticated simulation modeling to constantly predict,
update, and re-predict the state of the hospital, ideally in real
time. Providing this information to front-line decision-makers—
such as charge nurses and bed coordinators—gives them a
global perspective on what is happening within and beyond
their units, and how activities will impact the overall workflow
of the hospital. Such predictive information enables better
decisions every day. Better decisions create more capacity.
And, by giving hospital staffs the technological means to be
smarter rather than asking them to work harder, we increase
the time and energy available to focus on patient care.
Similar improvement opportunities exist in clinical asset
utilization. In what industry outside of healthcare is 40% asset
utilization acceptable or even sustainable? The simple answer
is none; companies would not survive, let alone thrive, with that
level of inefficiency. Here are some immediate steps leaders
can take to release the anchors of waste and inefficiency in
clinical asset utilization:
• Insist on a full understanding of asset utilization in the
organization. If utilization rates are less than 50% in any
category, immediately challenge and rethink any replacement
plans you have. Compounding the waste issue with new
excess capacity will continue the industry’s inability to evolve
and thrive.
• E xamine internal workflow processes around asset
management. When a healthcare organization discovers a
problem with clinical asset utilization, there is often a desire to
either (a) cut inventory drastically and instruct employees to
make do, or (b) buy more units, hoping the problem will resolve
itself. Neither approach is effective. Typically, the underlying
distribution and par-level management processes are broken.
Identifying the bottlenecks that thwart maximum utilization
and implementing new workflow processes that comfortably
increase utilization per asset will allow an inventory reduction
without negatively impacting patient care.
• Develop an action plan with clear deliverables and account-
ability. Creating a defined action plan that aligns resources
against clear priorities will help you tackle the waste problem
systematically and increase the likelihood of success.
As hospitals focus on improving the utilization of clinical
assets, they often find that they can make significant gains
in controlling waste and inefficiency. By redesigning their
distribution and management processes and, in some cases,
adding real-time location technologies, they are able to
simultaneously reduce assets and improve their availability
for more effective patient care, saving millions of dollars in
capital and operating expenditures each year.
3.
It’s time to
We must act now to make serious
improvements in quality and
patient safety. Despite a decade
take a lesson of intensive efforts by industry
from aviation’s organizations to reduce the high
approach to rate of preventable medical errors,
safety tremendous issues still exist. For
example, according to the 2008
Leapfrog Group Hospital Survey, only 7% of hospitals fully
meet Leapfrog’s medication error prevention CPOE standard
and few hospitals are fully meeting mortality standards. The
survey also indicates that 65% of hospitals do not have all of
the recommended policies in place to prevent many of the most
common hospital-acquired infections.2 It is time now for all of
us in healthcare to commit to making our industry as safe as
the aviation industry. To set a goal any less ambitious is to let
down every patient we serve.
For inspiration, it’s helpful to consider one of the key safety
programs within aviation. Pilots, crews, and air traffic
controllers are able to report near-miss events to NASA through
the Aviation Safety Reporting System (reference the tool at
http://asrs.arc.nasa.gov/). The information from that system is
Reforming the healthcare system from within
one reason that air travel is so incredibly safe. The system works
because it is easy to use, culturally embraced, and voluntary. Its
success hinges on the fact that the reporter is protected from
negative consequences of inputting the near miss. Similarly,
in GE factories around the country, we have worked hard to
create an underlying culture of safety, leveraging the OSHA
Voluntary Protection Program (VPP) framework. By setting the
expectation that everyone will be diligent about what could
cause injury or harm, we capture hundreds of near-miss events
for every incident in which an employee actually gets hurt.
Learning from voluntarily reported near misses enables us to
proactively and continuously make our environments safer. In
the healthcare industry, Patient Safety Organizations (PSOs)
can offer the same protection—and may begin a virtuous cycle
toward creating a similar culture of safety.
Everyone shares the common goal of reducing medical errors.
First and foremost, healthcare leaders need to personally
engage in building an authentic, no-blame, open environment
around quality and safety. Every employee needs to feel
committed to a safety culture and empowered to act when
issues arise. Next, healthcare organizations need tools that
bring together relevant data and insights from across the
enterprise to enable better decision-making at all levels. In our
experience, when hospitals implement user-friendly technology
to capture this information, they can aggregate enough data
to recognize patterns, pinpoint causes, and create actionable
outputs that can be used to reduce error and mitigate risk.
Giving staff members a global view of the interactions affecting
patient care and hospital administration a keen understanding
of caregivers’ daily challenges can help the two groups come
together to make real advances toward the common goal of
patient safety.
My belief is that a new era of patient safety has begun with
the creation of PSOs by the Agency for Healthcare Research
 and Quality (AHRQ). To step up our cultures of safety, we must
Mark Vachon, CEO, GE Healthcare, Americas
embrace PSOs, improve our ability to capture near misses,
and learn the essential lessons necessary to pinpoint the
nuanced root causes of every type of error. This will set us on
the right path so that one day we’ll see the safety record of the
healthcare industry rivaling that of aviation.
4.If you’re not
At GE, we experienced our share
of challenges after the financial
crisis hit in late 2008. Given the
scenario- economy and the uncertainty
planning, you’re of health reform, we could have
not planning circled the wagons and waited
for the external environment to
change before launching any big initiatives. In fact, we saw a
lot of healthcare organizations do just that, and many are still
frozen in place. We opted for a different approach, and instead
came out playing offense and investing in healthymagination, a
six-year, $6 billion program to improve healthcare costs, quality,
and access globally.
We were able to do this with confidence due to our discipline
around scenario-planning. Here’s how it works:
• We look at key trends that may play out over our strategic
planning horizon. Positioning combinations of those trends,
we look at the implications to create various “scenarios.”
• A ssessing these scenarios and their probabilities, we
determine where to place big bets or where to plant some
seeds that will allow us to grow quickly if a particular scenario
comes to fruition.
• Initiatives that will have benefit across all scenarios are called
“must-dos” and we invest in them accordingly.
Scenario-planning provides a tremendous framework for
driving action in a time of uncertainty, and my recommendation
to healthcare providers is to plan and act now around the
must-dos that will likely prevail in all scenarios:
• P repare for the multi-generational doughnut hole.
According to the American College of Healthcare Executives
(ACHE), the 2009 CEO turnover rate was 18%, the highest
ever. 3 Much of this is due to retirement, and we simply do
not have enough Generation X leaders to replace the baby
boomers as this trend continues. Must-do: Invest now in
building your leadership pipeline.
• Take advantage of the shift in care settings. We know
that regardless of external drivers, outpatient volumes
will continue to increase and more chronic patients will
be accessing care through their homes and retail outlets,
all at the expense of inpatient volumes. With that
shi f t come s ne w opp or tuni t y, and we s e e m any
organizations already providing alternative services
outside the hospital. Must-do: Build new business models
that go where the patients will be.
• B uild a model that requires a dif ferent
caregiver skill mix. The economy provided a

