Scientific Method - Without First a Standard There Can Be No Improvement

Lean Healthcare – What is it? Clarity and strong leadership are required to implement lean principles. Another way of saying this is “If you only have a hammer everything looks like a nail”. As commonly thought, Lean is not a way to get the low-hanging fruit in an organization. Rather, lean is a means of developing standard work and operational controls.

Lean Healthcare is a strategic business system, but more importantly a state of mind. This is true because eliminating waste in an organization is a simple concept to understand, but very difficult to implement. Lean is not easy because its principles expose challenges quickly and will lead to organizational friction and reorganization of personnel. Although lean originated in manufacturing companies its principles apply to all aspects of business; most importantly the vigorous involvement of its practitioners. To put it simply – implementing lean is a project that has no end date.

Lean's ultimate goal is to harness the knowledge and energy of an organization's employees - continually. Lean is the transformation of the value delivery process within this organization. Most importantly, the principles of lean expose challenges in real time because it deals with facts and forces problem resolution. The proper roll-out of lean initiatives should exceed patient expectations. Its impact on employees will not only give them the ability to recognize and identify waste, but more importantly give them the courage, confidence, and desire to call it waste. In the end, each employee realizes that failure to act raises costs, produces no corresponding benefit, and may threaten job security as a result.

Lean principals allow areas of specialization also referred to as departmental silos to become seamless and focused on patient transparency. This synthesis is “Value Stream” creation in a hospital setting.

Because lean is difficult to implement it is very important to focus on the fundamentals by solving any problem from the inside out and setting a foundation for continuous improvement. Here are the twelve operating principles of Lean:

1. Standard Work Methods
2. One Piece Flow (Patient Focused)
3. Continuous Flow (Pace)
4. Balanced workload across functional areas
5. Standard work in process
6. Visual Management Control (Transparency)
7. Multi-process capability (Multi-tasking)
8. First in-First Out Flow of Materials
9. Pull System (Supply based on Demand)
10. Rapid Change (Flexibility, Scalability)
11. Error Handling (Logical Backward Flow)
12. Right-Sized Equipment (Space Optimization)

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Keeping It Simple

I’ve begun to look into a healthcare consulting company called Operational Excellence (OpEx). The company has been performing well in the Lean space since 1999. OpEx formed a joint venture with Avera McKennan Hospital and University Health Center in 2006 to provide site tours to prospective clients to engage administrators for knowledge transfer of successful implementations.

OpEx is extending its consulting model to become an outsourced “Lean Department” that builds value streams across all other departments. This is accomplished by providing a software solution also known as (Saas) taken from the manufacturing industry to monitor and analyze day-to-day operations and build a sustainable lean culture within labs and clinical settings.

Since 2006 OpEx has slowly been building a network of value-added resellers to roll out these products. I think you’ll find this video introduction informative. OpEx has developed a tailored approach to provide consulting services.

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Rational Monetary Incentives

The Golden Rule - he who has the gold makes the rules. The laws of supply and demand unfortunately do not address systems thinking on a larger scale. An economic policy that drives cash flow is in direct conflict with forces that optimize efficient systems in any industry. After all, systems thinking demands that all industries are linked which has brought about recent discoveries in the discipline of supply chain management.

Rational monetary incentives in systems thinking only add fuel to the fire. The latest economic stimulus in healthcare is no exception. One example proposed by MedPAC Chair, Glenn Hackbarth, is to compensate doctors based on readmission rates.

To repackage IT, among execs, there is speculation around how real-time clinical data will translate to process improvement, better described by Kaiser Exec, George Halvorson, as "sustaining a culture of ongoing improvement". Primary care will take a leading role in limiting trips to a traditional facility - now home or office-based. With cost overruns, industry critics outside healthcare like Eliyahu Goldratt realize the self-destructive cycle IT companies experience during periods of corporate "realignment" to commoditize their offerings.

