Humana started in 1961 when two young lawyers, David Jones (1932-2019) and Wendell Cherry (1935-1991) built Heritage House, a nursing home in Louisville. With clever business decisions and the passage of Medicare and Medicaid in 1965, Heritage House quickly grew into the largest nursing home operator in the United States—Extendicare. In 1972, Jones and Cherry divested all 60 nursing homes to focus on hospitals. In 1974, they named the expanding chain of hospitals Humana. In 1978, Humana acquired American Medicorp in a historic acquisition—Humana now owned about 100 hospitals [I joined Humana in 1979 as a Process Manager and promoted to Director of Process Management in 1982]. In 1984, Humana entered the health insurance market. In 1991, Wendell Cherry died at age 55. In 1993, Humana divested its hospital division to focus on managed care and health insurance. In 2006, Humana saw massive growth with the introduction of Medicare Part D (outpatient prescription drug coverage). In 2019, David Jones died at age 88. In 2023, Humana exited the employer-based commercial insurance market to focus on government-sponsored programs.
The Jones and Cherry early management philosophy was based on hiring people they trusted—in Cherry’s office hung an early note reflecting his personal philosophy “people before paper”. (Rowley in Humana: Celebrating 50 Years of Helping People (2011)). During a layover in New York in 1974, Cherry purchased and read in one sitting Peter Drucker’s 861-page Management: Tasks, Responsibilities, and Practices (1973). Impressed with Drucker’s thinking, Cherry shared the book with Jones the next day. Not only was Drucker’s theory similar to the management philosophy of Jones and Cherry, the theory provided a framework for Humana to grow its business. For the next 13 years, Jones and Cherry met with Drucker each year to discuss the direction of Humana [several years later Jones was named the founding chair of the Drucker School of Management at Claremont College].
Drucker who died in 1995 at age 95 believed that management’s job was to make workers more effective. Effectiveness starts with a clear purpose and specific, measurable goals and objectives [Drucker is considered the father of management by objectives]. Jones remembered that Drucker believed that profit was a requirement for an organization, and not a goal; and that productivity and quality are essentially the same thing (Thurm and Lubin, Peter Drucker’s Legacy Includes Simple Advice: It’s All About the People, WSJ, November 14, 2005). Drucker also believed that “to satisfy the customer is the mission and purpose of every business” (Management…, p. 79). But most businesses have multiple customers—what is the hierarchy of importance? In Humana’s case, that hierarchy was evident in the working mission statement while I was there in the early 1980’s: to provide high quality, measurable hospital services to patients and their physicians.
While most theories of healthcare quality stressed the outcome studies that Joint Commission emphasized, Donabedian (1966) thought that quality was the result of three dimensions: structure (buildings and equipment, staffing and training); process (diagnosis and treatment); and outcome (morbidity and mortality, infection rates, medication error rates). Process is dependent on structure and outcome is dependent on both structure and process.
In late 1978, Humana established the department of Process Management in the Corporate Office. The department started with three process managers and several corporate consultants each representing a department in the hospital (medical affairs consultant, nursing consultant, pharmacy consultant, radiology consultant, respiratory therapy consultant, lab consultant, etc.). The process managers acted like associate hospital administrators and reported to the vice president of administration (Don Davis who was one of the most successful hospital administrators) who reported to the president of the hospital division (Carl Pollard who had joined Jones and Cherry in 1968).
Process Management with user groups assisted Corporate Purchasing with equipment selection (the structure dimension): the thinking was that with 100 hospitals Humana could select the best equipment at the best price as long as hospitals conformed with the selection. Each capital expenditure request by a hospital was reviewed by the appropriate regional vice president and Process Management before purchase [significant justification was required for a hospital to buy equipment not covered by a national contract]. Process Management also used consultants and user groups to establish corporate quality standards for each department in the hospital (the process dimension). For each department, consultants and user groups identified the five most important processes in the department and then identified standards for each process. For instance, market research indicated the importance of emergency rooms to the community and the dissatisfaction with waiting times before seeing a medical professional. Jones decided that every patient to the emergency room should be triaged by a nurse within 60 seconds after arriving (Humana…, p. 151). Departments measured performance against standards and reported the outcomes to their hospital administrator, regional vice president, and Process Management (the outcome dimension). Process Management also was responsible for preparing hospitals for Joint Commission surveys by performing a mock-survey weeks before the Joint Commission survey. Process Management also provided a hospital-like organization for consulting with other corporate departments like Management Engineering which was responsible for establishing staffing standards adjusted for acuity for each hospital department while believing the overstaffing harmed quality as much as understaffing.
Drucker believed that hospitals who were both capital-intensive and labor-intensive needed process production to be effective [versus unique product production, rigid mass production, or flexible mass production]. Since hospitals have significant diversity of service mix, but have little to no flexibility on how the service is delivered (Management…, p. 214), process production is required. This belief corresponded perfectly with the Jones and Cherry idea of managing the process, or process management.
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