operations management in hfhs and deming's priniciples

HENRY FORD HEALTH SYSTEM 1

Henry Ford Health System:

A Comprehensive and Integrated Healthcare System

Vrushali Soni

Northwest University

Author NoteThis paper is prepared for Operations Management, taught by Professor Lucas


Introduction

Malcolm Baldrige National Quality Award winner of 2011, Henry Ford Health System

(HFHS) is an integrated and comprehensive health care system that offers large variety of

services. Headquartered in Detroit, Michigan, HFHS was established by Henry Ford, the auto

pioneer, in 1915. Initially it was Henry Ford Hospital (HFH) that expanded gradually to include

primary care units, wellness facility, retail shops, insurance agency and so on. There are

currently 140 sites and nine Business Units (BUs) of HFHS serving entire southeast Michigan. It

is a non-profit organization and offers uncompensated care to many. Highly qualified physicians

and specialists offer their services in HFHS.

HFHS is highly influenced by Deming principles of quality management. Dr. Deming

gave fourteen points for improving organizational and management system. He believed in

continuous improvement and quality outcomes. Some of his points are highly practiced in many

businesses including HFHS whereas some are not currently applied in HFHS.

This paper focuses on operational and management principles of HFHS. It will further

compare and contrast the HFHS’s principles with Deming’s principles. This paper will explore

Deming’s two principles with which HFHS is doing well; two of his principles that HFHS finds

difficult to implement, and three of his principles whose application in HFHS can effectively

improve it as an organization.


Henry Ford Health System – A Comprehensive and Integrated Health System

In 1915, Henry Ford established not-for-profit Henry Ford Hospital (HFH) in Detroit,

Michigan. He encouraged research and education for continuous increase in employees’

knowledge and systems innovation. He innovatively divided HFH in two departments, inpatient

(IP) and outpatient (OP) but under single management. Gradually, HFH expanded to Henry Ford

Health System (HFHS) by integrating with three different departments. First department, Health

Alliance Plan (HAP) that offers low cost and high quality insurance plan; second is Behavioral

Health Services (BHS) that offers psychological services and care to patients; and third,

Community Care Services (CCS) that provides dialysis, hospice and retail services (Henry Ford

Health System [HFHS], 2011). Apart from the flagship HFH in Detroit, HFHS includes four

more hospitals, Henry Ford Macomb Hospital (HFMH) and HFMH- Warren Campus (HFMH-

WC) situated in Macomb; Henry Ford Wyandotte Hospital (HFWH) in Wyandotte; and Henry

Ford West Bloomfield Hospital (HFWBH) in Bloomfield that served southeast Michigan

(HFHS, 2011). This set of new hospitals was a mixture of organic and acquired properties.

HFHS has a separate department, Henry Ford Medical Group (HFMG) constituting 30

ambulatory services and 41 specialists (HFHS, 2011). Therefore, HFHS is a total of nine

different Business Units (BUs) that are distributed across 140 sites of southeast Michigan with

the workforce of more than 31,000 (HFHS, 2011) and an earning of annual revenue, $4.22

billion in 2010; net income, $21.5 million; and uncompensated care, $210 million (Connelly,

2012, p. 38). HFHS went a long way to increase its revenue from $2.1 billion in 2000 to $4.2

billion in 2010.

In Michigan, one of the most economically depressed states of the nation, HFHS

competes with many other health systems and insurance companies. Its market share is


diversified because of its diversified service offerings. It holds 17.5% of IP (inpatient) market

share in tri-county regions of south east Michigan whereas its OP (outpatient) market share is

19% in the tri-county region. Its IP market share in entire southeast Michigan is 15.4% (HFHS,

2011). HFHS’s target markets are patients of hospitals and primary care, and purchasers of

health insurance (HAP) products.

HFHS was successful in crucial task of aligning mission, vision and values (MVV)

together with one single motive of giving its customers, The Henry Ford Experience (THFE)

(Connelly, 2012, p. 37). Its “mission is to improve human life through excellence in science and

art of health care and healing”. Vision is “to transform lives and communities through health and

wellness-one person at a time”. Values are “we serve our patients and communities through our

actions that always demonstrate. Each patient first, respect for people, high performance,

learning and continuous improvement, and social conscience” (HFHS, 2011). The MVV

(Mission, Vision and values) are supported by core competencies of HFHS. These core

competencies include “innovation, care coordination and collaboration/partnering” (HFHS,

2011). MVV are well coordinated with core competencies of HFHS through the support of seven

strategic pillars that include people, service, quality and safety, growth, research and education,

community, and finance. The information flow across all the pillars, progress measurement in

each pillar and strategic planning according to the progress are very well coordinated.

