This is my final
posting of my series on healthcare and I encourage everyone to get a copy of Performance Improvement for Healthcare, because
it is a classic. This book is not just
for healthcare providers because the lessons learned by reading it apply to all
industry segments. My congratulations to
the authors for their brilliant work!!
Again, I will use quotation marks to indicate direct lifts from their
book.
“Healthcare is
expensive. This claim has become so commonplace that it seems no discussion
about healthcare is complete without mentioning its cost. While the severity of
the financial crisis in healthcare is reported widely in the United States,
even countries with more socialized health systems are heavily burdened by high
expenditures in treating patients. Whether it is a government, an insurance
company, or an individual—somebody must pay, and ultimately, it is us as a
society. An economist once said, “There is no such thing as a free lunch.” Had
he been a patient, he might also have said, “There is no such thing as free
healthcare.” On some level, we all pay for healthcare.”
“If costs are high
and we all pay for healthcare, then it might follow that the primary issue
facing healthcare is to reduce costs. While the impact costs have on healthcare
delivery and outcomes is undeniable, concentrating primarily on costs is
somewhat shortsighted. Reducing costs is not necessarily the same thing as
increasing a hospital’s financial well-being: Financial viability includes
revenue as well as costs. As long as revenues cover costs, the relevancy of
costs diminishes because a hospital’s overall financial viability is ensured.”
“Rather than focus on
costs only, perhaps healthcare systems should do something considered
taboo—embrace that they are a business. And like all successful businesses,
healthcare systems need to emphasize revenue beyond costs. If revenues
increase, healthcare systems could reinvest the additional cash to provide
better-quality care to their patients, expand coverage throughout communities,
and increase profitability. After all, the potential to reduce costs is finite,
limited by an organization’s budget, whereas the potential to increase revenues
is infinite, restricted only by however the market is defined.”
“There is evidence
from multiple disciplines to suggest that a focus on costs paradoxically can
increase costs. This point is illustrated by the following: Consider a clinic
performing a simple x-ray process. Suppose that there are three steps (each
with one resource) that all patients must go through in the x-ray service
process. And suppose that registration takes 10 minutes, the x-ray scan takes
20 minutes, and billing/discharge takes 5 minutes, as shown in Figure 2.14. A “cost world” mentality would be to try to
improve each component of the process to reap cumulative savings. Such
thinking, as is widespread today, would have little difficulty justifying a
one-time expenditure to implement a new billing system that saves two minutes,
reducing the final step of the billing associate’s time (the rate for one
minute equals the billing associate’s annual salary divided by the minutes he
or she works in a year) multiplied by the number of patients seen by the x-ray
clinic per day:” (Note: I apologize for this gap, but I couldn't figure out how to place this equation correctly)
“If the payback
period, return on investment (ROI), or net present value (NPV) were favorable,
the new billing system would be approved. This example seems unexceptional and
rather ordinary in today’s healthcare world.
However, the bottom-line impact of the new billing system is worth examining.
The cost appears as an Operating Expense on the clinic’s bottom line, yet no
positive effect can be found elsewhere on the bottom line—no new revenue is
brought in as a result of the improvement because the same number of patients
were treated as before, and the billing associate’s salary remains unchanged.
Thus the ROI of the new billing system is negative.”
“If the capacity of
the resources for each step of the process is analyzed using value-stream
mapping—registration (6 patients per hour), x-ray scan (3 patients per hour),
and billing per discharge (12 patients per hour before, 20 patients per hour
after)—it becomes apparent that the x-ray scan step limits the number of
patients that can be serviced overall, and therefore, this limitation
determines the clinic’s potential revenue, as shown in Figure 2.15. No patients
can flow through the entire system faster than the x-ray scan step can process
them. Assuming that there is ample demand for the clinic’s services, improving
the x-ray scan step of the process by increasing the number of patients who can
undergo x-ray scanning per hour is the only way to grow revenue by changing the
capacity of steps in this process.”
“The x-ray scan step
is the only step that, if improved, will not just benefit that local clinic but
also benefit the entire process globally. Improvements to this step allow more
patients to be serviced by the overall system. This improvement would be
reflected in the clinic’s bottom-line financial viability because not only
would its cost be represented as Operating Expense, but an increase in profit
also would be visible as well owing to the increased number of patients using
the clinic’s services.”
Figure 2.15
“Given that a
manager’s attention is limited, improvement efforts should be focused on areas
that have a global, system-wide impact in assisting a healthcare organization
reach its goal. In the x-ray example, one way of measuring the process in
relation to the goal of the clinic is the number of successful outputs, that
is, patients with completed x-rays. This rate of output corresponds to the
traditional definition of the Throughput of a system as developed
in Constraints Management. The Constraints Management definition of Throughput
will be reviewed later, but this meaning will be sufficient in this context.”
“As defined earlier,
the factor in a process that inhibits it from reaching its goal and achieving
more Throughput is called a constraint. In this case, since the
constraint is a resource, the x-ray machine, the constraint is called a bottleneck.
This example demonstrated that improving the billing system, a nonbottleneck,
did not improve the Throughput of the overall x-ray clinic’s service process.
Rather, it caused only a local improvement. Goldratt also stated, “An hour
saved at a nonbottleneck is a mirage.” In other words, an improvement without a
system impact is no improvement at all. For example, in an eight-hour workday,
the x-ray clinic could service only 24 patients no matter whether the billing
system is improved or not. Hence, speeding up the billing step does not affect
the overall Throughput of the system.”
This completes my
series on healthcare and it is my hope that my readers will spread the word
about this book. Our country and the
world at large have needed this book for a long time because if the teachings
within this book are followed, I am convinced that healthcare costs can be
brought under control. As I’ve said
before, Performance Improvement for
Healthcare is destined to be a classic!!
Bob Sproull
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