Main Content

Managing the Most Complex Organizations on Earth

Interview with Brian Golden by Karen Christensen

Peter Drucker famously called hospitals “the most complex form of human organization we have ever attempted to manage”. The Rotman School’s resident health sector strategist explains why.

Healthcare represents a huge and growing sector. But it faces unique management challenges that you believe have not been adequately addressed. Please summarize them.

Brian Golden: In  most  systems, healthcare is seen  as  a cost rather than  an investment — and that  is tragic.  One of the great challenges right  now is getting people  to adopt a new mindset around what  great  healthcare can do for an economy. The fact is, excellent healthcare drives prosperity.

The second issue is a problem of inequity. We have what  I call ‘postal code healthcare’: You are very fortunate if you happen to live in a place like Toronto, New York City or Los Angeles — which have some of the best healthcare in the world. But good healthcare is not  spread evenly,  between countries or  within them. There are ways of overcoming that, and we are starting to see some  progress thanks to rapidly  expanding virtual  care and an  increasing appreciation for the  contributions that  different healthcare professionals — not just physicians — can make.

A third  challenge is that  healthcare markets are highly imperfect. In a perfect market, there is intense competition based on free-flowing information regarding quality and costs. We see this in for-profit sectors, where resources go to the providers who create the most value. Healthcare should be viewed as a market, too. We should be flowing resources and taxpayer dollars to the providers that offer the best care for the dollars being spent. The problem is, it is very difficult for buyers — insurers or the government in this case — to determine high-quality versus low-quality care. Even end-users have difficulty making that distinction. We need healthcare to operate more  like other robust markets, and that’s  going to require a cultural shift and  investments towards performance reporting.

The  last  thing  I will say is that  in every  developed country, healthcare is highly siloed  and fragmented, and that  is due mainly  to the payment models and  incentives. These are some of the fundamental challenges we face in this nine-trillion dollar global industry. The good news is, we can overcome them, and we have made some progress over the past decade.

The late Peter Drucker famously said that hospitals are the most complex form of organization that humans have ever attempted to manage. What does this complexity derive from?

BG: There are a few factors at play. The first is that we aren’t producing widgets; healthcare is an imperfect science. Each year, we improve our understanding of how to care for patients, whether through pharmaceuticals, therapy, or surgery. And every year we improve, but it will always be imperfect. Mental health care is a perfect example: Even today, there are debates between leaders in the field around how to treat patients who present with some of the most common mental-health challenges.

 Hospital Illustation

Good healthcare is not spread evenly,
between countries or within them.

The second and related issue is the multi-disciplinary nature of healthcare. We bring  together lots  of smart, well-educated, caring people, but depending on how they were trained, they often see the world in different ways. They may agree on the objectives at hand, but because of their engrained mental models, they approach challenges differently.

The  third  thing  I will say is that  healthcare challenges are manifestations of  numerous  societal challenges, so  even  the most  effective  healthcare systems will always  be challenged by the lack of education in the community. In Canada, we still have inadequate clean-water systems and access  to nutritious and affordable food access  in some  areas. These are just some  of the

‘social determinants of health’, and  they  are significant predictors  of ongoing health challenges. But because these problems derive  from policy failures or failures of non-healthcare systems (e.g., education, criminal justice) it is next to impossible to avoid some  of the problems that  our healthcare system is actually designed to fix.

And lastly, there is complexity of demand. If you’re running a manufacturing operation, you can decide to produce 40  MRI machines next  month, and  you can  do this  with  precision and schedule for it. But we can never quite know who is going to show up at the hospital, when they will arrive, what their condition will be, and  what  skill sets  will be required to care  for them. There is significant uncertainty involved trying to design a system with so much  unpredictability. Artificial intelligence has definitely helped, but  we’re  not  there yet,  compared to most  industries. This is one area  where  Canada can make  a significant contribution to the world.

Talk a bit about the role of public-private partnerships in addressing these issues.

BG: In Canada, we often  struggle with looking  across  the divide between public and private systems. The private side often  feels the public system is under-developed and  unsophisticated, and the public system feels the private side only cares  about making money. I would argue that neither is true — and that there are real advantages to these kinds of partnerships.

It is true that the public system has difficulty thinking beyond election cycles and taking risks; and at the same time, private corporations often  get slammed by investors if they’re not focusing on the future by investing in R&D. The private sector has the resources to invest in more risky ventures — and they can diversify those ventures to balance risk, as well. They often have the ability to bring together financial resources that the public system can’t.

