It is important to stress that many American hospitals are squeezing every nickel of inefficiency out of their budgets through the effective deployment of TPS/Lean.  I dare not name them for two reasons; first, I do not have their permission and, second, they generally do not want their phones ringing off the hook with requests for conference calls, observation visitations or both.

To set the table, here is a quote from David M. Cutler, “To reduce this waste, organizational innovation will be required. To date, however, such innovation has been very rare in health care. This paper argues that lack of information and poor incentives are the key barriers to new organizational models, and accordingly that public action to address these issues is needed. Recent reform legislation has made changes in each of these areas. Whether the legislation addresses these problems sufficiently is something that only time will tell.”  The paper title is “Where Are The Health Care Entrepreneurs? The Failure of Organizational Innovation in Health Care.”

For obvious reasons, our firm gets called primarily from the two-thirds of American hospitals that are losing money or just barely breaking even.  There is no question that the preponderance of these hospitals would do the right thing if they know how to do it and could also recognize the correct action to take in order to accomplish it.  Here are the four rate-limiting factors to getting the job done with TPS/Lean:

• Lack of CEO Commitment:   More often than not, the CEO and Board of Directors of the hospitals we work with do not have the foggiest idea what TPS/Lean is.  They have read about Toyota’s success and they may even have attended a seminar on success stories about Toyota and TPS/Lean, but it is not an integrated component of their management philosophy or operating plan.  They frequently were not exposed to it in graduate school, or the manner in which they approach the c-suite and the board of directors, is less likely to demonstrate that TPS/Lean is the system to break the back on inefficiency and perennial employee layoffs.

This issue, by far, is the biggest reason hospitals are struggling.  Our firm, helps hospitals get “out of the ditch” financially through the introduction of “fail safe” programs and services.  On the other hand, we are not evangelists and cannot change what is going on inside the heads of the management and board of directors of a hospital that is still operating like it is the 1970s or 1980s.

Think of the contrast to a Toyota executive or board member.  They have or do work on the floor of Toyota production facilities and are accountable to a well-informed Board of Directors with regard to the Toyota Production System (TPS).   Yes, Toyota has its own problems.  Last week over two million automobiles were recalled because of the gas pedal sticking to the floor mat.  Notwithstanding, every major automobile manufacturer today uses one iteration or another of TPS/Lean.  Why?  Because it works!  The typical struggling hospital executive and associated board member I communicate with could not describe TPS, given the opportunity, in 25 to 50 words.  They simply do not know how powerful the tool is.

• Starved for Resources: Many hospitals on the TPS/Lean journey do not implement the program to its natural conclusion.  Employees who identify themselves as particularly adept at implementing TPS/Lean in their area of operation are not pulled and converted into a full-time “Coach” or “Trainer.”  Hospitals are FTE “nuts.”  Efficiencies gained are taken and the quest to reduce FTEs/per adjusted occupied bed is the clarion call.  Investing in TPS/Lean so it can wring out inefficiencies to the fullest is frequently not even understood, let alone implemented.  This leaves the professional in the Department of Productivity Improvement frustrated and discouraged.  It is difficult to speak “truth to power” in many hospital organizational settings.  So, even those hospitals attempting to deploy TPS often choke off full potential by starving the program with a lack of necessary and appropriate resources.
• Recognition of the Differences between a Toyota Facility and an American Hospital:  This is heresy to many hard core enthusiasts of TPS/Lean.  The fact is that the Toyota production facility receives standard parts for assembly and every output, designed to specifications, is identical.  While this is somewhat oversimplified, think about the differences of the “production process” of the American hospital.  Every patient who arrives has a different medical or surgical circumstance, genetic profile, clinical history, socio-economic condition and on and on.  Unlike Toyota, the inputs to “hospital production” are not engineered to a “standard.”  Even treated with “clinical pathways” that the medical staff, nursing staff and other patient care providers have agreed upon, there is remarkable variation from patient to patient.  This in no way invalidates the importance of TPS technique; it simply makes the process remarkably more complicated and, truthfully, more frustrating.

Further, each major area of the hospital is like a separate “production facility.”  The TPS journey in the emergency room has precious little in common to apply TPS to the operating rooms, the ICU, a pediatric unit or an outpatient surgical unit and so forth and so on.  Accordingly, the successful “outcome” in a hospital setting has little in common with a standardized 6-cylinder Toyota engine.  Deploying TPS/Lean in a hospital setting is much more interesting and exciting if done properly and supported with the necessary resources and institution understanding.  What industrial leaders often miss is the added level of complexity of the hospital setting.  Board members who do use TPS/Lean in their own businesses can easily be frustrated by the added complexity of the hospital or simply deny the added complexity exists.  If you need a higher authority, Peter Drucker wrote that the American hospital is the singular most complex organization in the world.

