Rediscovering a Blue Ocean
Too Many Ideas for the Future
In a brief pause during a meeting with her direct reports to prepare
proposals for the summer board meeting, Sherry Hirota, chief executive officer at
Asian Health Services (AHS), a not-for profit community health center in
Oakland, California, glanced out the window at the container ships embarking on
travel across the Pacific Ocean. “What was that book you read about blue and red
oceans?” Hirota asked her chief operating officer Deepak Maitra.
Maitra explained, “In 2015, authors Kim and Mauborgne named their idea
Blue Ocean Strategy. The blue ocean is a metaphor for the desire to create large,
wide open, and uncontested markets in contrast to red oceans that are bloodied
from markets that are intensely competitive and characterized by losses and
participants who get hurt. The objective is to shape corporate strategy to create
markets where customers believe there is only one best provider, and in so doing,
the business avoids costly incentives to match competitors’ offers.”
Hirota reflected on the idea after she heard reports of AHS’s major
achievements over the past year. AHS had secured a $3 million anonymous
donation to expand primary care services. They decided to expand a few new
programs and services such as pediatric dental, a bilingual Burmese patient care
team, and cemented a partnership with a local community development agency to
build a new dental clinic.
Her executive staff made various proposals for new or enhanced efforts to
better serve their constituents (see Exhibit 1 for the AHS organization chart).
Customer services needed more multilingual staff. The chief medical officer made
a plea to improve incentives to retain physicians and other providers, as well as
expansion of medical and dental clinics. There was no shortage of good ideas from
others for new advocacy campaigns and additional health services.
Although everyone was relieved that their first full year was profitable after
the Affordable Care Act (ACA) came into effect, no one believed that the
challenges ahead were less threatening (see Exhibit 2 for AHS’s Income
Statements from 2010 to 2015 and Exhibit 3 for AHS’s Balance Sheets from 2010
to 2015). The chief financial officer was adamant that a plan needed to be in place
to better manage expenses to meet ever-decreasing reimbursements. Maitra was
concerned about the changing mix and character of their members, suspecting that
gentrification might be displacing and harming them.
Hirota’s attention returned to the task at hand: she needed to decide what
proposals to include in a coherent strategy to present at the upcoming board
meeting. She had to ensure that the proposals addressed the challenges that were
ahead and confirmed a well-articulated strategy that was consistent with AHS’
dual mission of service and advocacy while generating sufficient revenue (see
Exhibit 4 for the AHS mission statement).
Background on Asian Health
Services
Founded in 1974 by a group of Asian American college students from the
community, AHS drew inspiration from national and international efforts to
change the world during the 1960s, such as the civil rights movement and student
movement at University of California at Berkeley against the war in Vietnam. In
particular, they lamented the lack of health care in the Oakland Chinatown area,
and that “the existing health bureaucracy felt there was no problem in the Asian
American community” (Zia, p. 3).
“Our purpose wasn’t to replace Kaiser Hospital or the public health system,
but rather to provide a model of basic health care that wasn’t being delivered and
to do it in a way that was bilingual and culturally sensitive. Our plan was to use
that as an entry to get into people’s lives and help organize something bigger”
(Zia, p. 4).
Initially a one-office operation with all volunteers, in 2014 AHS offered
primary health care services through more than 66 exam rooms in five sites, two
dental clinics with 9 chairs, and served over 27,000 patients totaling over 117,000
patient visits annually. AHS was a federally qualified health center (FQHC) that
required 51 percent of its board members to be patients. Its staff was fluent in
English and over eleven Asian languages, including Cantonese, Vietnamese,
Mandarin, Korean, Khmer (Cambodian), Mien, Mongolian, Tagalog, Lao,
Burmese, and Karen (see Exhibit 5 for language preferences of AHS patients). Its
annual budget of nearly $40 million included a unionized workforce of about 300
employees. AHS had seven office sites and three owned and operated properties.
As part of 1,600 other community health centers throughout the United States,
AHS was a member of a variety of regional and national networks.