Changes in MVV and strategic initiatives in seven-pillar framework are under the

authority of Senior Leadership (SL). It is continuously involved with patient survey processes,

market research, focus groups, local and national benchmarking and research to understand the

customer needs and to influence potential customers (HFHS, 2011, p. 14). It studies specific

trends in complaints or suggestions and accordingly drafts Models For Improvement (MFI). It is


also considering Baldrige Principle assessment since 2007 for designing strategic initiatives.

HFHS satisfies Baldrige criteria and also many of the requirements of Deming principles.

Is HFHS is doing well with improving every process and adopting new philosophies?

Dr. Deming, the TQM’s mentor, illustrated his fifth principle of management as

“Improve every process”. His perception was to improve every process of production and service

forever, and to continuously search for problems in every process. He believed that productivity

and efficiency of a process are inversely proportional to its cost; hence, with increased

productivity one can achieve decreased cost. Management should monitor this proportionality

and assign realistic goals instead of relying on arbitrary numbers and anecdotal data (Neave,

1990, p. 177).

HFHS constantly improves upon its processes of strategic planning, organizational

structure, performance improvement system, and models of improvement. It has designed a

robust culture inculcating “can-do” spirit among its employees and giving its customers a unique

“The Henry Ford Experience” (Henry Ford Financial Management [HFM], 2012, p. 37). One of

the seven-pillar framework of HFHS institution is “Quality and Safety”. HFHS has won many

awards for safety and quality, among them the recent ones are “Thomson Top 10 U.S., Quality

and Efficiency” award in 2009 and “Malcolm Baldrige Award for Quality” in 2011 (HFHS,

2011, p. 45). HFHS is one of the only four Baldrige award recipients in U.S. It is awarded a total

of $26.2 million from federal government along with other four healthcare institutes of Michigan

to complete the projects that will reduce health care cost and increase quality (Greene, June 15,

2012). HFHS robustly follows Deming’s illustrated quality chain reaction model (Fig. 1) for

reducing cost and improving quality. The CFO and Executive VP of HFHS, James Connelly


believes, "Small changes make a big difference. In this environment, you have to watch your unit

cost carefully, which we have done"(HFM, 2012). HFHS is continuously chasing cost-effective

treatments and techniques with increased quality service for remaining competitive in the most

economically challenged state of U.S. Innovative techniques and treatment are invented but only

put into action after clinically testing it and doing proper market research (HFHS, 2011).

In HFHS, improvement decisions are solely based on comparative and competitive data

such as surveys; recommendations and complaints of patients; research and innovation

(incorporated in HFHS only after achieving success in its simulation centers), and focus groups.

Surveys are collected in person, via emails, phones, mails, and social media from patients and

customers. In order to make sure that patients are experiencing “The Henry Ford Experience”

(THFE), nurses invigilate the wards of hospitals on hourly basis to assure that none of the

patients has any complaints or difficulties (HFHS, 2011).

Major issues or complaints are discussed bimonthly with Senior Leadership (SL) in

“Employee Advisory Groups” meetings. Then they are presented in board meetings, which are

held every month. The Henry Ford Leadership System analyze all the data collection, feedbacks

and current trends and threats in the market and accordingly come to some changes in goals

leading to improve and enhance quality of service. The SL team has designed employee

engagement strategies; Lasting Impressions Framework; THFE reference pocket cards;

standardized service recovery (HEART- Hear, Empathize, Apologize, Respond and Thanks)

approach for its improvement in customer loyalty (HFHS, 2011).

Apart from improving every process, HFHS is doing well in adopting new philosophies

and creating innovations. Dr. Deming proves his second principle of management, “Adopt the

new philosophy”, by explaining how this world is changing and adopting with better


performance and services. For sustainable success, change in system is very necessary, constant

improvement in process leading to increase in productivity and efficiency whereas decrease in

throughput time, lead time, setup time, or cost will always prove beneficial to the company. He

emphasizes on breaking the traditional barriers of “unwillingness to change, fear of failure and

unknown, people measuring productivity than improving it, etc.” and creating innovations for

betterment of society (Neave, 1990, p. 173).