• Failure to Recognize and Reward Success:  Here is an area where we have nothing to learn from Toyota.  In the interest of brevity, I will relate but one story of Toyota’s own failures with TPS/Lean.  A dear friend with an education in engineering took a production line position in a Toyota assembly plant near Charleston, West Virginia.  The assembly plant had two outputs; transmissions and V-6 engines.  The friend referred to, has an innate ability to look at a complex set of mechanical variables of assembly and identify processes that can be improved upon.  He was constantly interrupting the assembly process to engage the attention of Toyota executives to methods to speed up and/or improve the assembly process.  How was he recognized and rewarded?  He was asked to write up new assembly processes on his own time and teach the revised assembly procedures to his co-workers.  He felt he was being taken for granted.  His supervisors and assembly facility executives could not muster a single, “Thank You.”  Is it any wonder that someone in the Toyota manufacturing process might have felt it was not worth the effort to point out a better way of configuring the gas pedal around the floor covering.  Why bother?

The typical patient care provider is paid well below their value to the American hospital.  Positive feedback is the American hospital “breakfast of champions.”  A necessary component for a hospital-based TPS/Lean system is a robust recognition program.  There are an infinite number of ways to say “Thank You” for your recommendation for change.

Well, there you have it.  Under healthcare reform, you will not succeed by relying on traditional cost cutting and layoffs.  The Accountable Care Organization (ACO) will be dependent on a hospital that runs perfectly, 24 hours a day, 365 days a year.  Grab the opportunity to lead or govern your hospital in a manner that will keep it alive and a vibrant component of your community.  TPS/Lean is a major asset to deploy in that success.  Do it right – you will only get one chance.

A Key Determinant To Organization Success or Failure…

On St. Patrick’s Day, our firm celebrated its fifth anniversary. It has been an interesting journey. We have served hospitals and healthcare organizations from sea-to-shining- sea, large and small; hospitals extremely well-managed and hospitals still trying to find their way. After serving or visiting dozens of hospitals, and before studying the data, you quickly develop a sense for the hospitals that are winning and those that, well, are still wandering around.

Three decades ago, the Dean of the School of Business at Duquesne University, Pittsburgh, Pennsylvania, coined the expression that “management” could be defined briefly as “getting things done through others.” Such an expression succinctly captures the complexity of delegation of responsibility within an organization. In general, the winning organizations that we observe have a system or delegating responsibility that works effectively. It is a combination of art and science. Joe Schmedlap, Chief Operating Officer of St. Smithers by the Swamp, in Broken Arrow, Oklahoma, has a system of delegating responsibility without losing control of the departments for which he is ultimately responsible to the Chief Executive Officer. He receives regular reports and measures success and occasional slippage within each department or cost center assigned to him. He seems to have a sixth-sense for when things are going well and when a department is floundering. It is more than pouring over reports and data. A lot of it comes from the tone and tenor of the human interactions between him and the incumbent department head.

It is not complicated. When you ask a department head a series of questions and clear crisp and enlightened answers snap back, you develop a confidence that the department manager has effective control over his area of responsibility. Indeed, it is within these organizations we normally find success by most any measure.

Unfortunately, we occasionally find a Chief Executive Officer or Chief Operating Officer who substitutes “abrogation” for “delegation.” One definition of abrogation is, . . . .” to treat as nonexistent.” In these circumstances there is a detachment between the “executive” and the “department head.” I refer to this as the “Pontius Pilate Syndrome (PPS).” Why should I preside over this issue when I can leave it to mob rule? PPS can be either active or passive.

Active PPS: We collect data with respect to productivity standards and present it to Augustus Caesar, Chief Operating Officer of the Walking Wounded System of Meandering Medical Centers, in God Lost Her Shoe, Mississippi. He seems to be listening attentively and then he utters these fatal words, “Take this information to my department heads and let them do with it as they will. I support my management team and I depend upon them to do their jobs.” I will pull them together and you can present these data to them and I am confident they will do the right thing. Upon further questioning, “Do you want us to get back to you with the result? The answer, “If there is anything that I need to know I am confident my department heads will bring it to my attention. I support my management team and they support me.”