For the doctor's bill, go line by line to understand that surgical procedure. Understand it now? Right. A doctor friend of mine talked about a procedure his wife had for her ear. $20 per ear drop to pack it. Yep, they were even the prescribed drops in the correct ear. Opinions driving these costs are rampant. This doctor claims that charging a lot for very simple prep work makes up for the much lower fees to make a diagnosis or to start cutting. With his seniority in mind, I did not question his personal involvement in these matters, but based his opinion on research, or at least second-hand info.

In systems thinking, what can we take away from any system to optimize performance? In systems thinking, less is more.

The Next Leaders in Healthcare Delivery

Does he or she care about the people they see every day rather than those looking over their shoulder? These people are visionaries. The numbers are huge. Who are the decision-makers that count on them time after time? These people must have a chance to discuss trends in healthcare delivery "outside the system".

The ideal candidates will rationalize and question concerns around process improvement and facilities planning. Look to providers and payers to understand value propositions through cost-cutting initiatives that reduce infrastructure and allow facilities to become more focused through strategic partnerships.

Current and past relationships will be exploited to their full potential. Who are industry thought leaders on the outside looking in? The ideal candidates think of this industry as his or her extended family because it is highly dysfunctional, but a very necessary part of our economy. These new leaders will give people the care they deserve.

Specific to this role our next leaders will have mastered skills in consultative prospecting and closing. As important, an analytical mind to create and execute ideas from previous executive leadership positions. These skills include a willingness to mentor like-minded professionals already strong in sales engineering and operations transformation. A background in management consulting provides these professionals cross-industry thinking. A leader in healthcare delivery has been a recognized authority by engaging the public and select audiences including publishers and prominent industry thinkers. The power of persuasion is an absolute necessity. Only in the end will logic prevail.

What is Meant by Waste in Healthcare?

After mentioning to a friend on Facebook that I want to attack waste in healthcare, he responded, "I think that is great and might be possible. The biggest prob is you deal with a lot of Biohazards. Recycling is always an option, but I'm not sure what kind of options there are for recycling. I'm very much behind less waste and better facility management, but this would take some investigation. In my profession, architects are probably the most underpaid most respected individuals. Quite the paradox. Considering we help shape the environment we all live and work in, it's odd." - Curt

My response: As an architect, shaping the environment I suppose would begin with a financial impact study on recycling. Complexity is added when you combine internal operating and capital costs that offset it...ah, regulations. With my own background, my Monday morning calendar says "tackling handling errors fraught with redundancy" You know, the $4,000 standard kit you didn't need that's tossed in the garbage. Oh, well. Did you say $4,000? Why is that?? -W

Curt's response: "I'm confused? Are we on the same page? I thought you had a question about medical waste."

This brings me to the point of this entry. There is some confusion among people outside the healthcare arena as to what is meant by waste in healthcare.

Although recycling is very important at a tactical level, I'm talking about activities in healthcare management that provide no value to not only an aging and increasing dynamic population with "time to kill", but also have no preventative or predictive measures in place on a large scale to limit costs of providing these services long-term. These costs derive from many sources, but mainly from information flow that is disconnected from the physical flow of all resources. As a supply chain consultant, my job deals with rationalizing all resources to generate capacity and increase the flow of people, materials, and processes which are principals at the heart of industrial engineering and operations research.

Curt responded further by saying, "Oh.! I get ya and agree with ya. As a healthy individual (knock on wood) this is why I set my health insurance to deduct. to a higher level, thus avoiding the "medical waste" I may incur. The health insurance industry in my opinion, hasn't gotten too big but rather it has become more like a mafia-run racket. We give some company some money to "watch over us" and still give them more when we actually need the help. Hell, I have 4 people in my family on my health policy. We use my insurance for medical reasons about once a year per person. After any out-of-pocket expenses for visits, I still am paying far more into the system than I am getting back. Makes you understand why so many people don't have insurance. I've thought a lot about dropping my coverage, but fortunately/or un, I have kids that make it risky. It's one of those necessary evils. For your case though, sounds like you're doing something good and should be telling the people up on Capital Hill that here's what's wrong with health care. Who knows, maybe someone will hear you. Whatever the case, you see my beef with the system and I'm not an old fart. Pretty good stuff."

