The Best Medicine

To train healthcare leaders effectively, business schools and faculty are developing a better understanding of one of the world’s biggest and most complex industries.

Surgeon Dale Varner has long believed that there’s a better way to deliver healthcare in the U.S. As an associate medical director of resource steward-ship for managed-care organization Kaiser Permanente’s Colorado Permanente Medical Group, he is convinced that “fee for service” medicine—the prevailing model in the U.S. that pays American doctors for each test they order—is in the best interest of the doctor, not the patient.

Now a second-year MBA at the University of Denver’s Daniels College of Business in Colorado, Varner decided to go to business school to build on models such as Kaiser Permanente’s, which rewards doctors based on the health and wellness of their patients. “I realized that there was a lot I didn’t know about the business of healthcare and a lot more I could bring to the table if I learned,” says Varner. “I don’t want to start my own venture. I just want to do my job better.”

Many healthcare professionals who share Varner’s outlook are enrolling in business programs in larger numbers. Business schools are quickly designing a host of new case studies, courses, certificates, and degree programs for this group, aiming to give students the tools they’ll need to cure what ails healthcare. But first, business faulty must quickly get up to speed on an industry that is more diverse, more complex, and perhaps more at risk than any other sector.

From Obstacles, Opportunities

As more business schools offer healthcare-related programs, they’re discovering that the medical industry is incredibly volatile, especially in the United States, says Kevin Schulman, professor of medicine and director of the Fuqua Health Sector Management Program at Duke University in Durham, North Carolina. “This is the most uncertain business environment health-care has ever seen,” says Schulman.

That means that many business faculty are learning a great deal from their students about how the industry works. And they’re finding that business practices that work well in other sectors often don’t translate directly to healthcare, because of several unique factors:

The regulatory environment—Healthcare is one of the most heavily government-regulated industries in the world. For that reason, the “try-and-fail” mantra that drives innovation in the business world can be a foreign concept in health-care. Rather than navigate government red tape or risk patient safety, healthcare leaders often prefer to maintain the status quo.

In fact, courses on regulatory compliance dominate master of healthcare administration programs, leaving little room to teach innovation, says Scott McLagan, executive director of executive education at Daniels College. “About 70 percent of the curriculum in MHA pro-grams is mandated by regulatory agencies. Imagine what an MBA would look like if that much of its curriculum was mandated by government! A person with an MHA knows a lot about how to comply with laws and very little about re-creating business models.”

The lack of competition—In healthcare, laws of supply and demand don’t readily apply. Patients are rarely able to “shop around” or compare prices, because so little information is available on cost and quality. Those covered by insurance have no incentive to demand that providers lower their fees. These factors create an inefficient market, where providers and insurers are largely immune to market forces that might compel them to change.

The fear of change—Many physicians fear the unknown, says Kellie Leitch, a pediatric physician and director of the Health Sector MBA program at the University of Western Ontario’s Richard Ivey School of Business in London, Ontario, Canada. “The very nature of innovative ideas is that they’re untested. Doctors are uncomfortable when they have no evidence to prove that a new approach provides better patient care,” she says. “Physicians, especially those in North America, don’t want to admit weakness. They don’t want to say, ‘I don’t know how to use that iPad.’”

But business schools can address this fear through class discussion and experiential projects, says Leitch. In that way, they can reduce physicians’ anxiety about innovation and show them how to embrace new models without sacrificing patient outcomes.

Frightening Figures

Most business faculty admit that the scope of healthcare’s problems are overwhelming. The Organization for Economic Co-operation and Development (OECD) reports that healthcare represents the largest expenditure for its 34 member countries, averaging 6 percent of GDP. If today’s rates of spending continue, the OECD predicts that spending among its members could reach an average of 12 percent of GDP by 2050.

The U.S. is facing the biggest potential crisis. It spends about $2.3 trillion on healthcare annually—close to 18 percent of its GDP and more than any other industrialized country in the world. By 2025, that could increase to 25 percent, according to the U.S. Congressional Budget Office. The 2010 World Health Report estimated that many nations’ healthcare systems waste 20 percent to 40 percent of the money allotted to securing health-care for their citizens. Much of that money is mired in transactional costs related to billing, auditing, and redundant systems.“

If you need care in Canada, you receive it immediately. Our acute care is second to none in the world,” says Leitch. “But why do hospitals continue to have to walk patient information across the street from a doctor in one building to a doctor in another? We have electronic tools available that streamline this process, but we haven’t incorporated them.”