An example of this is Iora Health in the U.S. Its founder and CEO was a student in our Global Executive MBA for Healthcare and Life Sciences, and in class he spoke of Iora’s mission to make primary care  accessible and  affordable across  the  U.S. He  described how he had to go to the private sector — which embraced his mission — for investments that  will only have  returns down the road. These investors can make bets on the longer term.

We also know that the public system depends heavily on the private system for resources like technology and  new  ways  of working. Take our current situation with COVID-19. We’ve seen that  the supply chain  capabilities of our best private sector organizations are critical  in bringing things like PPE and vaccines to communities. Can any of us imagine what our world would have been  like during this pandemic without the private sector?  The development and  dissemination of vaccines is a testament to how public and private organizations can work together very effectively. We need more of that.

For those who aren’t familiar with the term, please define value-based care (VBC) and its key principles.

BG: We talk about value-based purchasing in many  industries, but  for some  reason, we haven’t thought about whether or not we are getting good value for the dollars we spend in healthcare. When  we invest  a million  dollars in a particular set of services in one part of the system versus  another, are we getting the best outcomes for those dollars? Value-based care addresses this. It is very much  about paying  for outcomes as opposed to paying  providers to do specific tasks.

This mindset has expanded in recent years,  and it’s incredibly promising. We first saw it in the U.S., where  they have more effective markets for healthcare, but at the Rotman School we’ve been  working  with our colleagues in healthcare leadership (government and  providers) for about seven  years  now,  spreading the gospel of value-based care.

We did some work with St. Joseph’s Health System, based in Hamilton. The promise that  St. Joe’s made to the Ministry  of Health was this: Give us the  funding you would  otherwise provide  for thoracic surgery, COPD  or orthopedic care;  don’t  pay us to do particular things in these areas, pay us instead for the outcomes experienced by our patients. St. Joe’s took those  dollars and brought together a team of surgeons, homecare workers, physiotherapists and primary care physicians, and they were responsible for allocating all of these resources. That  was an early experiment, and  we’ve since  seen  it work in orthopedic care  at the University Health Network in Toronto.

On  the  private side,  we’ve  also  seen  significant advancements in value-based care by innovative companies. In medical devices, for instance. Insurers or government payers  often  want to see years of data  on outcomes before they will switch funding from  a tried-and-true method to a new,  innovative device.  The dilemma is that  these are innovations, so by definition, the providers  don’t  have  years  of outcome data  to provide. Companies like Medtronic and Johnson & Johnson have been able to overcome  this. They understand the science and the engineering of their  products better than  the  potential buyer,  so they  can  say, ‘Don’t worry, we will take the risk here: Pay us up front, and if we don’t achieve the promised outcomes, we will pay you back every dollar’.  Again, the private sector, with its ability to make  investments and diversify across a variety of products and services, can do that.

You led a team that attempted  to implement VBC in Ontario. Describe how your Integrated Client Care Project played out.

BG: That  was a great  learning experience, but it did not result  in the outcomes we had hoped for. What  we were trying to do was bring together providers in a home care setting for patients with venous leg ulcers  or diabetic foot ulcers.  Usually,  these patients are not very mobile. They are in considerable pain and their home care is expensive. At the outset, all sorts  of healthcare providers and physicians were involved in each patient’s care — from nurses to physiotherapists — but none  of them were  connected to each other. The patient would be visited by different health professionals throughout the week who weren’t communicating with each other. They were getting paid to make  a visit and perform a specific task — but no one was fully accountable for each patient.

We worked with the Ministry  of Health and the home care sector to try to bring the various parties together under one umbrella.  As indicated by the  St. Joe’s example, there would  be a ‘broker’  who would  receive one consolidated payment to cover all the  care  the  patient needed. Where we were  not successful was in changing the way the Ministry  thought about payments. They agreed that  we should bring these providers together and that  there should be a single  accountable party.  But we could not convince them to change their  payment methods, and  that was  a  by-product of  some  very  challenging discussions they were having at the time with the Ontario Medical Association. Understandably, they  were  reluctant to  get  into  conversations about changing payment models while they were negotiating a new payment schedule for physicians. The other challenge was that  we didn’t  have  proper systems in place  across  Canada for determining what  particular services should cost. As indicated earlier, there are no real market forces at play.

