How to survive in a financially challenged market?

By John Strong

Cut variation, cut waste, implement lean processes, advises Intermountain executive

There is plenty of room for improvement in U.S. healthcare. Patient outcomes can be improved and costs lowered substantially by applying basic quality-oriented practices, according to Brent James, M.D., chief quality officer and executive director, Intermountain Institute for Healthcare Leadership. James made his comments at the annual Mark McKenna Lecture.

Named after Mark McKenna – the late president of Novation and founding member of the Health Sector Supply Chain Research Consortium – the lecture is intended to bring innovators and thought leaders in healthcare to Arizona State University to speak on current healthcare issues and to highlight the importance of the supply chain in improving organizational performance and clinical practice.

Variances in medical practice
Dr. James presented a brief history of the work at Intermountain Health Care (IHC). Starting in 1986 and 1987, IHC began looking at Quality Utilization Efficiency (QUE) in six clinical areas. Over the two years of the studies, they found “massive” variances in areas such as surgical time, the amount of tissue removed and other indicators. The researchers found that the amount of tissue removed did not correlate at all to the amount of surgeon time spent on a case. The clinical time range of variance was 2.5 times the average. They also discovered two-fold variances in actual costs among cases.

From this initial work, IHC identified the following:

  • Massive variation in clinical practice
  • High rates of inappropriate care
  • Unacceptable rates of preventable care-associated patient injury or death
  • A striking inability to “do what we know works”
  • Huge amounts of waste leading to spiraling prices, which in turn limits access to care

U.S. healthcare falls short of its theoretical potential, said James. Although the numbers vary, there are probably 200,000 preventable deaths per year in healthcare. In addition, somewhere between 35 and 50 percent of healthcare is waste.

Variation in healthcare occurs for several reasons, he said. The first is what he called “the craft of medicine,” that is, the fact that clinicians are generally stand-alone experts. The second is the complexity of healthcare, or “the faults” of more than one hundred years of clinical discovery. There are two methods for managing this uncertainty:

  • Sub-specialization
  • Mass customization

If not coordinated, sub-specialization results in far less than optimal care. Mass customization comes from lean theory. Within this, standardization allows a narrow focus on various diseases. In 1991, IHC embarked on a number of additional studies, including one focused on ventilator settings. It observed a wide range of variance in selected settings, and protocols were created for settings. From this, changes were implemented using lean principles.

‘Best care’ protocols
Although “best care” protocols may represent an improvement in care delivery, they have a number of inherent problems associated with them, including:

  • Evidence for best practice may be lacking
  • Use of “expert consensus” is unreliable and depends on who is invited to achieve consensus
  • Guidelines don’t necessarily guide practice
  • No two patients are the same, therefore, no guideline perfectly fits any particular patient

By implementing lean processes, providers can improve best care protocols in several ways. They can:

  • Blend the protocols into the clinical workflow
  • Embed data systems to track protocol variations and short- and long-term patient results
  • Demand that clinicians vary patient care protocol based on the patient’s needs
  • Create a lean learning loop, continually feeding data back around the loop

The results can be striking. In one case:

  • Patient survival rose from 9.5 percent to 44 percent
  • Costs of the procedure dropped by 25 percent on average
  • Physician time fell by 50 percent

Dr. James focused on two key lessons from this experience. First, IHC measures its success in lives. Second, better care is (usually) cheaper care.

Most financial issues in healthcare are created by the federal government, he said. Unfunded federal obligations total more than $63 trillion. He noted that if every patient in the country were treated the same way they are at Mayo and IHC, Medicare costs would drop 3 percent annually.

Essentially, there are two ways of surviving in a financially challenged market, James said. As an industry, we can continue to focus on top-line revenue, or we can focus on bottom line waste. Revenue leverage may total 5 percent to 9 percent, while removal of waste provides 100 percent leverage for all waste removed. Fifty percent of all hospital resource expenditures are quality-associated waste, he pointed out. Hence, the leverage here is enormous, and includes:

  • Recovering from preventable foul-ups
  • Building unusable products
  • Providing unnecessary treatment(s)
  • Simple inefficiency

Examples James cited in administration include areas such as supply chain inefficiency, regulatory waste and billing rework.

IHC has been examining the use of a coordinated medical home, with team-based care. This has led to dramatic cost-savings of approximately 22 percent. Some other positive outcomes associated with team-based care:

  • Patient ER visits down 11 percent
  • Hospital admissions down 22 percent
  • Avoidable visits and admissions down 21 percent
  • Physician office visits up 4 percent
  • Urgent care visits up 13 percent.
  • Radiology tests down 11 percent.

Careful examination of less expensive alternatives to products and services as well as the limiting of certain products altogether has led to substantial savings, James pointed out. Often, less-advanced products offer the same outcomes as more expensive ones, he said. James pointed to savings on non-ruptured appendicitis by showing previous materials costs of $760 compared to $180 in the new profile. Examining services and other factors of care showed a total drop in expense of approximately $2,454 per case, and had the additional benefit of freeing up beds.

Process management is key to driving these sorts of results. Better clinical results produce lower costs, and more than half of all cost-savings take the form of unused capacity, which can be balanced by increasing demand for certain services due to an aging population.

To tap increasing needs for patient data and information, James noted that providers will need new electronic medical records in the next 10 to 15 years. Continuing down the quality path is impossible without more information from their EMR.

In conclusion, James noted that the United States needs a “new healthcare delivery world,” one in which there is no underuse of care, but no overuse either. Care is delivered free from injury, and is coordinated along the full continuum. Moreover, it is delivered under each patient’s full knowledge and control, and with grace, elegance and concern for the patient.

John Strong has more than 35 years of healthcare supply chain experience in provider materials management and supply chain operations, medical products distribution, supply chain and national accounts consulting and group purchasing. He is the founder of his own consulting practice, John Strong LLC. He can be reached at

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