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Impact of the Affordable Care Act
Five years after the historic passage of President Obama’s Affordable Care
Act (also referred to as “Obamacare” or the ACA) that required all US legal
residents to have health coverage, the law had wide ranging impacts on health
clinics. ACA ushered in a new era of health care: launching a primary care
revolution, reinventing the delivery system to emphasize prevention and primary
care, and pushing the health care system to deliver more accessible, patientcentered, and comprehensive care. FQHCs were projected to serve 40 million
patients (Rosenbaum et al, 2010), save $122 billion in total health care costs,
generate $54 billion in total economic activity, and create 284,000 new full-time
equivalent jobs in local communities (NACHC, 2011).
As a FQHC, AHS treated patients regardless of immigration status,
income, or insurance status. The biggest change for AHS was the introduction of
8,000 uninsured patients, 50 percent of whom transitioned into Medicaid in
January 2014. This anticipated influx of new patients required two years of
advance preparation of systems and operations.
AHS implemented a new electronic health records system to improve
quality of health care and comply with a provision in the ACA. The system, a
“short term pain” for a “long term gain,” initially required AHS to reduce its
patient services (and thus revenue generation), but ultimately enhanced its future
services.
After the two years of preparation, AHS increased its patient and
membership level by 25 percent and was signing in about 150 people per day.
Georgina Tran, member services manager, remarked that once patients became
members they did not want to leave. Staff members in her department were crosstrained; they became nimble enough to work either in various other departments or
in other companies in patient services, accounting, or billing. Tran made it clear
that what set AHS apart from its competitors was that working at AHS was really
for those “who like working to help people, have a good heart, want to empower
the community, and have cultural pride.”
Although some of her staff had taken cues from a Massachusetts health
advocate who went through that state’s “Romney Care” (the initial legislative
precursor to ACA), Hirota was inspired by a 2004 conference that AHS organized
entitled “The Power of Community in Health.” The conference helped highlight
the role of community health centers (CHCs) in ensuring coverage for all
immigrant families.
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Quality Access and Patient Treatment
In addition to the challenges of serving a growing number of patients, ACA
emphasized quality of care and a movement toward pay for performance rather
than pay for visits. AHS was recognized by the federal Health Resources and
Services Administration (HRSA) and received additional funding for being in the
top 5 percent for high quality among clinics nationally (see Exhibits 6 and 7 for
indicators of AHS quality). AHS’s brand of service was known for its high quality
care that was preventive in nature for low income, uninsured, and underinsured
Asian immigrants.
The AHS care-team model focused on supporting patients before, after, and
in-between physician visits to improve their overall health. The care team
consisted of physicians, health coaches, nurses, mental health counselors, and case
managers. However, HRSA noted that AHS’s cost per patient was higher than
other CHCs in the country. Although AHS needed to continue to justify the labor
intensive care model, internal and national reports showed that the total cost of
care was lower through high efficiency and prevention that helped lower patients’
use of expensive emergency room service and hospital stays. As a result of their
timely and appropriate care, health centers saved $1,263 per person per year, lowering costs
across the total delivery system.
During the 1980s many people became concerned that Asian American
issues were not receiving enough attention because of racial stereotypes of Asian
Americans being the “model minority.” Societal acceptance of this myth meant
that doctors and government officials often believed that Asian Americans had no
health problems and no need for special health programs or funding (Zia, p. 60).
AHS’ cultural approach counter-balanced the stereotype and ensured there was
quality access and thus healthier patients.
AHS board member and patient, Rebecca Rosario, shared her experience.
“There were few doctors that would see my case for specialized diabetes care. I
ended up at Stanford Medical, where I was told that I needed a local
pulmonologist, and so I went to Asian Health Services for treatment. After going
to AHS, my diabetes level was reduced from 14.0 (an A1c level which could have
resulted in losing a limb) down now to 6.8 (the recommended A1c level for
diabetes patient is 7.0).”
The education component of the clinic’s system was critical and was
carried out through a team prevention approach. AHS used the Teamlet model that
trained medical assistants to focus on effective communication and patient service
skills, placing patients at the center of everything AHS did. Coupled with a Patient
Navigator system that utilized the various language services and culturally specific
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nuances of the patient, AHS delivered high quality experiences and service (see
Exhibit 8 for an example of the process used).
