Hospitals keep an eye on costs

By Dave DeWitte, The Gazette

In their efforts to break the fever of health care costs, Corridor hospitals are using prescriptions you might not expect.

Hospitals have adopted lean management principles pioneered in manufacturing to reduce wasted steps and improve process flow. They are using software tools to adjust staffing to needs and group purchasing to lower supply costs.

Attacking waste and improving processes through lean principles is one of the main avenues of attack at some hospitals, even though it's often hard to track the results in dollars and cents.

“We're going through a lean transformation,” said Karna Colberg-Swenson, director of continuous improvement at Mercy Medical Center in Cedar Rapids, who worked in lean manufacturing at Rockwell Collins for 10 years before coming to Mercy Medical.

Mercy Medical's process improvements have slashed wait times in the emergency department so sharply that more than half of the seating in the hospital emergency waiting area was eliminated. Mercy Medical  was rated tops in the state in ER wait times by a health care quality tracking organization.

Waiting is “a huge waste to any process and a huge source of patient dissatisfaction,” Colberg-Swenson said.

The hospital now is working to reduce the total length of stay of patients who come through the emergency department.

University of Iowa Hospitals and Clinics in Iowa City also has embraced lean methods. It has five lean management engineers - all of whom have been through lean training.

Some are certified as lean black belts, and others as green belts, according to Sabi Singh, assistant vice president for operational excellence.

The lean initiatives have produced tangible improvements, such as a reduction in wait times for transplant evaluations that won the hospital a quality award from the Iowa Business Council. Singh said.

Singh noted the hospital's kaizen events - the term is Japanese for “change for improvement” - require an interdisciplinary team, and last for one to three days.

But before even setting up the events, some important questions must be answered. Lean engineers must determine who should be part of the event.

Equally critical, they must identify a “physician champion” and a “nurse champion” who will follow through on recommendations from the kaizen event to see that they are implemented.

“Each kaizen event has its own goals,” Singh said.

Discussions focus on how to design processes to meet those goals, including work flow, materials flow and data that must be recorded and tracked.

“We map out the current processes,” Singh said. “We start to identify which steps are non-value-added from the customer perspective.”

An understanding of lean principles is important for participants in kaizen events to be effective. The training is often implemented on a just-in-time basis, Singh said, because of the number of people who need it.

One common misconception is that every outcome of a lean event saves money, pointed out Mercy Medical's Colberg-Swenson and Berry.

They said lean events sometimes focus on improving perceived value on the part of the customer. That can mean raising expenses to the hospital if the payoffs in patients value are high enough.

Hospitals work to control costs through myriad other strategies.

Labor costs are typically the biggest factor in most hospital budgets, often accounting for more than half of the total.

Michelle Niermann, director of operational effectiveness at St. Luke's Hospital, said labor costs are 42 to 47 percent of total revenue in a given year.

“This is a very people-intensive business,” Niermann said. “It's very challenging to manage those labor costs because people need us to be here when they need us.”

St. Luke's closely studies patient flow patterns on every shift, in an effort to match staffing to patient flow. Software helps the hospital predict on a daily basis times when different areas of the hospital could become understaffed or overstuffed, based on recent utilization patterns.

Supply costs at St. Luke's, by contrast, are only 14 to 18 percent of net revenues. St. Luke's Director of Facilities Planning and Operations Mike Easley said the hospital works with the other 25 hospitals in Iowa Health Systems to standardize vendors and purchases, enabling it save patient dollars by purchasing in bulk items such as intravenous solution.

“We know our volume from year to year, and that's attractive to vendors,” Easley noted.

Easley said St. Luke's can even group purchase with Iowa Health System on major purchases such as insurance and costly medical equipment, such as CT scanners.

Niermann added improved treatment protocols are among the more fruitful areas for lowering hospital costs. She offered the example of joint replacement surgeries, which required a hospital stay of five to seven days only 15 years ago.

Today, most joint replacement patients can be discharged in a day or two due to improvements in treatment and communication with patients on matters such as active pain management.

“Reduction of complications is something the industry has really been focused on,” Niermann said.

The government has sharpened that focus by instituting value-based purchasing approaches that will allow hospitals to be financially rewarded for meeting government cost targets, she said.

The Iowa Health Policy Corp. represents employers and other large health care consumers in Iowa in efforts to improve health care and lower costs. David Pietzsch, executive director of the group, says the new buzz in health care cost reform is moving from volume-based reimbursement to value-based reimbursement.

“The idea nearly everybody agrees on is to move to being rewarded for value to the patient,” Pietzsch said. “That's the concept.”

Improving value may not mean lowering the price of every hospital service, Pietzsch said, but improving the quality of care and treatment protocols so that patients have shorter hospital stays and don't return as often, if ever.

To get there, he said hospitals will have to provide better reporting of patient outcomes, such as length of stay and readmission rates. He added that hospitals sometimes fear sharing the information with the public, however.

Hospitals are often criticized for capital spending on new buildings and technologically advanced equipment, especially if it duplicates equipment or facilities in their own communities.

Mercy Medical Center Chief Financial Officer Phil Peterson said hospitals must keep up with technology to attract high-quality physicians, who are introduced to the latest technology by medical equipment sales representatives.

“”Physicians expect you to have the most current equipment available, which is what a patient would expect and want as well,” he said.

Mercy Medical's response has been to study purchases with an eye to focusing investments on equipment that drive better patient outcomes, resulting in improvements such as higher cure rates, faster healing and fewer readmissions.