Budgeting for Operating Competitiveness

Capital budgeting can be an important aspect of relations between systems integrators and operating companies that rely on internal logistics to remain competitive. It’s often difficult to determine what course of action will most benefit a company's long-term business objectives. Even more difficult is the acquisition of funding for speculative improvements in the way of financial and market uncertainty. As a consequence, some of the complexity involved in choosing among capital projects requires a consultative approach to planning and providing systems equipment through competitive processes.

Management preferences are often insurmountable. Discounting, growth rates, and various other financial considerations can be adjusted to satisfy these preferences. In doing so, sensitivity analysis allows the company a “last look” to see how resulting costs will vary from expectations set forth during the appraisal process. These costs are namely equipment and operating costs.

Starting Point Established
A facility's growth requires a careful look at available technology and systems processes that result in flexible and reliable means of achieving measures such as productive capacity, unit storage capacity, and unit shipping capacity. An operating company's objectives will normally touch on all three measures, but more often will concentrate on quality and customer service. Levels of quality and customer service address order accuracy and order cycle times in a distribution setting. Order accuracy and cycle times relate directly to shipping capacity and for this reason, shipping capacity is generally the most important measure of performance.

The capital budgeting approach offers a “systems solution” to a prospective customer in a manner that allows him or her to understand the financial impact of the buying decision on the business. A lower-priced solution is compared to one or more higher-priced solutions. This is often thought of as a “step-up” method for evaluating each potential project. In the capital budgeting world, this process is referred to as incremental analysis. Incremental analysis compares the differences in costs and benefits of each project to provide a series of evaluations for which the customer can see a starting point and ending point. Utilizing this “number trail” leaves little doubt in the customer’s mind that the project selected will provide the greatest financial benefit to support the long-term business objectives of the company.

Before a comparison of projects can begin, capital budgeting requires that each project stand first on its own merits. Any project may prove its worthiness if it can outperform the operating practices the company currently employs. A growing company is considering other means of handling and storing materials because current methods have become outdated or simply inadequate. An operation that relies on manpower to conduct daily business has a difficult time managing the ups and downs of its business cycle throughout the year. Growth compounds this problem further as inventories increase and customer needs become more complex. In capital budgeting terms, a facility's current operating methods, procedures, and level of technology are referred to as its operating baseline. Some operations rely on manpower seen in many manufacturing settings. For internal logistics, however, manpower usually must be minimized to improve quality and customer service. This is especially true in areas of decision-making and repetitive processes such as product sorting and order consolidation.

Understanding this relationship between a facility's business objectives and lower operating costs, alternative means of conducting daily business will often include levels of technology or automation that can be easily compared to a company’s operating baseline. In many instances, the current logistics operation is indeed labor intensive (costly) and often has its belly exposed through uncoordinated, disjointed, or frequently interrupted material flow referred to as a bottleneck to production managers and operations analysts.

Looking at Cash Flows
As we apply capital budgeting techniques, cash flow is essentially the “answer” we’re looking for when comparing today’s operation with tomorrow’s. Every time one investment is compared to another a series of cash flows is generated for each year the investment remains in operation.

Whether one competes in a market large or small, accounting for uncertainty is difficult at best. Some financial techniques are useful and help build confidence when forecasting economic conditions. One is the use of variable discount rates that increase as the project life is extended. To complement this adjustment is that of increasing the minimum accepted rate of return (MARR) as projects become larger in scale and negatively impact cash flows. Maximizing a project’s total profit by extending its life is more difficult, however, as it is so dependent on a company’s rate of growth and level of technology. Depending on its industry sector, often companies are afforded tax incentives by governmental agencies to build up infrastructure and compete on a wider scale. This is accomplished through allowances for facilities that inherently bear greater risk when assessing capital investment opportunities.

Scaling Up
Larger operations are generally confronted with more than one alternative means of increasing capacities and lowering operating costs. However, some processes are difficult to improve upon. Capital budgeting often shows that processes should stay in place due to a lack of order activity or due to product constraints that prevent the application of more automated methods. Logistics capabilities must be aligned to support this growth. In general, service is of high business value to our company regardless of the material mix of our customers.