CFO Magazine – Lean Health Care

Keen to Be Lean | CFO Magazine | Josh Hyatt, Contributing Editor

[tweetmeme source="leanisgood" service=""]Most articles on lean in the mainstream press don’t portray lean fairly or adequately.  Many times it is innocent ignorance on the part of the journalist.  The lean paradigm is a broad, complex, yet subtle to the uninitiated.  Most journalists are too ignorant of the paradigm to adequately convey it to a broad audience.  Some just do lazy work and miss-portray lean as cost cutting method that relies on squeezing more out of fewer people.  The article linked above isn’t one of those.  Hyatt does a decent job bringing lean news to his audience.

I recommend that you read the article.  It is only three pages and fairly dense.  At least two of the people that he quotes are widely accepted lean experts: lean executive educator, Bob Emiliani, and Lean Enterprise Institute Sr. Fellow for Health Care, Mark Graban (who blogs here.)

Hyatt brings up a couple particularly relevant points: hospitals have no choice but to cut costs, lean isn’t about headcount reduction, lean can help you avoid capital expenditure, and you don’t need to turn every improvement effort into MSc in Accounting thesis by turning everything into dollars – just know what good is and do that.

Everybody knows that health care gets more expensive every year.  Even those of us blessed with decent employer provided plans feel the increase in higher deductibles and monthly payments every year.  In the article Hyatt brings tells us that recent agreements between hospitals and the Administration will knock $155 billion off government payments to hospitals over the decade.  From the article:

In July, as part of an agreement with the Administration to help pay for reform, hospitals agreed to forgo $155 billion in government reimbursements over the next decade. That translates into $2.7 million of annual cuts for each of the country’s 5,700 hospitals.

That’s a lot of headwind to overcome and doesn’t include ‘health care inflation.’

Hyatt portends how health care organizations might begin covering this headwind, by reducing waste NOT reducing heads.  From the article:

Guided by spreadsheets and benchmarks, a conventional cost-cutting exercise will simply look for expenses that can be eliminated, such as employees. But that approach can still leave waste in the system — hampering the productivity of a smaller workforce that must, if anything, become more productive.A lean hospital would take a more holistic view, hoping to boost revenue and improve service by, for example, developing standardized methods that allow operating rooms to be changed over more quickly. A hospital that can disinfect and restock in half the time can increase the number of procedures it performs and reduce wait times.

It’s not often in that you hear a journalist that is not part of the ‘lean genre’ relate that lean ISN’T about leaning out the staff.  He makes a great point in that reducing people is reducing an EXPENSE not reducing a WASTE.  Only the people can improve their work over the long term.  They are needed if the organization is to become more productive – they are intellectual capital.  In the second paragraph Hyatt shatters a familiar paradox, you can’t have it more AND better.  Basically he correctly recapitulates what Deming, Juran, and Crosby among others have told us for along time – higher quality means more efficiency and more effectiveness.  More and Better are really just two forms of the same quantity.

One of the often under-reported benefits lean (even in the lean literature and in the lean blogosphere) is the advantage of reduced capital burden that lean will deliver.  Thirty second MBA – if you can deliver more services or products without spending more on capital then the only increases in cost are your direct costs – you get a big chunk of revenue while only increasing a portion of your costs.  This leaves you with what finance people like to call decreased operating leverage (here too).  Basically if you can can run your business without having to spend a lot on capital and keep your costs variable you can make money in both up and down markets. This has been a big boost to Toyota relative to other automakers in recent decades – make more with relatively less capital employed.  It is sometimes called moonshining because moonshiners make perfectly good whiskey with virtually no capital burden.  The article talks about a hospital that avoided $80 million in brick and mortar work by reducing some waiting waste:

If there are too many patients waiting on beds in the hallway, for example, maybe the answer is to build a bigger ER. But wait: Is the ER really maxing out its capacity? If not, then the answer may lurk further down the value chain. Maybe patients can’t get into rooms because an inefficient discharge process creates a bottleneck. That’s exactly what happened at one hospital, which mulled an $80 million expansion to its maternity ward but then found that once a nurse was dedicated to the discharge process, the existing facility could keep up with demand.