HFHS’s one of the three core competencies is innovation therefore, breaking all the

barriers; it has placed many exemplary innovations in the field of health care. HFHS does

inventions and innovations for increasing productivity and efficiency. In 1998, HFH was the

first in state to offer genetic detection of breast cancer. In 2007, it has established 12,000 square

foot medical simulation center that allows physicians and students to enhance and test their

clinical skills in risk free environment. (HFM, 2012, p. 38). HFHS was the early adopter of EMR

(Electronic Medical Record), which is successfully leveraged presently by entire health care

industry. It was the first “mentor” hospital in nation-wide harm reduction campaign. Henry Ford

Medical Group (HFMG) performed the first robotic removal of cancerous prostate gland, which

revolutionized the prostate cancer treatment globally (HFHS, 2011). In 2011, HFHS collaborated

with Wayne State University Engineering studies and Detroit College of Creative studies in

order to establish the Henry Ford Health System Innovative Institute (HFHS-II) for research and

innovation in the field of health care (“Henry Ford”, n.d.). HFHS-II is working with Detroit

College and Wayne State University on projects of cancer detecting bra and miniature heart

pump (Miller, 2011). In the same year, HFHS won John M. Eisenberg patient safety and quality

award in innovation. It is one of the two hospitals that received Eisenberg award this year

(Angell, March 19, 2012).


Several years ago, Henry Ford Hospital (HFH) implemented an innovative strategy of

inviting patients from other hospitals for transplantations and other critical surgeries. This

strategy proved very successful to HFH. It is one of its kinds to give its patients retreat like

experience in hospitals for agile healing and recovering process. Considering patients

convenience, it follows few new techniques of survey collection, like emails, social media, and

phone calls. Maximum of the HFHS hospitals take surveys in person by an innovative

mechanism that offers its patients to convey their complaints/compliments electronically via

televisions in their rooms, hospital leadership immediately respond to this feedback (HFHS,

2011). Henry Ford Health System is excelling in following some of the key principles of

Deming, such as improving every process and adopting new philosophies but it is difficult for

HFHS to incorporate “Permit pride of workmanship” and “Institute leadership”.

Why HFHS is finding it difficult to implement “Permit pride of workmanship” and

“Institute leadership”?

HFHS is not implementing Deming’s twelfth point, “Permit pride of workmanship”, in

its organizational structure. According to Deming, pride of workmanship should be given to

every worker by removing incentives and annual reviews because money will not encourage

them to do more work or rather do more quality work but instead it will make their growth

stagnant. Deming believes that performance appraisal is a bar to innovation because workers

pursue it as, if they are paid to do their instructed job then why will they contribute or create any

change or improvement in their work or the results of their work (Neave, 1990).

On the contrary, HFHS has mid-year performance reviews in July and annual

performance reviews in January. Compensation and rewards are aligned with the employee and

organizational performance. There are specific budgets allocated to different Business Units


(BUs) depending on their performance on the goals of annual operating income targets. No

performance appraisals if the operating income targets are not met. The annual reviews have a

significant impact on base salaries and the employees are also compensated with bonus.

Depending on the employees’ designation various awards and compensations are given. Few

awards include Annual Incentive Plan (AIP) payment, Group Performance Award (GPA),

Employee of the Month awards, Celebration of Performance Milestone, Quality Expo Awards,

etc. Connelly, the CFO of the HFHS affirms that they have participated in pay-for-performance

initiatives that had significantly increased the employees’ performances (HFM, 2012). Today’s

competitive world and economic downturn are the key reasons for implicating incentive

programs because such programs establishes healthy competition in the company itself and also

tremendously encourages the employees to work hard and put their best efforts. Culminating

such programs might lead to increase in employee attrition.

Another key principle that HFHS has difficulty in adopting is Deming’s seventh

principle, “Institute Leadership”. Deming’s perception is that managers or supervisors’ job is not

merely supervision but they should help their team member to work efficiently. They should

provide special assistance to employees who require it; and take key decisions of improving

quality and enhancing employees’ work efforts. Their priority task is not to meet the goals or

prepare agendas but to find and solve key issues hindering quality of service or productivity of

employees. Managers and supervisor should take the ownership and accountability of the

defects, poor performance, and poor implication of techniques. Managers should appoint

employees on various projects depending their skill set, ability and interest in pursuing the

defined task (Neave, 1990).


