Virginia Mason's Gary Kaplan: 19 Years of Inviting Disruption

The CEO of the Seattle-based system discusses C-suite longevity, business strategy, and Amazon.

For almost two decades under Chairman and CEO Gary S. Kaplan’s leadership, Seattle’s Virginia Mason Medical Center has been that hospital that others in the industry look at with a mix of envy and appreciation that someone else is gutsy enough to try what they don’t dare. Every industry needs that player who is willing to risk trying something that must be done and sometimes getting their nose whacked for it.

Kaplan believes in the long game, which is why he and the team at Virginia Mason have been diligently deploying and perfecting principles of the Toyota Production System to eliminate waste in healthcare processes. Kaplan is among a rare few in the industry who is not only embracing disruption, he is counting on it.

He believes it is far past time for those health systems who have been pushing for value to be rewarded with a system that pays for it. Major industry players like the new Amazon/Berkshire Hathaway/JP Morgan healthcare entity could push employers to demand more for their healthcare dollar. And industry players like CVS and Aetna who were once satisfied to play in their own sandbox are now joining to take on providers.

Related: Virginia Mason Forms For-Profit Consulting Group

The chess board is lining up for Virginia Mason. And if that happens and they succeed, others in the industry will have a better roadmap. HealthLeaders Editor Jim Molpus recently chatted with Dr. Kaplan to get his take on the balance of disruption and opportunity the industry sees in 2019.

HealthLeaders: Let me, start with a classic Virginia Mason question. Over a decade ago, you and others were estimating 40 percent in waste in healthcare processes. Can we at least hope a decade later it's gotten better? What's your overall assessment?

Kaplan: I'm disappointed in many ways. There are islands of excellence, pockets where you can point to improvements focused on eliminating waste and non-value-added variation. We've made progress at Virginia Mason. We're now more than 17 years into this journey of consistently and continuously employing what we call the Virginia Mason Production System as a management system. My disappointment stems from the lack of sustainability and the lack of adoption of a management system that permeates healthcare delivery organizations across this country.

There are so many people who will tell you they're doing lean, and what they really mean is they have some point improvements. They've done some projects here and there. Those things are good. That's better than not doing it at all. But what's lacking is the adoption of a system that really permeates all of healthcare delivery. One of the things that I'm most proud of is that we've created this system and we've stuck to it. We've trained all our team members. And in doing so we've gotten a significant amount of traction.

HL: How hard is it to sustain that consistent adoption of process improvement when there are leadership changes?

Kaplan: It saddens me to see the unraveling of a management system in some of those few places that have adopted them. And so, for us at Virginia Mason, we invest heavily in talent development and training. I would say most importantly from the very first trip to Japan in June of 2002, we had a board member with us. Today it's a requirement for our board members during their first three-year term that they are part of our two-week study mission in Japan.

That's not my career preservation strategy as some people joke, but it is part of engaging and aligning from the boardroom to the front lines. Our community owns Virginia Mason. We're a 501-c3, like much of American healthcare is today. And our health system board holds the organization in trust for the community. I could drop off the face of the earth tomorrow and this work would continue. I've had these conversations with our board because what our teams and our board have built here at Virginia Mason is worth fighting for. So I think there are ways to increase the likelihood of sustainability of these types of efforts but not without very deliberate engagement beyond those who are actively leading the work.

Related: 4 Strategies to Compete With Disruptors and Win

HL: The amount of dialogue from hospital CEOs about what outside competitors like CVS, Amazon, Walgreens are doing is reaching a chorus. Do you get the sense that your peers really appreciate the potential for disruption?

Kaplan: Disruption very much needs to be on our radar as an industry. This disruption is happening with unprecedented speed, whether it’s by startups or the aggregations of the large technology companies. This disruption is going to continue, and we need to determine how we are going to respond. In my way of thinking, a better term might be how we embrace that disruption, because if we don't focus to some extent on disrupting ourselves, others will disrupt us.

