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July 5, 2004

Expanding Horizons
By Sarah Nickerson and Montserrat Urnek

What’s L.L. Bean got to do with healthcare? If the industry truly wants to improve performance and the bottom line, it should be willing to look at other business models for new ideas.

As pressures mount on healthcare industry leaders to find new ways to provide quality care at an efficient cost point, health providers need to reorient themselves to a new way of thinking about hospital operations. Healthcare is indeed a business like any other. As the politics of the healthcare environment evolve and technology changes the way patient care is made available—radiology is certainly at the forefront of technology—hospital administrators must learn how to manage under new rules. But limiting their vision of where to go for performance improvement to ideas from within their own industry, healthcare leaders are sacrificing their organizations’ profitability.

The inability or unwillingness to apply the thoughts and processes of organizations without specific healthcare knowledge or experience will eventually lead to a hospital’s demise. If an organization is to succeed in today’s business market, the vision of where to go and strategy for how to get there must include a broader perspective.

With hospitals at capacity and still suffering monetary losses, managers need to move beyond using only a life-and-death mind-set to define their work. While patient care is always the first priority, improvement initiatives that reduce waste and improve process flow can exist in an environment where the quality of the patient experience thrives as profitability is improved. It is not a zero-sum equation. The rationale that healthcare is exempt from banal concerns (such as customer service and cost efficiency) since it does such noble work is no longer a viable mentality.

In all other industries, the unwritten rules of survival include strategies to boost or at least maintain the bottom line. However, in healthcare, this common practice of decreasing costs to increase the bottom line is a relatively new concept in performance improvement.

Historically, hospitals were able to affect their bottom lines via increased revenue or to grow out of their problems by pumping more volume through the system. However, in today’s competitive market, these options are increasingly more challenging to exploit. With tighter third-party payor contract negotiations, hospitals find it ever more difficult to carry revenue increases down to the bottom line. As evidenced by the many community hospitals that have had to shut their doors—even while operating at full capacity—hospitals are no longer able to rely on volume to outgrow their problems. For healthcare leadership, decreasing costs and improving efficiency are the most direct management tools available to ensure the ability to continue providing quality patient care.

Are Best Practices Really Best?
Whether the strategy for performance improvement originates from within the healthcare industry or a nonindustry practice, managers must first take a close look at how operations work within before implementing any cost containment initiative. It is essential that systems and services are scrutinized—broken down to assess how these processes are currently being evaluated and accurately define future goals. Conducting a functional cost review in both clinical and nonclinical areas of an operation will provide a focal point as to where opportunities exist in an organization. The results of the comparative benchmark against facilities of similar size and scope of services can be used to organize employees around the idea of improvement and change. This step is especially helpful when targeting which factors drive up costs.

Benchmarking is a useful tool, but it is just that—a tool, not a solution. The common misconception about benchmarking is that it will do your performance improvement work for you. More specifically, the benchmark value is sacrificed when managers simply look for the best practices and then mimic those systems without taking into account the specific needs and environment unique to each organization. Instead, managers need to examine the rationale behind each area of service and how it relates to the patient experience in general. Understanding the process flow is the first step toward improving it.

The healthcare industry has been rather myopic in its search for improvement strategies. Managers want to examine only their twin hospitals for ideas—falsely thinking that there is nothing to be gained by looking further. Small hospitals don’t observe larger hospitals; city hospitals don’t talk with those more rural-based, nor do they analyze facilities outside their own geographic region. What gets lost in all of this is that ideas used by large hospitals can be scaled down and implemented successfully in smaller institutions. Each hospital has managers with innovative ideas that, if not directly applicable, may spark thinking in a useful direction.

Crossing Industry Borders
Many hospital service managers can benefit from looking to other industries for models and insights. For example, the manager of environmental or food services can learn a lot from a hotel or restaurant manager about effective ways of dealing with laundry, food storage and delivery, and inventory control. Similarly, a hospital’s mailroom manager might find interesting improvement ideas from speaking with a Fed Ex manager. Perhaps it’s time to adopt a new mantra: A good idea may be a good idea, regardless of the industry in which it originates.

Baystate Health System (BHS) in Springfield, Mass., which operates three hospitals in New England, was looking for a way to reduce the stress and delays of the patient intake process. “We focused on coming up with a prearrival system that would allow for most of it to take place before a patient even comes through the door,” says Nancy Robinson, BHS’s director of access services and referral management. The hospital decided on a call center that would coordinate scheduling, admission, and registration. A patient could receive instructions and give registration and insurance information from the comfort of home. Multiple appointments could be coordinated for the convenience of both patients and physicians, freeing doctors from time-consuming calls to other departments.