On the other hand, HFHS follows the preaching of John Kotter, a voice of Western

management style. He stated that leadership is about developing mission, vision and strategies

and appointing individuals that makes this vision and mission come true. According to him,

decision making of any change is an eight step long process that should be taken care by higher-

ranking leaders and not by managers. This eight step process include creating a sense of urgency,

putting together a team, creating a clear vision for the change, communicating this vision clearly

to the employees, encourage the team to make act on this vision, produce short-term results to

give them credibility, build momentum to act on new challenging problems, and adopt new

organizational culture (“World of Quality”, 2010).

In HFHS, managers play a role of middle management and higher authority takes

decisions. Managers’ task is to supervise the ongoing projects, conduct reviews of weekly

performance in staff meetings, emphasize on the decided goals of achievement and report their

higher authority about any change required or any issue to be resolved. There is a separate

division of decision making which includes 24-member system Board of Trustees (BOT) and

Senior Leadership (SL) team/ Performance Council (PC), which includes C-suites executives.

This division is accountable for mergers, acquisitions, mission, vision and values. They are also

responsible for strategic planning, new projects, and any change in goals and performance of the

employees. Management presents any major defect, change or issue during monthly meeting

with PC. If under ownership of PC, the issue is resolved or else BOT further considers it. In case

of emergency assistance, employees, volunteers, physicians and trainees can directly contact the

CEO of HFHS, Nancy Schlichting, via email (eNancy). She is available 24/7 for emergency

assistance. The patients can also communicate directly with her via television if they have any

issues or complaints. In case of change in policies, health care acts, mission, vision or goals of


any team; the CEO posts a blog every week on the website (HFHS, 2011). New projects are

thoroughly studied by PC and BOT, they appoint a team for working on this process, creates a

clear vision and goals and the rest of the process is followed according to the Kotter’s eight-step

process (“World of Quality”, 2010). HFHS’s incentive program and leadership organization

proved to be successful according to the CFO and CEO of HFHS but there are few key areas

where HFHS should robustly implement some of the Deming principles.

Which three areas require implementing Deming principles for beneficial outcomes?

The first principle of Deming, “Constancy of purpose” illustrates constant improvement

of quality and service to help men live better mentally and materially. He encourages creating

long-term profitability plans, investing in right areas, improving constantly in goals to remain

competitive, sustaining in business and enhancing profitability (Neave, 1990).

In HFHS, the sustainability and profitability qualities of Deming’s principle are lacking.

Its net income dropped 64% in 2011, from $60.1 million in 2010 to $21.5 million in 2011

(Herman, April 6, 2012). It has millions of dollars invested in ongoing innovation projects and in

expansions of healthcare fields but with $21.5 million dollar net income, the CFO of HFHS is

finding difficult to carry out these projects. It has recently received grant from federal

government under the health reform act. This grant will be utilized in the ongoing projects but it

will not be sufficient for the completion of all the projects. In addition, the uncompensated care

(Fig. 2) is constantly increasing every year hence, it becomes a responsibility of HFHS to

successfully overcome this challenge for its sustainability in the healthcare market. Its IP market

share is 17.5% in the tri-county area and 15.4% in al southeast Michigan. Its four major

competitors also range from 10.5%-17.5% of IP market share in tri-county regions. Competition

is very crucial in healthcare and HFHS has to find the reasons for its less performance on the


scale of market share. It has to increase annual revenues in order to expand HFHS’s profitability

and to assist un- and under insured people with uncompensated treatment.

There are nine Business Units (BU) of HFHS (Table. 1) and among them two BUs are

significantly underperforming in revenue generation. The HFMH- Warren campus, offering 203

beds provision, is generating 2 % of revenues. Another unit is BHS, which includes 7 clinics and

150 beds; and offers behavioral health services, generate 1 % of the revenues. On the other hand,

the flagship HFH accounts for 18 % of revenue and offers 803 beds. HFH lacks private rooms

and demonstrates a crowded environment, which significantly reduces customer satisfaction

(Fig. 3). HFHS should analyze the rationale behind such notable disparity among revenue

generations. If required it can reduce some clinics from BHS and invest its finance and the

working employees in HFH for gaining momentum in increasing customer satisfaction.