Balancing a Dual Mission
Sustaining itself as a non-profit organization required AHS to delicately
balance raising money on the one hand with providing quality social and advocacy
services on the other. AHS strategically identified and cultivated new markets by
establishing complementary advocacy campaigns that ultimately increased the
organization’s revenue, strengthened its mission, and provided for long-term
sustainability.
One major strategic plan to enhance the lives of its members was to address
the issue of public safety in the neighborhood by organizing a successful
pedestrian safety campaign, Revive Chinatown! (Liou & Hirota, 2005). AHS
galvanized local businesses, neighborhood groups, advocacy groups, public
interest researchers, and politicians to regulate increased traffic and pedestrian
safety at crosswalks in Chinatown. This sophisticated program drew on state and
city funding for enforcement and renewed attention to the area’s impact on the
city’s well-being. Therefore, AHS patients would feel safer getting to and from
health clinics in one of the nation’s largest cities. Next Revive Chinatown was
focused on countering the effects of gentrification on AHS patients and the
community.
Other new services added by AHS included caring for and advocating on
behalf of nail salon workers, expanding pediatric dental services at schools, and
treating Burmese patients in Oakland. The Burmese patients were mostly members
of a refugee community that had been challenged trying to access the health care
system, but became dependent on multilingual care and services available at AHS
(Chang et al, 2014).
Sally Nguyen’s work as director of community health and research perhaps
exemplified this balance in the organizational mission. A daughter of a nail salon
worker who developed cancer, Dr. Nguyen’s passion to work at AHS helped start
the nail salon collective that brought resources to improve the health and education
of many low-wage workers in this industry, many of whom were Vietnamese
immigrants. Subsequently, an expansion into new patients from Myanmar
(formerly Burma) required Dr. Nguyen and her team to advocate within AHS and
outside in the public health community. She assembled the institutional resources
necessary to provide comprehensive primary care to a new patient population.
Although internally funded, this project opened up a new area to seek grant
funding and sharpened AHS advocacy position by better understanding the social
determinants of health.
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Strong Bonds with Stakeholders
One of the key stakeholders in AHS success was the employee union. In
1998, a union drive occurred because of the organization’s growing pains and was
intended to open up communication of front line staff’s concerns to management.
The vote to join Services Employees International Union (SEIU) was intended to
re-open communications reminiscent of the consensus driven camaraderie of the
early days.
Stella Han, the first president of the employee union explained: “I joined
the union and decided to run for president because I felt that was the only channel
to express to executive management that people care and we wanted to have
communication and work collaboratively. When we started growing so rapidly
during all the changes, AHS didn’t communicate well with staff members. People
had a really hard time understanding the changes” (Zia, p. 86).
Maitra explained, “The traditional relationship between management and
union is typically one of a zero-sum game where gains are made at the other’s
expense. Furthermore, few community health centers are unionized.” He
continued, “One potential threat to stability is that a union may increase employee
benefits at the expense of community health.” Therefore, in the process of
unionization, AHS leadership established a memorandum of understanding with
the union that outlined important issues relevant to its employees, patients and the
broader community including advocacy for immigrants, culture, and language
needs. The agreement revealed management’s desire to ensure that the broader
community’s issues would not be overlooked as the organization transitioned to a
unionized workforce. This understanding, too, bound the union not only to
employees but also to the local community. Employee satisfaction, enhanced
benefits, and the union collective bargaining allowed AHS to sustain its operations
with minimal turnover (Zia, p. 89).
In addition to the union, AHS senior managers routinely sought input from
various community leaders. As required by law, more than half of the board
members were patients and thus patients had formal representation in shaping
goals and operations. AHS managers typically consulted with church pastors in the
neighborhood, civic leaders, the city district representative, East Bay Asian Land
Development Corporation (EBALDC), Chinatown Crime Prevention Council, and
the Chinatown Chamber of Commerce. “Very often,” Maitra began, “senior
managers also met with the police department and the regional transit authority
(Bay Area Rapid Transit or BART), to advocate on behalf of members and the
local community. Recently, Sherry Hirota met with police and local businesses to
coordinate efforts to curb graffiti and vandals.”