This was seven  or eight  years  ago, and I’m happy to report that we’ve improved upon all of these capabilities. We now have more sophisticated systems in place to determine what the ‘right price’ should be for caring  for a patient with a particular condition, for risk adjusting, and also for creating the governance mechanism required to bring the various providers together. We are now seeing  a new movement starting with Ontario Health Teams (OHTs), whereby providers come together from the hospital  sector, primary care,  home care,  physiotherapy and  long-term  care  to  care  for  patients within  a particular geographic area. They will work in partnership to improve patient outcomes — and we like to think  our early experiment was part of the inspiration for this.

Describe the role of ‘bundled payments’ in this model.

BG: I’ve  basically described them  without saying  the  term: Bundled payments entail  determining what  the  care  for a particular  medical condition should cost,  on  average. So if it’s a hip replacement, we know approximately what  the average hip replacement should cost,  if best  practices are  followed. Bundled  payments ‘bundle together’ the  amounts that  would  have previously be paid  to each  provider involved. Say the  bundler receives $18,000 for a complex surgical procedure like a hip replacement. They have  an incentive not to pay all the providers under the  traditional model, but  to put together a customized team and  look for the least  expensive qualified care  givers and providers for the necessary care.  And they can also add helpful tools to the process. Importantly, outcomes are measured, to be sure quality is maintained.

In times of crisis, leaders have to acknowledge that
they may be wrong as often as they are right.

In our experiment with the leg ulcer patients, we found that we could invest  in a $100 shoe insert that  would allow patients to heal  more  quickly  and  receive less home care.  Fewer  nursing visits saved  thousands of dollars. By giving the bundler the discretion to buy that  insert rather than  having  to follow a prescribed course of care (i.e. ‘17 nursing visits over three and half weeks’), the system was better off, the providers were better off (because they weren’t providing unnecessary care) and certainly, the patients were better off. Bundled payments are about putting financial incentives in the  hands of the  healthcare providers who are closest  to the patient and giving them incentives to provide the best care for the lowest  dollar  amount. That’s  what value-based care is all about.

What key leadership lessons have emerged from the global pandemic thus far?

BG: We’ve learned that a different kind of leadership style is demanded during a crisis. I teach a course at the  Rotman School on  change management, and  prior  to  the  pandemic, when  I was working  with healthcare leaders, they would  ask questions like, ‘How can we effectively implement a new digital  platform or a new HR system in our hospital?’  These were  all tried  and true  processes, so it was possible to manage the  process effectively with careful planning. My advice was largely about ensuring good  communication and  training people  up. It was  what I would call ‘anticipatory change management’.

In the time  of COVID-19,  there is no playbook. Ron  Heifetz of Harvard’s Kennedy School talks about the need for adaptive leadership in times  of uncertainty. In traditional times  of change, we look to those  in positions of authority to tell us what to do, and  there is a playbook. But in times  of crisis,  we need more  involvement from  the  grassroots level.  Leaders need to acknowledge the  uncertainty, experiment and  increase their risk tolerance. And they have to admit that they may be wrong as often as they are right.

Ron likes to use the analogy of a pressure cooker:  You have to allow the pressure to build enough so that  people  are creative and innovative — but not so much that the lid just blows off. Managing  that  pressure, letting people  experiment and  supporting them, is important. But at the same  time,  you have  to keep  the train running, so you end up with two systems: Your normal operating system, which requires a more  traditional leadership style, and the adaptive leadership approach, where  you’re innovating, taking intelligent risks, and learning very quickly.

We have seen lots of innovation throughout this pandemic. What will be the lasting effects on healthcare?

BG: For one thing,  virtual care is not going away. Just as many of us have learned to work from home, many patients have learned to receive care  from  their  homes, and  physicians have  learned not to worry about providing quality care with these tools. I spoke earlier about the inequity that exists in the healthcare system, in part because of where  you live. With the advent of virtual  care, we can  provide urban-quality care  to patients across  this  very large and diverse country. And that is a great thing.

One thing I can say with certainty is that this will not be the last crisis we face. We didn’t  learn  enough from our experience with SARS, but I do believe  the lessons from COVID-19  will be widely embraced and  remembered, based on the profound impact this virus has had on the world. 

Brian Golden is the Sandra Rotman Chaired Professor in Health Sector Strategy at the Rotman School of Management, the University of Toronto and the University Health Network and founding Academic Director of the Sandra Rotman Centre for Health Sector Strategy. He co-directs Rotman’s Global Executive MBA in Healthcare and the Life-Sciences. For details about this program, visit

Share this article:

Read More Follow Us on twitter Email List Subscribe Today