Prepared text of remarks by
William R. Brody
President, The Johns Hopkins University AT THE 22ND ANNUAL ALEX. BROWN HEALTH CARE CONFERENCE
TUESDAY, MAY 6, 1997 / BALTIMORE, MARYLAND Good afternoon. I am very pleased to be here this afternoon, and to have this opportunity to address Alex. Brown's 22nd annual Health Care Conference. I am in the somewhat unique position of having been here before, though previously I was on your side of the podium, as a participant. For several years in the mid- to late-1980s I was founder, president and CEO of RESONEX, a medical technology company in California founded upon work I had done in magnetic resonance imaging. I presented here at the Alex. Brown Health Care Conference in 1986, and, at that time, I visited Baltimore not knowing that soon I would be back on a more permanent basis. I hope you all have some time to enjoy our city while you're here. If the rain stays away, you will find you've come at one of the prettiest times of the year for the mid-Atlantic region. Baltimore has much to offer. It was not, however, the charms of Baltimore that brought me and my family here on a permanent basis, as great as those charms may be. It was, rather, the chance I was given to work once again within an academic medical center, and specifically, at The Johns Hopkins University, that brought me to Baltimore, first as the director of the Department of Radiology, and, eventually, as president. As I'm sure most everyone here knows, Hopkins is a research university, and, in fact, was the first university in the country to be founded specifically for that purpose. There are perhaps -- depending upon how you count -- 3,500 colleges and universities in the United States today, of which, about 100 have significant enough research and graduate-training programs to qualify as true research universities. And not all of those have research programs specifically focused on medical technologies and the biological sciences. Many of them do not. Of those that do, the lion's share of research effort and expenditure takes places at academic health centers, those institutions that combine a hospital or clinic with training programs in medicine, nursing, dentistry or public health or some combination of these disciplines. Currently, there are about 35 academic health centers in this country that combine medical education with a major commitment to sponsored research. Another way of putting it is that about 1 percent of our 3,500 colleges and universities are engaged in health research combined with advanced health education. So the numbers, in one sense, are not large. There are not a lot of us directly involved in the kinds of activities we expect from academic health centers, such as clinical trials and the spinning off of new technologies into new products and new companies. But I believe the efforts of these centers is critical to the future of health care in this country. That is what I'd like to take a little time talking about this afternoon. As I said, I was here once before on opposite side of the podium, and I am aware from that previous experience how much activity is scheduled into these four days. So I will try to limit my remarks to focus just on the central issue at hand. When I conclude, I would be happy to respond to your questions. I want to start by stating my thesis, founded upon my experience both as an academic physician and as an entrepreneur: academic health centers are a necessary -- and I would argue -- fundamental, part of the health care equation. If we didn't have academic health centers, we would have to invent them, because they perform three essential functions that are vital for health care and the future of the health care industry. The first of those is the function that, ironically, is often overlooked, or at least not emphasized to the degree which it should be: academic health centers have a training value. We educate the health care professionals -- doctors, nurses, pharmacists, public health professionals, and so forth -- who provide health care services to our citizens. We also train biomedical scientists who make the make the major advances in the understanding of health and disease. The time and resources that are required to train the next generation of clinicians and investigators -- the leaders and explorers and problem solvers of tomorrow -- is simply enormous. It requires a huge infrastructure of buildings and equipment and expertise, and a sizeable patient base to attend to. This is not a role the federal government or the private sector or the HMOs or any other entity can fulfill. Nor should they be expected to. It is what we were set up to do, and I would argue, it is what we do best. Our training function is irreplaceable. To understand the ultimate value it adds to the system, I suggest you need only look around at the leaders of the national health care endeavor -- the heads of the NIH, the CEOs of large and small corporations, the researchers who are discovering the next wave of medicines and therapies that will revolutionize health care in the years ahead, and the entrepreneurs who start the companies that will be presenting at future Alex. Brown Conferences. Overwhelmingly, these leaders have an academic health center training in their background. It is what prepared them to do the things they are doing. And that is what we will continue to do in the years ahead. The second vital function I believe our academic health centers play is discovery and innovation: They bring together a concentration of talent and expertise from many different fields who work in close and constant proximity. An oncologist working in private practice might think there is little to be said to a molecular biologist; but, thanks to the assembly and concentration of these and other disciplines at our academic health centers, we have learned they have a good deal to discuss indeed. When Dr. Bert Vogelstein, a professor at Johns Hopkins, discovered the gene that is responsible for colon cancer, it was a matter of a few short months before his clinical colleagues in oncology were testing patients for the presence of this gene. Soon urologists were expanding his work and eventually uncovered a gene responsible for prostate cancer. And the discovery of new drugs, new procedures and new devices sometimes leads to the creation of new companies and even new industries. The third function is perhaps an obvious one: clinical trials. Since many of you are involved in the challenging task of moving new therapies from bench to bedside, I probably do not need to emphasize the vital role we play in conducting clinical trials. But it is an enormously significant component of what we do, and of how we serve not only our patients, but the entire medical community. Taken together, these three essential functions of the academic health centers -- education, discovery of new knowledge and translation of that knowledge to clinical practice -- take