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Growth Breeds Challenges
Another of Hirota’s biggest challenges was recruiting and retaining
physicians, physician assistants, and nurse practitioners even though they were
satisfied with the workplace. The providers tended to stay for 10 years before
departing for either a higher paying job or one with a more generous retirement
plan.
As part of the executive management team, Mike Wong was the chief
medical officer. He had been at AHS for over 20 years, starting after residency
from University of California, San Francisco, as a staff physician. He shared some
insights into the organization’s approach to hiring: “AHS recruits doctors who are
idealistic, high-energy people. In particular, we recruit those who are early in their
careers. We also have an internship program for medical students. Finally, we try
to keep within 90 percent of the salary levels of our competitors, and make up for
this 10% by offering benefits such as schedule and administrative flexibility, and
adding people as co-authors for research grants,” according to Wong.
When asked what factors went into assessing the staffing needs for AHS,
Wong replied, “The primary factor is patient demand and then determining what
ability a facility has – or needs – to provide for full support of services. Whereas
AHS primary care has typically been provided for adults – particularly with the
increase in demand for adult medicine in the past 5 years – now pediatrics has
become in high demand.”
He continued, “More recently, AHS’s ability to retain staff has come under
assault from rapidly rising pay in the area. AHS loses between one and two
physicians per year from a pool of about 40 providers. Therefore, AHS is focused
on hiring mid-level providers (nurse practitioners and physician assistants) but that
has its own unique challenges. One challenge is how to support mid-level
providers. The mid-level supervision support team is a gap here. AHS usually
recruits early career people, develops them, and may lose them after 5 or so years
to the larger agencies. Furthermore, AHS is expanding into the behavioral health
field; the demand for the licensed clinical social workers (LCSW) providers is
acute for us, because our patients require bilingual staff, and this is a difficult
position to fill.” Wong cautioned, “Hiring of fresh graduate students is ok, but at
the supervisory management level we tend to lose out to other competitors.”
The unique dual mission attracted some doctors to AHS, however. Esther
Li-Bland, a family practice physician who came from Toronto, Canada was an
example. Dr. Li-Bland’s own family emigrated from Taiwan to Toronto when she
was five years old. A high-school class on world issues opened her eyes to
inequalities and injustices in the world. She bemoaned, “There are the endless
hurdles we face trying to get our patients access to medications, tests, specialist
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consults, and medical equipment.” Nevertheless, as exhausted as she was at the
end of each clinic day she said, “I feel a sense of satisfaction and peace because I
feel I’m doing what I’m supposed to be doing, and fulfilling the reason I went into
medicine.”
Capitation and Alternate Payment
Systems
Faced with financial pressure, AHS needed to find a way to compete more
effectively to survive. In the past, clinics billed insurers for each service rendered
but capitation in the future promised no more such payments. Instead, clinics were
paid a fixed sum at the beginning of each period for each enrolled member
(patient). Each clinic was therefore responsible for keeping the patient healthy. An
unhealthy patient would quickly deplete the “capitated” revenue.
“Right now, we’re still primarily on fee-for-service, though many of our
patients are on managed care (see Exhibit 9). The trend is toward a fixed payment
per patient with no reimbursement for additional visits. We are planning to
become a pilot site for a state level program. We want to stay on the forefront and
not be caught off guard. We’re not sure what this means for us as a community
health center and as a patient advocate,” said Hirota.
A major factor that affected all managed care organizations was panel size
– defined as the number of individual patients a provider cared for. Factors that
affected panel size for AHS were the patient’s age, gender, and health on one side
and the provider’s interest and acuity (skill, knowledge, and support) on the other
side. Exhibit 10 contains a calculation for the ideal panel size for AHS. Panel size
affected patient happiness and health outcomes and clinic workload and
performance. Ideal panel size did vary by medical specialty as well (see Exhibit 11
for ideal panel size for the medical specialties at AHS). The actual data for AHS is
provided in Exhibit 12.