The problem is even worse at many facilities in China, says Wei Zhang, assistant professor of management and director of the Centre for Health Care Policy and Management at the China Europe Inter-national Business School in Shanghai. “Chinese citizens don’t have access to health insurance, so they pay out of pocket for their care. That causes their expectations to be very high,” says Zhang. “They see service sectors like restaurants and hotels advancing very fast, but they complain that stepping into a Chinese hospital is like traveling back in time 20 years. The public’s expectations are forcing many hospital executives to realize the value of management education.”

Strength in Numbers

In 2010, ten schools formed the Business School Alliance for Healthcare Management (BAHM) so their faculty could collaborate, promote research, discuss trends, and share educational best practices. The five founding members of the consortium include Duke University’s Fuqua School of Business, Northwestern University’s Kellogg Graduate School of Management, the University of Pennsylvania’s Wharton School, Harvard Business School, and the University of California at Berkeley’s Haas School of Business. Other members include the Yale School of Management, Vanderbilt University’s Owen Graduate School of Management, the Boston University School of Management, Arizona State University’s W.P. Carey School of Business, and the University of Colorado Denver Business School. BAHM is open to any school with healthcare programs taught by academically qualified faculty.

The formation of BAHM reflects the increasing coordination and growth of health sector management programs at business schools worldwide. According to AACSB International, business schools that offer master-level programs with a healthcare focus increased from 100 in the 2007–2008 academic year to 109 in 2009–2010; those reporting a specialized degree in healthcare increased from 32 to 41 in that same period.

But because these business schools have few faculty trained in healthcare fields, many are partnering with schools of medicine or public health to be able to address the complex needs of the healthcare industry. For instance, the University of Miami School of Business in Florida recently launched its first MD/MBA joint degree with UM’s medical school. These kinds of joint ventures are becoming more important, because they allow each school to teach what it knows best, says Steven Ullmann, professor and director of the school’s programs in health sector management and policy.

Duke’s Schulman holds MD and MBA degrees, but the lack of PhDs with this specialization concerns him, especially as more business schools enter the healthcare space. “When we train our PhDs, we train them in general areas like strategy or finance or accounting. Very few receive training in issues specific to healthcare, let alone have medical degrees,” he says. “We need a core of PhD-trained research faculty in healthcare to move some of our theories and conceptualizations forward.”‘

Starting from Ground Zero’

Business faculty with medical training aren’t just better equipped to understand a complex industry. They’re also better able to discuss current issues with students, who increasingly are physicians who want to improve their practices.

When the University of Miami started its healthcare programs 30 years ago, “if we had one doctor in the program it was a lot,” says Ullmann. “Today, in a class of 35, we might have 15 or 20 doctors. They’re realizing that their medical practices have become businesses, whether they like it or not. They know they’ll need to understand business to run them.”

However, unlike students in general graduate business programs, most physicians have never had any management experience and have little knowledge of standard management practices, says McLagan of Daniels College. “I come from manufacturing, where we were doing lean management in 1988. It’s bizarre that this concept is brand new to leaders in health-care!” says McLagan.

Not only that, many physicians must overcome the logic-driven, autocratic style of leadership that they were taught in medical school. “After taking one of our courses, one physician told me that doc-tors probably need at least a day of remedial training to help them forget all the things they learned in medical school about being good leaders,” McLagan says. The healthcare curriculum at Daniels places a heavy emphasis on peer interaction and experiential activities, McLagan says.

For instance, in one project related to customer experience management, students must return to their own practices to experience them from the patient’s point of view. They must assess factors such as how well patients are treated, how clear the signage is, and how long patients must wait.

“These physicians come back shaking their heads,” says McLagan. “They’re used to walking in with their badges on and their heads down. This experience forces them to look up and see what needs improvement and what steps they should take.”