place in the setting of providing patient care, and not only for highly specialized tertiary and quaternary care but also for primary and secondary care as well. Not only does patient care provide the setting for delivering our unique mission, it has also provided a source of funding -- clinical practice dollars -- to support research and education. It is this patient care base, so critical for our success -- and I would add for the success of your companies -- that is threatened by changes in health care financing and health care delivery. Now I hardly need to state the obvious to this audience: we are currently in the middle of a fundamental and unprecedented process of reorganization of health care in this country. We are in the process of evolving from one system of care that existed, more or less unchanged, for dozens of years, into a new system, the content and context of which is not yet clear. We are neither at the beginning of this process, nor at -- or even near -- the end, but somewhere in the turbulent middle. For many of us, it's probably the least pleasant place to be, although, conversely, it is also the place with the greatest opportunity for change and new possibilities. I have often compared the health care industry of today with the automobile industry of 1906, which stood on the verge of mass production following Henry Ford's introduction of the assembly line. For automobile manufacturers, Henry Ford's innovations brought about a period of tumultuous change, technical innovation and rapid consolidation from literally thousands of small producers to what became ultimately the "Big Three" auto companies. It is arguable whether the early mass-produced Model Ts were better than the hand-produced products of the carriage trade industry in terms of quality and effectiveness. But it is undeniable that they represented an economic imperative, an accomplishment that had to happen in order for automobiles to move beyond the realm of the few and the rich to the mass markets we know today. Health care, as it is now practiced, is in many ways a carriage trade, full of highly trained, highly specialized guilds of expertise which each extract considerable compensation for the value they add. Like Panhard and Levassor, one of the leading automobile manufacturers at the turn of the century, the solo medical practitioner is headed for rapid extinction. The thousands of solo practitioners and individual hospitals are being gobbled up in a consolidation that is every bit as dramatic as occurred following the introduction of the Model T. In automobile manufacturing, we have witnessed an evolutionary process that moved from the cottage industry of customized carriage trade, to mass production, and then to concept of lean manufacturing introduced by Eji Toyoda after the Second World War. The Toyoda production system, also called mass customization, provided many economic advantages of Ford's assembly line. But, unlike Ford's Model-T, which came only in the color black and with all standard features, the modern manufacturing methods produce vehicles with significantly higher quality at the same time they are customized for small markets. I believe that we are similarly headed for a transition from the present system of managed care -- with our 'one size fits all' mentality and a focus on cost control -- to a system more like that of mass customization, in which health care needs are more uniquely tailored to individuals, and the focus shifts from cost containment to quality enhancement. It's interesting to note that, even long after mass production had arrived, a type of guild-mentality continued to define production. On the assembly line, the guy who was trained and expert at attaching the left front wheel was incapable of attaching any of the other three: his training was highly specialized and, to some extent, his skills were utterly reliant upon a hundred others who had to make their particular contributions before he could be effective. Such highly specialized segmentation of skills typifies the health care industry today; even workers in new managed care organizations retain their highly specialized roles. Today, increasingly, cars are being designed and built in teams of individuals who are expected to master and apply many different skills. The guild system is all but dead. Work is pushed to the lowest level, and teamwork rather than individual performance is emphasized. Modern manufacturing techniques are undoing Adam Smith. In health care, we still have the guild system alive and well. Highly specialized workers can perform a limited range of tasks. And work is accomplished largely with individuals rather than using teams. But that is changing rapidly. Specialist physicians are being replaced by generalist physicians. Primary care physicians are being replaced by nurse practitioners. Pharmacists are licensed to prescribe in 15 states and are engaging in primary care, and so forth down the line. It is especially interesting to note that Toyoda's new manufacturing process was driven primarily by a perceived need to enhance quality, rather than simply to improve productivity. So, at a fundamental level, you have changes in manufacturing being driven by issues of quality, rather than simple quantity. I believe this has very significant implications for the future of health care, and in particular, for the future of academic health centers, where so many of our health professionals are trained. Bob Galvin of Motorola, who heads the Baldridge Awards, makes an interesting point; he notes that research has shown the average reduction in cost structure of manufacturing that occurs when the focus is on improving quality is about 50 percent. This is primarily achieved through a reduction in variations. In other words, quality management has proven, in a manufacturing context, to be an extremely effective means of cost control, even when cost control has not been the primary objective. Does this have an implication for the health care industry? I believe it does. For the past decade or two, our emphasis has been almost entirely focused on issues of cost. To quote a recent issue of Physician Executive: "Since Medicare and Medicaid in 1965, the emphasis in Washington has been on reducing the costs of health care -- almost all federal health care law subsequent to these two programs has been aimed at cost control. Not even the designers of the federal programs envisioned how quickly health care costs would rise and how substantial the increases would be." Somehow it has yet to occur to the government, as well as to many commercial payors, that awarding contracts on the basis of cost may not lead to the best outcome. Paying doctors and hospitals based upon set fee schedules leads to profound mediocrity, which ultimately leads to higher health care costs. I would suggest that, for too long, we have been focusing on the wrong set of issues to define this debate. We have been