Hirota stated, “One of the team’s ideas was to join forces with other federal
qualified health clinics in a network, which AHS helped create in the 1990s, to
negotiate with the managed care organizations. In terms of capitation, the clinic is
focused on primary care alone, or about 20 percent of the total healthcare costs.”
Hirota wondered, “Can AHS reorganize its care to reduce the number of face-toface visits with providers, and provide services with other types of staff and
instead use phone calls, email, and other means while maintaining the same level
of quality? This is a delicate balance to manage with capitation. It is a simpler
payment and billing method, yet a challenge when patient demand seems to
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perpetually increase while revenue stays the same.” See Exhibit 13 for a
comparison between the payment models.
Board member Rebecca Rosario added another layer to the issue of a flat
payment. Rosario honed in on the impact of doctor retention. Flat payments might
eventually mean less competitive compensation to providers and when those
providers leave, the capacity for patients to be seen would be jeopardized.
One approach that addressed capitation challenges was to use care teams to
manage and prevent chronic conditions such as diabetes. Financially accounting
for it, however, remained a delicate yet necessary balance.
Sustainable Financial Strategy
AHS was positioning itself to add new layers of financial sustainability.
The new electronic health records system lowered the capacity to see patients last
year but the current upsurge in ACA insured patients and expense reduction
strategies helped move AHS from a deficit to a small surplus.
A former banking executive, chief financial officer Jeff Chang explained
the future financial sustainability philosophy and noted a key distinction between
not-for-profit and for-profit financing. “Our future concern is always sustainability
and developing the tools to monitor this in advance – to not be reactive, but
constantly being proactive and looking ahead. Relative to larger businesses, our
resources are limited. The for-profit world has more flexibility. In the non-profit
sector your financial creativity is limited to government funding and grants,
mainly. It becomes a treadmill for us to maintain the balancing act. Productivity is
another issue. Here we are trying to generate return based on quality of care and
mission rather than profits for shareholders as a business.” See Exhibit 14 for the
decline in accounts receivables from private insurance over the past three years).
Chang used various strategies and benchmarks to maintain financial health.
These included:
1. 90 days of cash on hand.
2. Generate revenues at 3 percent above the operational costs each year for
sustainability.
3. Reduce patient appointments per day for the providers to prevent burnout
while maintaining productivity benchmarks.
4. Maintain the current ratio of at least 1.5.
5. Focus on reducing expenses and increasing cost savings. For example,
AHS converted its health insurance for employees to a Health
Reimbursement Arrangement and reduced health insurance premiums
for employees by over 10 percent and eliminated nearly all of out-of9
pocket cost for employees. The changes were projected to generate over
$300,000 annually in savings.
6. Use tax credit financing to support capital expenditures. For example,
AHS purchased its latest clinic site through new markets tax credit.
Challenges in Geographical Growth
and Changing Demographics
The majority of AHS’s 27,000 patients resided in the city of Oakland;
however, a sizable proportion lived in nearby cities such as San Leandro,
Alameda, and in southern Alameda County. Hirota remarked on the challenge of
expanding into other cities: “We’ve submitted applications for a site in another
city but the overall health shortage in that city is not as great as other parts of the
state or country for us to be funded.”
Dr. Wong nodded in agreement, “I remember too that the county board of
health didn’t allow a new clinic we tried to open in (neighboring) San Leandro.
They explained that the Tiburcio Vasquez Health Center was already adequately
serving the community.”
Hirota continued, “As the Bay Area grows and Oakland in particular
endures the newest phase of the exploding real estate boom, what is the long term
prospect for our patients? Will they be forced out of here? For AHS, what if a big
chunk of our patients is forced to locate somewhere else? Transportation is a key
for senior patients. We need affordable housing. We need to grasp the depth of
impact on our patients.”