Passive PPS: We collect data with respect to productivity standards and present the information to Melvin Milk-toast, Chief Operating Officer at Sinking Fast Medical Center, Off the Beaten Path, Minnesota. Before we can present the data, he makes it clear that productivity data is confusing and creates anxiety for his department heads. Rather than confuse the department heads with information and data he would prefer a ten percent across the board cut in full-time equivalents every three years. It is simple and everyone understands how it works. Also, most department heads leave within three years of employment so the system of across the board cuts only affects the department heads once in their tenure with the Sinking Fast Medical Center.

Hospitals in which there is rampant abrogation of responsibility by top management suffer several common outcomes. It does not matter if the hospital practices Active or Passive PPS. These characteristics are as follows:

• These hospitals routinely lose money.
• The department heads focus on finding a new job.
• The Board of Directors grows increasingly restless.

Allow me to put all of this into sharp contrast with hospitals where effective delegation is practiced. Delegation is defined as, “to commit (powers, functions, etc.) to another as agent or deputy.” The department manager feels empowered to do his/her job with the effective mentoring and coaching of a leader. At Snappy Valley Medical Center, in Sharp Focused, Oklahoma, there is a regular flow of information in both directions between the Chief Operating Officer and his department heads. There are regular private and group meetings within the “management team.” There are common characteristics of those within hospitals who deploy effective delegation systems. They are:

• These hospitals routinely have positive results from operations.
• The department heads are taking on progressively higher levels of responsibility.
• The Board of Directors has enormous confidence in the management of the hospital.

These are but a few observations made over the past five years. The most startling observation is how deeply embedded these divergent practices are enforced within hospitals. Organizational culture seems to have a life of its own and it is powerful. Well-run hospitals show a deep curiosity for information to advance the good purposes of the institution. Poorly run hospitals avoid, even punish, managers who challenge the status quo.

For the reader of this missive there is the obvious question. Is your organization involved in systematic delegation or abrogation? The answer matters. On a more personal level, which type of hospital do you serve? Your answers, whether open or anonymous will be greatly appreciated.

Healthcare leaders have been predicting universal healthcare insurance for at least the past 25 years. It has been a long vigil and we will probably wait longer. Only in the last few months have the trends that will propel us into universal healthcare insurance become clear, at least to me.

1. The economic pressure of caring for the uninsured – Some of our best clients are now caring for up to 15% of their patients in a category known as “self pay.” This is a euphemism for uninsured or under-insured. These so-called “self pay” patients can equate to less than 1% of cash receipts to a hospital or health system. To provide an example, assume a hospital provides identical care to 100 patients. 15 of those patients pay less than 1% of the cost to care for the entire 100 patients. We see many hospitals and health systems installing the most elaborate management systems to squeeze every nickel out of hospital budgets in an effort to break even from hospital operations. These are hospitals that have historically shown 4 to 6% of revenue in excess of operating expenses. At the moment, this trend is highly variable from one community to another. To the extent that this trend increases and becomes a national norm, the hospital industry will be emboldened to scream for help in a manner never experienced in our history.
2. The Federal Budget – One of my favorite hospital CEO’s is a Marine Corps Officer. He recently said to me, “No one could question my patriotism, but our $9 trillion national debt and $12 billion per month for the war is going to eventually have to be paid for and you know where Congress will look first?” For all of our protestations regarding the Balanced Budget Act of 1997, the medical and hospital industry survived. It is not clear to the public or the members of Congress that Medicare and Medicaid cuts might be harmful to the healthcare industry. It is just a matter of time before the healthcare industry will face a Federal Balanced Budget Act II or Act III or Act IV. Eventually, the bone marrow of the healthcare industry will be ruptured and lead to the third and most disturbing force for change.
3. Elevated Quality Standards will fail -We have all read about one medical disaster or another. In the past, each of these errors has been attributed to medical errors or the most elemental, human mistakes. Many of these errors have occurred at our nation’s finest medical institutions. During the past 20 years there has been an explosion of interest in elevating quality of care standards. People like Dr. Donald Berwick have convinced us that we can avoid human error and improve the care provided within the American hospital. This ethos is under-girded by one simple assumption: the healthcare delivery system has adequate money. I am a believer. However, it is altogether possible that an under-funded medical and hospital system will begin reporting medical disasters on a par with the national “death-o-meter” of wartime statistics. What will the public reaction be if 15 years from now the American Hospital Association begins issuing a weekly report with headlines like the following, “Last week 93 people died in American hospital emergency rooms due to excessive waiting times.” It is altogether possible that an under-funded healthcare system will voluntarily ration elective surgeries as life threatening cases have to be handled first. Will the life threatening cases be handled in a timely manner? Of course, there will continue to be wide variability with respect to which hospitals are most adversely affected.

