Over the past decade there has been a serious debate about the spiraling cost of healthcare in the US and for that matter throughout the world. It seems as though no matter what is tried, these rising costs seem to be impervious to virtually everything. While manufacturing and other industries have been able to hold their costs down, healthcare costs continue to rise. While I have no intention of getting into the politics that we see and hear every day, especially as it applies to the so-called Obama Care, I do want to talk about the need for everyone in the healthcare industry to take a serious look at their processes and systems.
The purpose of this posting is to demonstrate how the Theory of Constraints (TOC) concepts and tools might be used to better manage costs, improve the effectiveness in operations that could result in increased customer satisfaction. I won’t be getting into the finite details in this posting, but I do want to demonstrate how TOC can have a positive impact on the healthcare industry.
To be fair, the healthcare industry is faced with challenges that many other industries simply don’t face every day. For example, unlike for profit businesses, healthcare revenues are simply declining as new reimbursement regulations are voted into law. Healthcare providers are reimbursed by insurance companies based on a set fee, regardless of what it costs the providers to provide care. It becomes clear then, that the providers must work to drive costs down and increase patient volume in order to compensate for the declining revenue. Even though many providers are attempting to reduce waste and variation through Lean and Six Sigma, in my opinion the real gains will come when TOC is included in their improvement tool kits.
So how should healthcare providers begin this journey using TOC. One of the first steps might be to translate some common TOC terminology. For example, the basic definition of Throughput can be modified from the standard TOC definition of Revenue minus Totally Variable Costs to something like, Reimbursement Rate minus the cost of things like drugs, medical supplies for each individual patient. Another translation might be in the definition of a healthcare constraint. Example of these type constraints might be something like the time required to receive test results, the time required the prepare and operating room between surgeries or even things like the availability of beds (not enough capacity) or specific restricted drugs or specialized medical supplies.
If you’ve ever been to a hospital emergency room, it seems like you wait forever to see a doctor and then once you do, hours are spent waiting for treatment. TOC has a solution for this part of the hospital in the form of Drum Buffer Rope and Buffer Management. And both of these can also apply to the hospital’s surgery unit as well. DBR could increase throughput significantly. Basically all of the subjects I’ve written about in my blog can easily translate to the healthcare industry. These subjects are universal.
TOC’s five focusing steps can be used quite well in the healthcare industry as follows:
1. Identify the system constraint(s). Constraints exists throughput a hospital from the ER and normal in-processing of scheduled surgery to outpatient clinics. If the constraints can be identified, they can definitely be exploited to generate significant improvements in throughput without adding additional personnel. This revenue improvement flows directly to the bottom line.
2. Decide how to exploit the system constraint(s). The translation of exploitation is simply deciding how to get more out of the constraint. Eliminating wait times by reducing waste in the constraint will clearly speed up the constraint.
3. Subordinate everything to the system constraint(s). The bottom line here is, let the constraint dictate things like entry of new patients into the system through something as simple as DBR.
4. If necessary, elevate the constraint. Sometimes, if you don’t reach the needed capacity to serve more patients, you might have to spend some money…..not big money…..just some money. The example I like to present is the clean-up crew in the hospital’s surgical department. Hiring additional cleaners pales in comparison to the revenue gains that can be achieved by being able to perform more surgeries.
5. Return to step 1, but don’t let inertia cause a new system constraint. Once you’ve broken a system constraint, a new one will appear immediately, so be ready. Beware that sometimes procedures that have been put in place can negatively impact the performance of the overall system.
As I said earlier, injecting TOC into the healthcare industry could have a significantly positive impact on the performance of hospitals. The integration of Lean, Six Sigma and Constraints Management is the clear path forward for all industries, but especially for the healthcare industry. With the proper focus and implementation, TOC will lead to short-term and long-term profitability.