The $1 Trillion Lean Health Care Opportunity

Pretty stunning figure, eh?  Also pretty easy to achieve, if we just think very slightly out of the box and make a commitment. 

Most people continue to think that budgeting, service return, and the like is a zero sum game.  To get more services you must pump in more money, or to save money you must cut services.  Lean concepts disprove that erroneous concept every day.

But $1 trillion?

In 2008, U.S. health-care costs exceeded $2.4 trillion and are expected to climb to $3.1 trillion by 2012, according to The National Coalition on Health Care.  As a health-care quality consultant, I know that 25-40 percent of these costs are caused by delay, defects and deviation. That's $600 billion to almost $1 trillion dollars a year in unnecessary costs. And that's just the cost to the health-care industry; it doesn't include the cost to society, which is perhaps 10 times higher.

Some examples?

While most visits to the ER take two hours or more, Robert Wood Johnson University Hospital in New Jersey does it in 38 minutes on average. They offer a 30-minute door-to-doctor guarantee. They did it by rethinking the emergency experience from the patient's point of view.

I worked with one company that found ways to reduce denied claims from a single insurer and start reaping an extra $330,000 a month.

How?

The solution is simple. The methods of lean manufacturing can be applied to health-care.

Rule No. 1: Walking is waste. When medical facilities are redesigned to prevent unnecessary movement of clinicians and patients, patient flow improves. When you stop watching the doctors and nurses and focus on how long the patient is waiting for the next step in their care, it's easy to see how to improve the process. But doctors and nurses have to be willing to trade 100 years of tradition for progress.

Rule No. 2: By focusing on the 4 percent of the health care that causes 50 percent of the delay, defects and deviation, health care could easily boost quality, cut costs and increase profits without breaking a sweat. But everyone from the CEO to the cleaning crew has to be on board with the effort. America voted for change, but I have found that most people want someone else to change; they don't want to have to change.

This is a huge opportunity and the time is right.  We have a new President committed to change, and an electorate that voted for him.  Now we just have to think outside of the box, forget the zero sum mindset, use known and proven principles and methods, and improve.

Comments

[A]

Its always thrilling to learn about the opportunities to apply lean. Especially when savings can truly and directly benefit consumers via processes that are in incredible need of improving. If only big CEOs and old-thinking union chiefs openly embraced change starting with themselves.

[Jack]

How can a President who believes in change, promote a stimulus package full of PORK? Is'nt pork truly waste and the total antithesis of lean?

[Jason Morini]

I just don't think most politicians' brains are wired to think in a lean fashion. Need to reduce expenditures? Reduce or cut services. Need more cash inflow? Raise current tax rates or invent new taxes. It's the easiest way to handle the problem because it doesn't take much brainpower. Attempting to actually look within to reduce waste/elevate efficiency without chopping services/boosting revenues just isn't comprehensible to some people.

[Roger]

Great post, thanks. I think it is important to also consider the impact of preventive medicine on potential cost savings. A lot of the people whose cost impact can be reduced using lean approaches can almost entirely be eliminated by taking a holistic and preventive approach to care. What is the magnitude of the opportunity? I've never seen it quantified, but i have to think it is easily in the hundreds of billions of dollars. What percentage of total health care costs are spent on acute care, a meaningful portion of which could be avoided by addressing issues such as general health and wellness, fitness and diet. It's not that complicated; we just need to get after it.

[Mark Graban]

The good news is that the waste in healthcare CAN be reduced, if not eliminated, with Lean thinking. It DOES work in healthcare, the mindset is possibly more powerful than it is in manufacturing.

Steven Spear makes the point, in a recent blog post, that better quality healthcare does NOT have to cost more.

http://chasingtherabbitbook.mhprofessional.com/apps/ab/2009/01/30/krugman-concedes-main-objection-in-fact-more-care-neednt-cost-more/

And my book (www.leanhospitalsbook.com) has many examples of how hospitals are harnessing Lean thinking.

[Kishor Muzumdar]

Great dialog folks. Healthcare behemoth is growing unabated even with all the cost containment efforts like lean. Not long ago the total tag was $1.8 Trillion. It is going to almost double in about 5 years. That's 15% per year!
Don't take me wrong. I am a strong proponent of Lean and passionately care about the controlling healthcare costs. Not only healthcare industry needs to think out of the box, they need to design a different box. Most of the lean initiatives fail to sustain the effort because they don't tie the benefits to the high level value stream of the enterprise.
The cost structure in healthcare has a lot of low hanging fruit to be picked; but the lean efforts should be directed towards what I call three killer Cs - Cancer, Cardio, Cerebral (stroke). Almost half of healthcare costs in the US are related to chronic illness and three Cs are a major part of the cost.Almost a third of the people who work in the healthcare have no value add from the patient's point of view. (Voice of the customer in Lean). So I agree with Kevin's post that a goal of $1 trillion is possible but not without some painful job losses or restructuring.

[Ingo Heel, Microsoft]

Imagine an ED without a waiting room. Penn State University's Hershey Medical Center has re-engineered their ED to function without a waiting room and its grand opening is March 3rd. Hershey's CMIO Dr. Chris DeFlitch is an absolute pioneer in breaking down the barriers to implementing Lean principles in a hospital. Just more proof that with proper exec leadership, buy-in and will power, big changes are possible.