obsessing about cost -- with no apparent effect -- while we have been ignoring the quality issues that lie at the heart of our troubles. Two recent examples from our own Johns Hopkins experience suffice to make the point: If you look at the per diem charge at the Johns Hopkins Hospital, you would conclude that our rates are 15 percent to 30 percent higher than competing suburban hospitals. Yet we have accumulated a database on pancreatic cancer patients, and can document that the surgical morbidity, mortality and length of stay are substantially lower for resection of pancreatic tumors at the Johns Hopkins Hospital than at any other hospital in the state of Maryland. Patient outcome -- quality -- is higher, and total cost is lower if you refer the patient to Johns Hopkins for therapy. Similarly, we have developed methods to reduce the length of stay for open heart surgery patients by reducing complication rates and thereby significantly improving quality. And what did we discover? As soon as we focused on reducing complications, we ended up with the lowest costs for bypass surgery in the mid-Atlantic region. It's just as the car ads say: "Quality is Job 1." The system of health care delivery has moved from a generally regulated environment to a competitive one. With a unitary focus on cost containment, many of today's managed care organizations would more aptly be termed "managed cost" organizations. Quality is often given little more than lip service. And the fact that we now have a growing backlash of anti-HMO sentiments from patients should be hardly surprising. Those organizations who have focused on cost are winning the battle but losing the war. Improving health indices requires long-term thinking, planning and action; it demands a long-term perspective that will justify expenses and activities which may not immediately seem effective, but will prove warranted somewhere down the road. From this perspective, the suggestion that we are still somewhere in the middle of this process of change -- and probably closer to the beginning than the end -- is confirmed by the observation that, so far at least, the health care system has only really been impacted economically, and then only in ways that have shifted costs among the various players. The "spot market" mentality for purchasing health care services will be replaced as we begin to understand that, in health care as in everything else, some providers are better than others. Can you imagine Lee Iacocca agreeing to use a family practice lawyer to represent Chrysler in a product liability suit? No way. So why do we persist with this mentality in the health care field? Pursuing ways to measure quality and to improve outcomes ought to be one of the major imperatives for our academic health centers. Unfortunately, until now, many of us have stood quietly on the sidelines trying to preserve the status quo. Now that the reality of market reform is setting in, some are beginning to wake up and becoming highly innovative. I hope that academic centers will partner with innovative companies in the health care sector to forge the quality solutions that will ultimately provide affordable health care for all. Here is an opportunity public-private partnership that is mutually beneficial. At present, many academic health centers are becoming compromised to the point of inviability, some for reasons of inaction, as I mentioned above. But many of these institutions are located in urban areas, often among the poorest of the city's residents. Thus, in addition to bearing substantial costs related to our education and research missions, we also shoulder a disproportionate share of the medically indigent. Thirty percent of patients at the Johns Hopkins Hospital are indigent and/or on Medicaid. Last year, we provided nearly $100 million of uncompensated charity care, while still being required to compete with suburban hospitals who bear only a fraction of this burden. The cost additions of teaching, research and caring for the poor have in the past been covered through a system of subsidies that recognized the unique contributions made by academic health centers and reimbursed them accordingly. Yet current market forces are now forcing increasing numbers of patients to suburban hospitals and other settings which do not have to contend with these additional costs. The result is that some, or even many, academic health centers will be forced either to make large-scale reductions in force, such as has occurred at Duke, Georgetown and George Washington; or to form partnerships or merge, such as has happened between Massachusetts General Hospital and Brigham and Women's Hospital; the University of Cincinnati Hospital and the Christ Hospital; the Indiana University Hospital, James Whitcomb Riley Hospital for Children and the Methodist Hospital of Indiana; and Barnes and Jewish Hospitals with the Christian Health System, which together now constitute the BJC Health System. Columbia-Presbyterian Hospital and the New York Hospital have announced plans to join forces as have the clinical enterprises associated with Stanford University and the University of California, San Francisco. Some, undoubtedly, will be forced to close, and many may find it difficult to maintain their mission of research and education. Should you care? Unequivocally, yes. I would argue that unless this trend is reversed, we face a major diminishment in the flexibility and innovative capabilities of our medical system, just when we need it most. What is happening is analogous to IBM discovering it has an excess of manufacturing capacity and therefore making the decision to close down its R&D facilities in response. It simply doesn't make sense. We are destroying the seed corn for an innovative industry. Already this year at Hopkins alone, for instance, we have launched five new companies to help market new technologies and discoveries made by our researchers. Other academic health centers have been equally effective at translating ground-breaking research into new companies, new industries, and new hope for millions battling illnesses of every sort. I said earlier that these two observations -- one, of the importance of the academic health center in the modern medical enterprise, and two, of the change our entire health system is undergoing -- could combine in surprising ways. I would like to leave you with this thought: In the past, the academic health centers have been the locus of some of the most significant and ground- breaking research in medicine and related technologies. I believe that, as health care continues to change and reform itself in America, the academic health centers will preserve and enlarge upon their accomplishments by leading the way in quality management, control and innovation. This then, is the challenge that we face as we move into the future American medicine, a challenge, I am confident, we can meet. I would now be pleased to answer any questions. | 