As these 3 trends fully mature, there will be a period of placing blame. When American people are being injured or worse in American hospitals, regardless of their insurance status and despite the best efforts of physicians, nurses and hospital leaders, it will be hard to argue against a level playing field for all Americans. If the American hospitals are uniformly under-funded, the problems that emerge will not be isolated to St. Smither’s by the Swamp Medical Center in Broken Arrow, Oklahoma. Under-funding any complex system does not discriminate on any basis. An engine without oil will destroy a new Lexus just as fast as a used Yugo.

I asked my most trusted reviewer of my articles to review this one. He openly wondered if I was being a little melodramatic predicting that medical and hospital care is going to fall off a cliff or “was I just having a bad day.” Well, you tell me. I see these changes coming with the speed of a turtle and immutable. My adverse vision is way off in the future. I have no idea how long it will take for routine crashes in American hospitals to occur. I would ask the informed reader this simple question; do you see a single countervailing force to reverse any of the 3 trends suggested herein?

At the moment, 5 out of 6 American people have some form of health insurance. When that number gets to 4 out of 6 or 3 out of 6 and the Federal budget chisels the life literally out of the American hospital, medical disasters will become normative. No pun intended, the American public will not take this lying down. We are likely to see a state experiment that works. Currently, we are watching the “Massachusetts experiment” carefully. The early signs are not promising. Stay tuned. Many innovative proposals are out and about.

Our universal healthcare system is likely to be extremely private. The Federal and State governments will continue to contribute to a system that is competitively bid among private health insurance companies. We will likely catch up to world powers like Mexico and competitively bid our pharmaceuticals when public dollars are involved. Ironically, it is from the politically ambitious that we are likely to find the champions for universal healthcare insurance. When people die routinely and unnecessarily in American hospitals, it will be expedient to be a legislative hero.

On this last day of January, 2008, I was tasked with the pickup of a prescription for a dear old friend. It could not have come at a worse time. I was struggling to meet a timetable to catch an airplane out of town.

I stood at the “prescription pickup” station at the pharmacy and I waited and I waited. When I inquired, “what is the problem,” it was revealed that the pharmacy computer was having difficulty chit chatting with the health insurance computer and approving partial payment for the medications prescribed. Finally, I asked if I could pay cash for the medication and let the computers fight it out in the days to come. Well, nothing speeds up a transaction like cash. The bill for thirty pills was $159.95. I was a little surprised at the price and asked the pharmacy technician if she ever had patients show up with a prescription without insurance and when faced with the price, turned down the medication. She looked at me straight into my eyes and said, “Mr. Jennings, every morning, every afternoon and every evening.”

Upon further questioning she shared with me that patients routinely turned down insulin to battle diabetes, diuretics to fight congestive heart failure and routine medications to control high blood pressure, to name a few. Of 300 million U.S. citizens, nearly 50 million have no health insurance. One in six Americans face choices the majority of us find unthinkable. Who are these people?   We provide Universal coverage for streets and highways. All 300 millions Americans have access to our road system. It is considered a public utility. Even if you do not have an automobile, you can walk along the highways and byways of America. We have chosen as a society not to refer to this reality as socialized highways. Our society views highways as a service that all citizens should have made available to them and road construction companies compete for the business and are paid to build and re-build these highways for our individual and collective benefit.

Would it not make sense for America and Americans to find a way to pay pharmaceutical companies to provide medications that promote life, health and improve the quality of life for all of our citizens. For American business, would this not improve productivity, reduce lost work days and serve the interests of business and industry. There is someone out there in cyberspace that will read this and accuse me of being in favor of socialized medicine, a new expletive in our lexicon.   Rotary International provided universal access to polio vaccine to every person in the world. They raised the money on their own and developed a distribution system for polio vaccine to essentially eradicate polio throughout the world. If you have ever attended a Rotary meeting, you would not come away from the experience thinking of these men and women as wide-eyed flaming liberals or socialists. They saw an opportunity to improve public health throughout the world and filled a long-standing international leadership void.