“At the time,” recalls Robinson, “very few healthcare providers had all the services we were looking for or were doing it the way we envisioned.” While they consulted with managers at The Cleveland Clinic, Kaiser Permanente, and the Mayo Clinic, BHS also found it useful to visit and observe nonhealthcare operations. They consulted with publishing companies and subscription services such as Dow Jones, where call centers are key, for ideas on personnel and performance management. They talked with DEC Computers managers for system advice and even visited catalog retailer L.L. Bean to glean knowledge about customer satisfaction. The results have been better than anticipated, and though the impetus for this initiative was to make life easier for both patients and physicians, the benefits have extended to the bottom line as well. It is hard to determine the exact cost savings for BHS because, according to Robinson, “direct comparisons are difficult since making this change has boosted our volume so dramatically.”

“Tight-Loose-Tight” Leadership Model
During the planning stages, it is up to senior management to identify the need for change and clearly define and communicate the problem. Improvement for improvement’s sake is a difficult idea to sell. However, targeting a reduction in operating expenses by $2 million over the next year for the hospital to build a new wing is something people can readily embrace. Including the performance improvement model in the organization’s strategic plans builds infrastructure around the effort, creating accountability and setting the stage for successful execution. Once the course is set, a Tight-Loose-Tight model is useful in defining the way senior leadership can approach the implementation process.

Tight
The tone of an organization’s performance improvement effort is set when the senior leadership team establishes well-defined financial goals. These goals are generally unrelated to cost reduction or performance improvement but are driven by their overall strategic plan and external capital needs—new capital equipment or a higher bond rating. Armed with a tight, nonnegotiable target, managers will be compelled to generate improvement ideas that lead the organization toward its goal.

Loose
Department managers need creative license to generate ideas for performance improvement and cost reduction but still need the senior leadership team’s support to prioritize ideas and remove potential roadblocks. For example, the security manager may decide to reduce labor hours by installing cameras in the parking lot. Implementation, however, needs the senior team’s cooperation and approval because it requires an initial capital expense. Senior leadership’s role is to be enablers of change while simultaneously balancing the entire organization’s needs and agendas.

Tight
Once the goals are set and managers are developing their plans to achieve their targets, the senior leadership team must establish a system to monitor managers’ progress. Tight monitoring provides senior management with the opportunity to establish periodic reviews of manager progress. If a manager falters in his or her improvement, the senior team can guide him or her back on track to ensure that goals are met at the year’s end.

Communities of Practice: Where Are They When You Need One?
The same mind-set that has made healthcare miss the boat with establishing sound business practices has also kept it from the benefits of other standard industry advances. When it comes to data integration, a retail company like Wal-Mart knows not only what items customers buy and when they buy them but also how often they shop. Some hospitals, however, still manually track the pacemakers they implant in patients.

As a good example of the healthcare industry lagging behind in mainstream business practices, go to any Web search engine and enter the phrase “healthcare communities of practice.” You will find that the results are not impressive. Update the search phrase to read “manufacturing communities of practice” and watch it spit out a seemingly endless number of sources. Communities of practice are widely used knowledge communities in which companies in the business sector share knowledge and strategies to drive operational improvements. This is a common practice in many industries around the world. While knowledge communities, such as those for radiology and clinical disciplines, do exist, the scope of healthcare communities of practice is extremely limited, especially in light of the overall impact the healthcare industry exerts on today’s economy.

Managers and administrators must also tap into the most current ideas and practices that will help keep their facilities from ending up on life support. To a hospital, a patient’s health is primary. To a patient, the hospital’s health and its ability to keep its doors open is truly a matter of life and death. The principles of Hippocrates revolve around the belief that the physicians should “do no harm.” Perhaps healthcare executives will finally realize that keeping their heads in the sands of tradition, ignoring financial realities, and disregarding vital strategies for improvement would do the greatest harm of all.

Leaders of value-driven, superior-quality healthcare have been given the difficult task of maintaining a viable bottom line by focusing on costs without sacrificing quality. Hospitals that seek a competitive edge based on higher quality need to realize that such a goal can be accomplished in tandem with a performance improvement strategy based on cost containment—a strategy that not only includes but also emphasizes looking outside the healthcare industry for value-driven processes. Ideas about how to attain more effective and efficient workflow automation, transaction processing, decision-support systems, and critical care paths are but a few of the areas where hospitals could learn from those outside the healthcare industry.

— Sarah Nickerson and Montserrat Urnek are consultants with The Healthcare Management Council, located in Needham, Mass. For further information, call 781-449-5287 or visit the company Web site at www.HMC-benchmarks.com.

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