The article brings out another point that the non-lean literate world needs to understand.  Not everything has to be translated into dollars and cents to be a validated as a worthwhile improvement.  As entrepreneurs and process experts we should know what “good” is.  If we spend time in the gemba and with the customer we certainly will.  From the article:

They measure success based on metrics, but not necessarily financial ones. Some are quality measurements, such as the reduction of certain kinds of infections. Others are based on improving time performance, a big issue in health care. ThedaCare, for instance, wanted to reduce the time from “door-to-balloon” — the minutes between a patient’s arrival at the ER with chest pains and catheterization. “The faster the blockage gets cleared, the less damage gets done to the heart,” says Graban of the Lean Enterprise Institute. Or, as the hospital likes to put it: “Time is muscle.”

Reengineering the process has brought it down from 91 minutes to just 37 minutes. Not coincidentally, the average post-cardiac-surgery length of stay has dropped as well — from 6.2 days to 4.8 days, a 25% reduction.

Heart muscle is priceless.  Go ahead and try to put a dollar sign it.  Your number would mean nothing.

Pretty good article from a source outside the lean genre.  What do you think?  Did Hyatt do a pretty good job of accurately communicating the lean paradigm?  Did you find anything particularly poignant?


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8 Responses

  1. […] original post here:  CFO Magazine – Lean Health Care Share and […]

  2. […] more from the original source:  CFO Magazine – Lean Health Care « Lean Is Good By admin | category: cfo | tags: articles-on-lean, cfo, contributing, […]

  3. Thanks for posting the link to the article. I thought the author did an outstanding job.

  4. Great article, this guy gets it. Some of the folks I work with in health care put the brakes on an expansion to an ER. After the data was collected and analyzed it was found that the reason the ER was backing up was that they cut back the housekeeping staff in the wards, which meant that the rooms and beds on the wards where not getting turned around fast enough to accommodate the patients coming into the ER and being admitted.

    The easy fix, bring the staffing level back inline for the housekeeping folks and the ER backlog went away.

    That is an easy example where you could put numbers ($) in for the justification. I have found that trying to get financial justifications is often hard to do. We focus on the 7 wastes. We also focus on using the simplest of statistics, counts or counting. If we can do this one time less or more time we have made an incremental change, yes it might not be the ultimate solutions, but it is one step closer, and that counts.

    I want to share an interesting article I received. It is all about why I got into healthcare and why there needs to be more people like me working on improving it. “Who Was Caring for Mary, Revisited,” by Fred Southwick and Steven Spear

  5. I appreciate your brief explanation of operating leverage, and “lean” should always theoretically generate exponential returns if it is implement correctly.

  6. Not sure if I agree with theoretical exponential returns. I think a Lean purest would say actual sustainable returns in incremental steps. The philosophy behind lean is: do something just a little bit better today, than you did yesterday, do things a little bit better tomorrow than you did today. It is a journey of 1000 steps one step at a time. There are some home runs in there, but I fear that is all that leadership focuses on when looking at lean. It is much more than that, it about the culture and how people work together.

  7. I think the returns can be exponential during the implementation phase. When a company gets basic end to end flow broken by occasional stages of pull in place they will be liberating mass quantities of cash from inventories. If they do smart stuff with this money it can be growth in to new markets. I used to benchmark a rubber manufacturer in the US who used cash mined from FGs and WIP to fund the start up of an asian division. Lantech used their cash to fund the launch of small packaging equipment in addition to their legacy palletizers. Cliff Ransom is a finance guy who really gets lean (good webinar – scroll down about 2/3 of this page: He talks a lot about how REAL lean will affect financial performance. I like his ‘golden ration’ of cash flow to net earnings. He says you should be able to keep that upwards of 125%.
    Another way that lean can have exponential (or very high rate growth anyway) is using the advantages of lean in the marketplace. Sell your agility and flexibility, be a mass customizer because you can both go from idea to launch and from order to fulfillment faster than the other guys. Use this to get market share. From a cost standpoint lean wil usually be very incremental. If wielded against the competition like the weapon that it is then it can lead to rapid growth.

  8. […] CFO Magazine – Lean Health Care – a post reviewing Josh Hyatt’s article in CFO Magazine titled Keen to Be Lean. […]

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