Where will the leadership come from to provide healthcare to our citizens as a public utility. I have no interest in socialized medicine. I am not even certain what that term means. It strikes me that our friends throughoutWestern Europe have found numerous models to finance medical care in ways that are universal and at the same time, extraordinarily private. This subject frequently causes people to start yammering about the Canadian Healthcare System. I can honestly say that in almost forty years of service to the American healthcare delivery system I have never met one person who advocates that America follow the lead of the Canadians in anything but hockey. 

My guess is that the leadership will emerge to bring common sense to this issue. It is not American for many of our best citizens to be embarrassed in American pharmacies; to shrink away in embarrassment because they cannot afford a simple medication to enrich or extend their lives. 

Resistance to Change
The human impulses related to change is probably as old as our knuckle dragging ancestors. Presented only as English literature, there is an interesting 2,000 year old story in the New Testament Book of Mathew. The setting for this story is the village of Gadarenes. Theologians only agree that the town was on the eastern coast of the Sea of Galilee. Because the villagers were herding pigs, it is thought the villagers were Greek, or possibly Roman. As Jesus entered the town, he was threatened by two mentally disturbed men. The response of Jesus was to heal the two men of their mental illness. It seems like good news; maybe not. Jesus was promptly asked to get out of town. Yes, the status quo had been altered. The villagers had accommodated themselves to their mentally ill villagers. People hate change; resist information that will lead to change; even when that change might lead to a new and more favorable set of conditions. In two thousand years, nothing has changed.

Our firm had a short misadventure representing a nationally recognized group purchasing organization (GPO) in a small geographic territory. What a waste of time, money and effort.

Yes, we went from hospital to hospital proclaiming the good news. We were evangelists for cost savings. We did not ask our audience to accept our message by faith. We were armed with eighth grade math. The numbers used are only an example:

• GPO # 1 – 32,000 items times an Average Cost of X = Total Supply Spend = $ 37,342,334
• GPO # 2 – 32,000 items times an Average Cost of Y = Total Supply Spend = $ 32,123,654
• St. Smithers by the Swamp Medical Center Savings = $ 5,218,680

Yes, we represented GPO # 2. The message was largely unwelcome. The most interesting, if frightening example was a female supply chain executive who reviewed the “facts and figures” and came out of her office screaming at the top of her lungs, “We are not interested in changing GPO’s, I don’t care what the savings are, get out of our hospital.” She was “bug-eyed”, her face was red as a tomato and we estimated her blood pressure at 200 over 120 (stroke range).

Most stories were less interesting. One CEO said they were not going to change GPO’s because his hospital system makes decisions based on “facts and figures” and that was the basis of his discriminating determination. We found this to be an odd response. One step in the process the CEO scrupulously avoided was the review of the “facts and figures.” Go figure. As it turns out, this CEO was ingratiating himself to his staff by supporting their recalcitrance.

One of the executives related to GPO # 2 provided me with a window into one understandable reason to resist switching GPO’s. There is a one time cost in time and effort, however small, to switch from one GPO to another.

There are other reasons not to change:

• The supply chain executive is generally not given any incentive to recommend a change that would lead to thousands or millions of dollars of hospital savings. It just sounds like a lot of extra work. Further, it may be well understood internally that the CEO is “drinking the “Kool-Aid” from the resident GPO.
• The hospital “supply chain” operations are, perhaps, the least intensely managed department of the American hospital. This is rooted in a deep tradition of not wanting to be tagged with the responsibility.
• GPO’s are extraordinarily solicitous of their existing customer base to lock in undeserved loyalty. Strategies and tactics include meetings (away from the hospital grind) with outside speakers, golf, tennis, tickets to professional sports events, lavish luncheons and dinners and on and on. In 1970, folk rocker Stephen Stills captured this phenomenon best with his song, “Love the One You’re With.”
• Notwithstanding my eight grade math example, GPO’s morph in ways that make them somewhat difficult to compare. Difficult but not impossible. More work with no reward for the effort. Each GPO is laden with bells and whistles that are intended to differentiate themselves from alternate GPO’s or obfuscate meaningful comparisons.

It would be disingenuous not to acknowledge that our firm may not be very good evangelists for change. We speak truth to power. There are many hospitals that do seek meaningful solutions to existing challenges. There is little time to suffer hospital leaders willing to squander scarce hospital resources for all the wrong reasons. Yes, some things never change.