Zhang of CEIBS has seen another ideological commonality among healthcare executives attending that school’s healthcare programs—they view their industry’s issues as social problems, not business problems. “Many think that it’s the responsibility of the Chinese government to fix what's wrong,” he says. Zhang advises his students to discover ways to create value for customers and treat their organizations like businesses. “This seems like common sense, but it’s a foreign concept to many of these Chinese executives,” says Zhang. “That discussion can be eye-opening for them.”

Faculty see the results of their efforts once graduates begin to apply their new knowledge in the field, says Ullman of UM. “An ophthalmologist in our program told me that he was able to adjust his net revenues by $90,000 a year as a result of one thing he learned in class,” he says. “Another graduate has been able to reduce costs and infection rates in a foreign trauma center. That’s the kind of functional application we want to see.”

Addressing ‘Meaningful Use’

Physicians and others in the health-care industry have a very strong incentive to improve their approach to medicine—mainly, many are doing so because soon they’ll have little choice. Various public policy interventions are forcing the industry to change. The healthcare sector in the United States, for example, was especially compelled to action once the U.S. Congress passed the Afford-able Health Care for America Act in 2010, in a push to ensure all Americans had health insurance. The bill, which has sparked vehement debate and is currently under review by the U.S. Supreme Court, is scheduled to be fully in place by 2014.

Schulman of Duke believes that the bill was well-intentioned, but will do little to improve the quality of care or reduce costs. “Debate over the bill focused solely on access to health insurance,” he says. “It ignored two other huge issues that are actually more important: the cost and quality of care and the sustainability of the system.”

Those issues may be addressed by legislation that received less attention, but may have a greater trans-formative effect: The Health Information Technology for Economic and Clinical Health (HITECH) Act, which Congress passed in 2009. HITECH calls for organizations to adopt “meaningful use” of electronic health records (EHRs).

HITECH’s “meaningful use” requirement has created a new market for talent and research in the U.S. Healthcare facilities spent more than $88 billion on adopting EHRs, creating health information exchanges, and adopting other new technologies, according to “The New Gold Rush,” a report by PricewaterhouseCoopers. This development has created a need for IT workers in the health sector—and has inspired many U.S. business schools to launch field studies to see how providers can integrate EHRs and other new systems with minimal disruption.

The Center for Health Information and Decision Systems (CHIDS) at the Smith School of Business at the University of Maryland in College Park is now conducting several research projects related to technology adoption in healthcare fields. Researchers there are working on methods of downloading a patient’s medication history into a portable health record. They hope to learn whether electronic prescriptions are more efficient. They also are studying how the implementation of electronic health record systems affects workflow.

For years, critics have questioned the relevance of business research—this is the perfect opportunity for business schools to show how relevant their research can be, says Ritu Argarwal, director of CHIDS. “Business schools have tremendous intellectual capital in business trans-formation, organizational change management, and IT implementation,” she says, which puts them in a perfect position to help healthcare organizations achieve meaningful use requirements.

Sharing Solutions

To create a larger community of scholars, business schools are developing more symposia to bring together diverse perspectives and share ideas. Last year, the University of Miami dedicated its second annual Global Business Forum to “The Business of Healthcare.” The event was attended by 150 leaders in the industry, including Kathleen Sebelius, U.S. Secretary of Health and Human Services, and Jeffrey Immelt, CEO of General Electric, who called healthcare “the world’s biggest systems problem.”

The McCombs School of Business at the University of Texas at Austin held its “Innovation in Health Care Delivery Systems” in April 2011. The second annual event featured research papers from students and faculty from business, law, medicine, pharmacy, and communications. The studies shared at the event included one that found that surgical teams who received specialized group training had patient mortality rates that were 18 percent less than those of teams who did not receive the training. Another discussed a geriatric care facility where nursing staff came together after any patient suffered a fall-related issue to discuss the cause of the accident. As a result, they were able to reduce the number of fall-related injuries overall.

In this way, business schools can provide important forums where people can share findings and ensure the best ideas spread throughout the field, says Reuben McDaniel Jr., McCombs’ chair of healthcare management in the department of management science and information systems. At the McCombs conference, he says, people from the schools of nursing and social work shared ideas about how to encourage patients to demand more from their providers. Those from pharmacy and information systems discussed best practices in adopting EHRs and other technologies.

