Commentary: Better management could reduce healthcare costs
thenorthwestern.com
By Lakshmi U. Tatikonda
for The Northwestern
October 27, 2009
The healthcare industry is in a mess, riddled with haphazard and outdated management systems, inefficiencies and waste, excess bureaucracy and costs, and greedy insurance companies. Waste is rewarded while innovation is ignored or penalized says Dr. John Toussaint, president and CEO of ThedaCare Center for Healthcare Value.
Lean methods (Toyota Production Systems) helped organizations reduce costs, improve quality and customer satisfaction. Critics say that healthcare is different from the automobile industry, patients are not cars, and Lean methods don't apply to healthcare. This is not true. According to Dr. W. Edwards Deming, 80 percent of problems are process (system) related. Healthcare, like the automobile industry, is a collection of processes and can gain from lean applications.
The causes of waste in healthcare are numerous:
*Bureaucracy. Rigid adherence to policies and procedures costs U.S. residents $294.3 billion in healthcare and accounts for at least 31 percent of total U.S. health spending in 1999.
*Overhead cost. Between the years 1970 and 2000 physician costs increased about 250 percent, whereas healthcare administrative costs increased by a whopping 2,500 percent.
*Errors. The Institute of Medicine estimates that medical errors cost the United States $39.7 billion a year. Dr. Toussaint of ThedaCare, says that quality waste could be as high as 40 percent to 50 percent of costs. It is estimated that 44,000 to 95,000 people die every year from medical errors. Every year more than one million people in the United States suffer from preventable injuries caused by medical errors.
*Excesses. One hospital found that 25 percent of the surgical supplies picked for use in operating rooms were never used and returned to the shelf requiring unnecessary re-sterilization.
*Complexity. Medical billings cost hospitals $487 per person, and $561 for physicians. In my opinion, medical billings are not just complex, they are incomprehensible and unconscionable.
*Overdoing. Ordering unnecessary tests, procedures and unnecessary brand name prescriptions, using many forms that are only slightly different, pharmaceutical companies spending more money on advertising than on R&D are like cracking a nut with sledgehammer.
*Band-Aids. Failure to understand and identify root causes of waste, applying Band-Aid solutions, treating onetime special issues as normal occurrence.
*Use of personnel. Using highly skilled and highly paid personnel such as an M.D. doing routine low level tasks that can be done by a qualified nurse practitioner.
Despite the many wastes there are success stories using Lean management methods:
*Schaumburg, Ill.,-based Cancer Treatment Centers of America reduced the number of chemotherapy process steps from 32 to 16 and the amount of walking from the pharmacy to the chemo lab from 3,570 feet to 608 and increased the in chemotherapies delivered by 30 percent.
*New York City Health and Hospitals Corp., once carried $10.2 million in inventory which included expired and useless items and 20 varieties of gloves. By reducing glove variety to two, they negotiated price per case from $58 to $28, saved about $4 millions a year, and realized a one-time gain of $5 million.
*By improving its Cardiovascular Health Clinic, Mayo Clinic in Rochester, Minn., reduced process steps from 16 to six and wait time from 33 days to three.
*Virginia Mason Medical Center of Seattle, Wash., reduced staff walking distance by 60 miles per day.
*St. Vincent Indianapolis Hospital reduced number of walking steps for emergency department nurses by 78 percent.
*By implementing in-room devices for physicians in exam rooms, Virginia Mason reduced errors, lead time for documentation and cost of transcription per patient from $2.56 to $0.24.
*ThedaCare cut cost of its in-patient care by 25 percent. "If all hospitals achieve similar results, $400 billion could be saved in Medicare and another $1.3 trillion on the non-Medicare side," says Dr. Dean Gruner, CEO of ThedaCare.
Healthcare cost is not just a political issue, it is also economic, competitive and moral issue. A 10 percent reduction in the $2.4 trillion spent on health care saves $240 billion, which can be used for improving schools, rebuilding roads, retraining unemployed workers and regaining our global competitiveness. Unfortunately, in today's convoluted political environment, the voices of reform are drowned by meaningless chatter.
The U.S. auto industry failed to accept deficiencies and make improvements to gain competitiveness. They acted like spoiled brats crying for candy and got government imposed sanctions, tariffs, quotas and domestic content requirements. You know what happened. Trying to reduce costs without eliminating root causes is like rearranging chairs on the deck of Titanic. Next bailout may be the healthcare industry. |
