How a Hospital Security Guard Turned Executive Saved a Failing Health-Care System

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A model for transparency, standardized care, and cost cutting

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Chris Van Gorder, president and CEO of Scripps Health (R), with California Governor Arnold Schwarzenegger (L) in 2007. [Reuters]

A hundred managers at Scripps Health jam shoulder-to-shoulder into a vending-machine break room in San Diego. CEO Chris Van Gorder goes at them like a football coach down by 3 at halftime.

"What are we trying to do in our health care system?"

"Reduce costs!"

"Why?"

"Health care is too expensive."

"The solution is going to come from Washington D.C., right?"

"Ha ha ha ha."

"Sacramento then, right?"

"Ha."

"The solution," says Van Gorder, pumping an index figure toward his team, "is going to come from right here."

Van Gorder, an ex-cop turned hospital executive, rescued troubled Scripps from near insolvency a dozen years ago as its new CEO. Now, he's put Scripps in the middle of a cultural transformation aimed at saving hundreds of millions of dollars a year by -- get this -- coaxing physicians and managers at Scripps to work together, and standardizing care across every hospital in the system.

Corny? Yeah. But a health care industry so expensive it threatens to bankrupt the nation could use some corny, if that's what it takes to get hospital management's attention.

His first address to the physicians as new chief operating officer was interrupted when a doctor burst into the meeting room, yelling at another physician, who hollered back "I'm quitting" and stormed out.

And they could use the attention. The health care industry is the worst managed in America. It wastes near $765 billion a year due to inefficiencies, mistakes, duplicative, and unnecessary services and fraud, according to the Institute of Medicine. That's nearly a third of total health care spending.

But the game is changing, and not just because of the health care law. Anxiety over the national debt is putting pressure on how much Medicare pays hospitals, while fed up employers, who pay the bulk of health care premiums, are negotiating tougher contracts with providers.

Van Gorder's strategy is to root out what he calls "unnecessary variation" at each of Scripps' four hospitals in five locations and 23 clinics in southern California, and then cut expenses that add nothing to patient outcomes. "There isn't a doctor that doesn't believe he's doing the best thing" for the patient, he says. "But there's enormous variation in the way physicians practice."

Scripps isn't the only hospital system trying to get control of health care costs, but it's one of the leaders. "Scripps is on the cutting edge of health system management today," says Chas Roades of The Advisory Board Company, a health care consultancy.

***

In most industries, uncovering useless spending and promoting cross-functional teams have been standard procedure for decades. In health care, where the relationship between price and costs can seem almost random, this counts as cutting-edge management innovation.

In California, for instance, the same routine joint replacement costs between $15,000 and $130,000 for the same procedure depending on the hospital, with no correlation between quality and price, according to the School of Public Health at the University of California-Berkeley.

Price variation among hospitals within the same system is even harder to explain. At Scripps, there was a cost difference of $6,000 between two Scripps hospitals performing the same cardiac procedures, using the same protocol, even with the same surgeon.

And that's standard: Most health care systems still manage each hospital or clinic as its own silo -- each with different management, operations and clinical procedures. Even vast national hospital chains are run this way, according to Roades. They might share back office operations like purchasing, but in terms of clinical care, they are largely islands unto themselves.

Van Gorder, 60, tells his staff that major change is inevitable. Political leaders, employers and patients themselves are fed up with health care costs. Given federal budget deficits and the calls for entitlement reform, Medicare margins will continue to be under pressure. Politicians fearing a backlash from cutting benefits to consumers will take aim at hospitals and other providers. The Advisory Group predicts the typical hospital will see its margins collapse by as much as 20 percent over the next 10 years as reimbursements drop.

"Hospitals that can't find a way to deliver their product less expensively and with better quality are going to go out of business," Van Gorder says. "It's as simple as that."

***

Consider the $6,000 cost difference for the cardiac valve and coronary artery bypass graft procedures. No one paid attention to it, because there was no incentive to do so. When a cross-system team dissected hospital-to-hospital variations in 2010, they found that the Scripps Memorial Hospital in La Jolla required that nitric oxide be administered to the patient, ostensibly to boost oxygen intake in the blood.

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Russ Mitchell is a writer for Kaiser Health News.

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