Current updates of HFHS illustrates that it is increasing efficiently in the direction of

overall improvement of HFHS as well as the society. It has closed its Warren Campus hospital

on March 31 after $70 million dollar loss in last five years. It has decided to establish a

rehabilitation center in the place of Warren hospital because market research indicates the

requirement of rehab in that area (“Henry Ford Macomb”, January 17, 2012). HFHS will open

its 32nd outpatient medical center in Bloomfield hills for the convenience of its customers

residing in Bloomfield. A substantial growth of this medical center in next five years is

forecasted by HFHS (Greene, February 06, 2012). HFHS has signed a merger agreement with

Detroit Institute of Ophthalmology (DIO) for enhancing research education in the field of

Ophthalmology by expanding DIO support services for visually impaired and blind

(PRNewswire, June 18, 2012). Therefore, considerable growth in market share is expected from


HFHS by following Deming’s principle of constancy of purpose for profitability and

sustainability.

Deming’s sixth principle, “Institute training on job”, emphasizes on increasing skills of

employees required for the occupation and not their knowledge or education. Training is an

ongoing process that is required for the employees to learn skills for operating modern tools and

techniques. While training employees, leader must take into consideration various aspects of

teaching so that employees can easily learn and remember without extra efforts. Finance is a

major barrier for companies to institute training (Neave, 1990) but for HFHS, lack of proper

training resulted in violation of disability act, fine of $70,000, and requirement of mandatory

training for employees.

Gamble (February 06, 2012) reported that HFHS has settled a complaint with department

of Justice for the allegation that it failed to provide sign language interpreters to a deaf patient

and his deaf family. It has violated Disability Act and therefore, it will have to compensate this

violation by paying $70,000 to the family who issued this complaint; and by training the hospital

staff on the requirement of ADA, adopt specific policies and procedure to ensure assistance to

deaf and hard-of-hearing patients, appoint a corporate ADA administrator and ADA facilitators

at each hospital of HFHS.

Research shows that there is significant increase in employee turnover rates. Hospitals,

retail services and homecare services experience highest turnover in 2010. The Henry Ford

Medical Group (HFMG) physician engagement is 30-40% for overall satisfaction and that for

quality and care is 50%. It has increased constantly since 2004 but yet it is not satisfactory

(HFHS, 2011). High employee turnover and less employee engagement are two big challenges

for HFHS to incorporate training session. HFHS has to take some critical measures to reduce


employee turnover, increase employee engagement especially of physicians, and to institute

proper training for communication skills and auxiliary services.

Deming’s eighth point, “Drive out fear”, describes about encouraging two-way

communication to enhance open communication between leaders and employees. It is important

to create an open and fearless environment in order to receive comments and compliments from

employees and their ideas for improvement (Neave, 1990).

In HFHS, two-way communication is encouraged but employees seem to be still not open

in their meetings with leaders. Open culture is required to receive innovative ideas from the

employees because they understand their customers better than leaders. Employees’ ideas should

be encouraged and appreciated. For improvement in this area, HFHS has started communication

training for leaders (HFHS, 2011). This will boost up their communication skills with their

employees and in return will boost the morale of employees to give their comments. Anonymous

surveys also can be a good option for encouraging employees to give their honest feedback and

improvement on ideas.

Conclusion

Henry Ford Health System is performing excellent in the field of healthcare and it will

continue to do so for upcoming many years. Its competitive advantages cover, not compromising

on quality and introducing innovative technologies for treatment and other purposes. It will have

to focus more on the marketing aspects in order to spread awareness about its core competencies

and to influence potential customers. Strategic and skillful planning for increasing revenue

generation and market share is required to strengthen the empire of HFHS.


Figure 1 Deming’s chain reaction model.

Note: From “An empirical test of Deming’s chain reaction model”, by Wayhan et al., 2010, The Journal of Total Quality Management, 21(7), p. 763.

Figure 2 Uncompensated care provided by HFHS and its competitors.

Note: From “Henry Ford Health System”, by HFHS, 2011, p. 48.


Table 1

HFHS BUs, Revenue and Employees distribution.

Note: From “Henry Ford Health System”, by HFHS, 2011, p. i.

Figure 3 Private rooms vs. Non private rooms customer satisfaction.

Note: From “Henry Ford Health System”, by HFHS, 2011, p. 39.


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