Georgina Tran, in charge of member services, added that a city economic
development staff report showed that foreclosure rates were 10-20 percent in the
city’s District 2 (where Chinatown was located). In addition, census demographics
reported sharp declines in children, minorities, and home ownership. Oakland is
the 7th highest in the nation in terms of inequality,” she concluded (see Exhibit 15
for information about Oakland).
The changing demographics raised a concern for Mike Wong as well. Many
patients had gained insurance because of the ACA and they could choose to see
any physician. He explained. “Older members used AHS in the past because they
were poor and uninsured but now that they have the same insurance coverage as
those in higher income groups, they may migrate to other physicians without
worrying about additional out-of-pocket payments” (see Exhibit 16 for the
changes in uninsured patients at AHS).
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Others suggested adding child-care or hospice services into the mix of
services AHS should offer. They reasoned that AHS might not be able to keep
residents if they were forced out by landlords but the services would make it easier
if work and care for children and aging parents were all in the same neighborhood.
Can AHS Find the Another Blue
Ocean?
When operations first started in the early 1970s, language challenges and
lack of health coverage were the greatest barriers to medical services. A blue
ocean was created and generated out of racial inequality in the U.S. healthcare
industry. Asians comprised 3 percent of the population in Oakland’s Alameda
County; thirty years later the Asian population was nearly 30 percent (Zia, p. 109).
After decades, AHS was still striving to forge ahead with innovative strategies to
ensure that it stayed relevant to its patients, the shifting demographics, and the
relentless demands of a free market economy.
In an industry analysis, authors Shari J. Welch and Bob Edmondson (2012:
256) provided a Blue Ocean idea on the need to invent the future: “ Intuitively, we
know the areas in which the industry underperforms: overutilization, avoidable
readmissions, poor communication, high infection rates, and service
fragmentation. The strategic imperative before us is to anticipate future
competitive forces and, looking across time horizons, to build the foundation for
tomorrow’s delivery system. We need to create markets rather than simply
responding to existing demand.”
In the End, Patients Come First
Throughout her thought process and decades of work at AHS, Hirota
demonstrated an understanding that AHS had to be run not just as a not-for-profit
bleeding heart operation, but also as a progressive business. The basic core
principle of running a successful business – putting the customer first and ensuring
the highest degree of satisfaction, came out as she thought about the intersection of
operations and finances while delivering high quality health care. Additionally, it
was about the social factors that affected the patients’ health and employing
approaches within the clinic to meet the patients’ needs (e.g., interpreters to
address language barriers) as well as policy advocacy (e.g., pushing government to
better regulate workplace chemical exposures within nail salons).
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After absorbing all the comments from her staff, Hirota closed the meeting
with a remark: “The key for AHS is to have operations and programs such that
patients choose us because they want to choose us, and not because there is no
other option for care.” She had to decide which of all the ideas could be developed
into proposals that merited board attention and how they could fit together
coherently. Could AHS develop another blue ocean strategy?
References
Kimberly S.G. Chang, Joan Jeung, Phyllis Pei, and Kwee Say. “Opening Access for Burmese
and Karen Immigrant and Refugee Populations in California: A Blueprint for Integrated
Health Service Expansion to Emerging Asian Communities.” AAPI Nexus, 12, no. 1 and
2 (2014).
J. Liou, and Sherry Hirota. “From Pedestrian Safety to Environmental Justice: The Evolution of
a Chinatown Community Campaign.” AAPI Nexus, 3, no. 1 (2005), pp. 1-20.
Mark Murray, Mike Davies, and Barbara Boushon. “Panel Size: How Many Patients Can One
Doctor Manage? Family Practice Management, 14, no. 4 (2007), pp. 44-51.
National Association of Community Health Centers, “Community Health Centers: The Local
Prescription for Better Quality and Lower Costs.” Industry presentation, (March 2011).
Shari J. Welch and Bob Edmondson. “Commentary: Applying Blue Ocean Strategy to the
Foundation of Accountable Care” American Journal of Medical Quality, 27, no. 3 (2012),
pp. 256-257.
Helen Zia. The Asian Health Services Story: Leadership through Advocacy, Service, and Social
Entrepreneurship (Special 40th Edition). Unpublished work (2014).