Healthcare is particularly ripe for disruption because, frankly, we're still training people the same way that I was trained decades ago. There are islands of excellence and progress, but it's far too slow for those who come from backgrounds in other industries. There's a tremendous opportunity in front of us if we can learn from the best practices in technology.

HL: Are you feeling real pressure from consumers to evolve?

Kaplan: As we used to say in the old days, the longer you wait to see a doctor, the better they must be. That's no longer the case. People today expect to be seen when, where, and how they want to be seen. So how do we learn from technology? How do we focus on the user experience? How do we consider creative partnering? I think there will be a need for doctors and hospitals, but it's changing. And I think that if anything, it's going to accelerate what is the biggest shift we need to see, which is the transformation to a value-driven system that stops incentivizing bad behavior, inappropriate care, and over-utilization of resources.

We've got to be responsive here in Seattle; Amazon's in our backyard. How do we find ways to help better serve Amazon’s workforce and potentially help them add value to the healthcare system as opposed to just being a threat where we need to throw up every kind of barrier, regulatory and otherwise to their entry into what has been all our space?

HL: I think the challenge many hospital CEOs feel is that their systems are too big, and the industry is too regulated, for them to move quickly. Take the auto industry, for example. Do you appreciate the massive shifts that General Motors recently announced away from making internal-combustion cars?

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Kaplan: I grew up Detroit long before my engagement with Toyota. That's actually a great point because we can't do this by ourselves. We've never been able to do it by ourselves. So I think that for Virginia Mason, my philosophy has been let's impact those things that we can control: things like the user experience, like quality and safety, or taking waste out of processes. We're going to need to consider far more strategic partnerships that focus on core competencies, things we do well, partnerships with companies like those we've been talking about, but also with the social services industry, and safety net organizations.

We must think about – and I'm playing to our strengths -- partnering in new ways and also being willing to disrupt and reinvent ourselves. One of the things I'm particularly interested in is what's going to happen as more care is delivered in the home. Now that doesn't mean jumping on every technology bandwagon, or every new wearable. But how we can go beyond our own four walls, because our mission is really focused on care delivery.

HL: You talk about partnering with Amazon. How do you view the work that Dr. Atul Gawande is doing so far?

Kaplan: I had the pleasure of spending some time with Atul and his team at Ariadne and they're working hard at it. They are trying to figure it out. They don't have the answers either, but what they have is the motivation, the impetus to look broadly at our delivery system. And we need more of that.

HL: You talk about partnerships, and in any partnership there’s leverage that brings them together. It's going to be interesting to see what levers that an employer of that massive scale is going to play. Are they going to try to force the issue on some of the consistent problems in healthcare once and for all?

Kaplan: I think employers have been woefully slow to use their market power to buy value. We've made this huge investment in creating value, and in some ways, we’re still stuck in a system that under-appreciates, under-funds or under-incents more value. So, I see that as one of the things that I'm hopeful this next period we'll bring forward, which is accelerating the transition to value. That will play to the strength of those organizations like Virginia Mason that have invested in eliminating waste.

HL: These new partnerships bring the power to disrupt that providers have not seen before. If you view CVS-Aetna as just a payer and pharmaceutical industry play, you might miss the fact that they now have a massive amount of real estate in almost every community.

Kaplan: Yes, a distribution system in every market. I heard (former Aetna CEO) Mark Bertolini talking about the rationale for moving Aetna together with CVS--with CVS really, I believe, being the more dominant partner. It's about a distribution system. So how do we deal with that? I think in some markets we're seeing a little bit of oversaturation and blurring of immediate care clinics and  pharmacy-based outlets staffed by nurse practitioners. Those are part of the delivery system. So, we're going to have to find a way to partner and compete. They're going to all have a distribution system, but they will also need specialty care. They'll need longitudinal primary care for chronic disease management amongst other things. So let’s not view this as something that's going to steal business, but perhaps it’s a new channel of distribution. It may also be an accelerant for buying value. Let's close on that note of hope. It's a good thing.

Editor's note: This story was updated Wednesday, February 13, 2019.