Reforming the healthcare system from within

breather on the nursing shortage, but we are
already beginning to see nursing resources
tighten as nest eggs recover. A look at
medical school graduation rates highlights
the impending need around many specialties.
Factor in a reimbursement system that will focus
more on quality and we all need to be thinking
now about how we can leverage technology
and different pathways and protocols to
deliver better care with different clinical
resources. Must-do: Launch innovations that
increase patients’ access to the right caregivers
at the right time at the right cost.

Change is the new constant
In my business, I meet with executives at
hospitals and health systems across the country.
Academic. Urban. Rural. Large and small. And
those that are most successful share one
commonality. They are constantly in the process
of re-inventing themselves and adjusting their
operations to deal from a position of strength
with new competitive, regulator y, payer,
consumer, and technological realities. Rather
than react to change, they have made the pivotal
decision to anticipate and lead change.

Let’s start a discussion

We’re interested in learning how you’re leading
your organization to the next level—the steps
you’re taking to solve challenges and find
opportunities in the new world of healthcare, to
ensure long-term success for your organization.
We invite you to share your thoughts with us
at nextlevel.gehealthcare.com. You’ll find blogs
on the topics in this article and an invitation to
have an online conversation in which you can
share ideas with your peers regarding the most
significant challenges your health system is
facing. Please join us in leading change.

Join the conversation nextlevel.gehealthcare.com

©2010 General Electric Company — All rights reserved.

GE and GE Monogram are trademarks of General Electric

Company.

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GE Healthcare, a division of General Electric Company.

1 Covey SA, et al. First Things First. Simon & Schuster, 1994.
2 L eapfrog Hospital Survey Results 2008. The Leapfrog
Group. ht tp://w w w.leapfroggroup.org/media/f ile/
leapfrogreportfinal.pdf
3 A nnual CEO Turnover Rates for Nonfederal, General
Medical/Surgical, Short-Term Hospitals. American College
of Healthcare Executives. http://www.ache.org/Pubs/
Releases/2010/CEOTurnover_2010.pdf

About GE Healthcare
GE Healthcare provides transformational medical
technologies and services that are shaping a new age of
patient care. Our broad expertise in medical imaging and
information technologies, medical diagnostics, patient
monitoring systems, drug discovery, biopharmaceutical
manufacturing technologies, performance improvement
and performance solutions services helps our customers
to deliver better care to more people around the world
at a lower cost. In addition, we partner with healthcare
leaders, striving to leverage the global policy change
necessary to implement a successful shift to sustainable
healthcare systems.

Our “healthymagination” vision for the future invites

the world to join us on our journey as we continuously
develop innovations focused on reducing costs,
increasing access and improving quality and efficiency
around the world. Headquartered in the United Kingdom,
GE Healthcare is a $16 billion unit of General Electric
Company (NYSE: GE). Worldwide, GE Healthcare
employs more than 46,000 people committed to serving
healthcare professionals and their patients in more than
100 countries. For more information about GE Healthcare,
visit our website at www.gehealthcare.com.

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