It was 35 years ago this month that I earned my MD degree. For twenty years I was an in-the-trenches internal medicine doctor who worked in just about every setting imaginable. Then I attended business school and earned a master’s degree in management. For the next fifteen years, I climbed the healthcare corporate ladder in five large health systems from medical director to vice-president, chief medical officer and eventually chief executive officer. After a lifetime in healthcare, here is what I know.

Healthcare is broken. To fix it, we must change how we pay for it. There is widespread agreement that the U.S. healthcare system needs transformation. The U.S. leads the world in only one healthcare metric: cost. Most western nations deliver better outcomes at significantly lower per capita expense. I have come to recognize what the root cause of this unfortunate situation is—we are paying for the wrong outcome: volume not value. The Affordable Care Act was supposed to change this. It has increased access for many but has done nothing to dampen costs.  Until we stop chasing hospital volume (admissions and surgeries), and start paying for population health management, we will never fix what is wrong with our healthcare system. This transformation will require legislative and regulatory intervention since too many hospital systems are unwilling to change their business practices and continue to pursue volume as the primary measure of performance. It is unbelievable but true: many hospitals and health systems are still trying to make money by admitting people to the hospital and performing surgery. They haven’t yet realized, the way to make money in healthcare today is to focus on keeping people healthy and out of the hospital. Hospitals are no longer the centerpiece of the health system, the patient is. The good news is, the Centers for Medicare and Medicaid Services is finally forcing the issue. Over the next two years, value, not volume will become increasingly important to health system financial performance.

Culture trumps strategy. Most executives spend their time trying to craft better strategy while achieving only mediocre performance. They don’t understand the importance of organizational culture. Considerable research published in the management literature confirms, culture is the single most important predictor of any organization’s success. All organizations can be described as falling into one of five levels. Level 1 cultures are toxic and characterized by undermining, backstabbing, gossip, negativity and a pervasive sense of entitlement. Such organizations struggle. Talented people leave. Level 2 cultures are in hopeless despair and characterized by apathy and disengagement. Like level 1 cultures, these organizations also underperform. The vast middle ground is occupied by level 3 cultures which are characterized by phony friendships. “I’m great but you’re not” is the underlying dynamic. Folks are friendly only so long as you are not getting that promotion. Level 3 organizations are typically mediocre. At level 4, folks have an epiphany and recognize they need a partner for success, so teams of two begin to form. At level 5, everyone in the organization recognizes that they all need one another to be maximally successful and so true collaboration results. There is overwhelming support, joy and positivity. Anything is possible. Level 4 and level 5 cultures consistently dominate their industry sectors. Truly enlightened CEOs focus their energies on improving organizational culture. Success follows from that.

The value chain in a service organization begins with your front line staff. Most executives don’t understand where economic value is created. They focus on financial performance but don’t understand that success requires satisfied customers and growth of market share. In order to do that you must exceed customer expectations. You can’t do that in a service organization unless you have flawless operations and that in turn requires a well-trained, stable and enthusiastic front line staff. As obvious as this may seem, most healthcare executives underpay their most valuable resources, their front line staff. You will never achieve financial success by squeezing your frontline workers or paying them below market. The truly savvy CEO will pay their frontline staff above market in order to attract and retain the best talent.

The customer does not come first. Your staff does. Treat your staff well. Train them thoroughly and continually. Pay them well and reward them with performance-based incentives and they will be much more likely to be enthusiastic, loyal and engaged. Take good care of your staff and they will take good care of your customers.