“It has been difficult to get the healthcare industry to embrace innovation. That’s why we want to bring people from all disciplines together to talk about their research. As business educators, we can help the industry come together to develop the solutions,” McDaniels says. “And as our faculty develop a better understanding of these challenges, they become more and more interested in working on them. It’s the difficulty that makes it exciting.”

Discovering Solutions

One of the best ways to develop innovative solutions for health-care is to bring together students from diverse backgrounds in the industry, says Henry Mintzberg, director of the International Masters in Health Leadership (IMHL) program at McGill University’s Desautels Faculty of Management in Montreal, Quebec, Canada. In that way, they can discuss issues, hear different perspectives—and ultimately learn from each other. 

Mintzberg designed the IMHL program after the same model he created for the school’s International Masters Program in Practicing Management. IMHL enrolls healthcare executives for five 12-day modules over 16 months. he modules cover areas such as self-reflection, leadership, navigation of complex systems, collaboration, and innovation. Students complete self-study assignments to familiarize themselves with topics such as finance accounting, and marketing. At the end of the program, students complete papers under the guidance of a faculty supervisor.

The program also includes manager exchanges, in which pairs of students spend three to five days at their partners’ workplaces. On these visits, students see how providers in  different cultural contexts address universal problems.

“The solutions might be different, but the issues are the same all over the world—aging populations, access to care, cost of care,” he says. “We hear from Ugandan students who live where community clinics don’t have doctors available, so care is deliv-ered by nurse practitioners. In Holland and England, most chil-dren are delivered at home by midwives. We can learn a lot from each other. Each country is advanced in its own way.”

The IMHL program enrolls doctors, nurses, consultants, lawyers, psychologists, pharmacists, and insurance executives. One cohort also included an economist with the World Bank; another, an Olympic gold medalist in diving who was creating a health foundation in Los Angeles. Such diversity is especially valuable during the manager exchanges, when a head nurse from Montreal might be paired with a surgeon from the Philip-pines, or a doctor from Kuwait might be paired with a mental health administrator from Ghana.

An even more tangible outcome of the program is the “impact project,” which requires students to work on a project that prom-ises to drive a specific hange within their own organizations. Their shared knowledge of—and excitement about—their industry makes exciting solutions possible, says Mintzberg. “We can’t design these programs knowing nothing about healthcare and tell students, ‘Do it our way.’ Instead, we help them discover how to design solutions that work for them.”

A View from the Cleveland Clinic

James Stoller is a pulmonary specialist and chair of the Education Institute at Ohio’s Cleveland Clinic, which delivers executive education through the Samson Global Leadership Academy. To transform healthcare, he says, it will take leaders with emotional intelligence, technical expertise, and an understand-ing of the business.

On the most important skill for health  sector leaders…

Most doctors already are pretty quick studies on the technical side—they can interpret legislative issues. But the most impor-tant attribute these individuals need is emotional intelligence. At our academy, we offer 360-degree feedback and coaching to help executives develop emo-tional intelligence, because it’s so critical.

On designing business programs for healthcare…

Business schools need to draw on the expertise of people who know both business and healthcare, because only people in healthcare can appreciate its nuances. We take a dyadic approach to teaching leadership, with business school faculty “married” to our own faculty. That way, business principles are taught hand-in-hand with applied, real-world lessons of healthcare environments.

On the best time for doctors to pursue management training…

Leadership should be taught at medical schools, and some schools are now incorporating leadership and team-building competencies into their curriculum. But much of this training might be more appropriate post-medical school, for those identified as emerging leaders. At the Cleveland Clinic, welook for high-potential leaders—usually mid-career physicians who are likely to assume leadership positions over the next five to 15 years. We take them offline and enroll them in our internal leadership courses.

On being leaders and clinicians...

In our model, it’s possible to be a doctor and a leader at the same time. Con-tinuing to engage in clinical practice gives us more credibility and enhances our understanding and appreciation of the challenges we face.

On creating a more effective, sustainable healthcare system…

It will require reform on many fronts, socially and legislatively. But we’ll be far better positioned to be successful if we cultivate a cadre of leaders with both technical competencies, such as understanding finance and the legislativeenvironment, and leadership competencies.