Keen to Be Lean

Desperate to cut costs, hospital CFOs are turning to an unlikely source: the "lean management" principles championed by manufacturers.

Reengineering the process has brought it down from 91 minutes to just 37 minutes. Not coincidentally, the average post-cardiac-surgery length of stay has dropped as well — from 6.2 days to 4.8 days, a 25% reduction.

Lean techniques have helped Denver Health’s doctors see more patients — mainly by eliminating paperwork and rearranging offices so that the physicians don’t have to do as much walking. In just one clinic, such moves have generated an extra $520,000 in revenue since 2007.

As part of fixing the revenue cycle, Burnette’s team zeroed in on patients whose care is partly paid for through grants. The hospital often recouped the grant-funded portion of the patient’s bill while neglecting to bill insurance for the rest, potentially missing out on as much as $18,000. The team came up with a reliable communications system between the grant oversight office and the patient-billing department, boosting revenue by $2.3 million.

Cumulatively, Burnette calculates that lean has saved Denver Health, which has a $750 million budget, a total of $28.6 million, at a time when admissions have increased about 7% and costs have risen 3%. “We’ve treated that many more patients without a decrease in quality,” she says. “And we’ve done it without laying off any of our people.”

In fact, that’s one of the paradoxes of the lean approach: in order for it to work, employees have to be committed to it, but “if it leads to layoffs, then people will quit participating,” says Graban. At Denver Health, management announced a no-layoffs philosophy at the same time it instituted lean. But Burnette admits that she’s uncertain about what might happen if, at some point, Denver Health should have no choice but to eliminate jobs. Lean makes it that much harder to, as Burnette says, “focus on someone’s job and say, ‘What you are doing isn’t needed anymore. It’s wasteful.’” The handful of times that has happened, the employee has been reassigned. But, says Burnette, “I don’t think [the employment] aspect has been looked at as much as it could be.”

Perhaps that’s because lean implicitly strengthens the loyalty between a company and its workers. An employer who shows a strong commitment to solving problems based on employees’ ideas and their willingness to change doesn’t need to have a formal no-layoffs policy; workers naturally feel involved. As much as lean is about breaking systems into their component parts, it also reinforces bonds. And it gives CFOs a chance to look beyond the numbers and focus on quality. “Looking at lean now,” says Olson, “that may be one of its healthy outcomes.”

Josh Hyatt is a contributing editor of CFO.

Healthy Regimen

Lean management’s techniques are elegantly simple — to understand. But putting them into practice takes perseverance.

Diagram work processes. Teams of employees map every value stream to identify and erase any steps that aren’t of value to the patient. In hospitals, the ultimate goal is to move patients through a visit or a stay quickly, seamlessly, and without errors.

Dig for root causes. Identifying a bottleneck isn’t the same as understanding it. A hospital can effectively lower its infection rate, for instance, only by tracing such incidents to their source, which could be operating rooms, surgical suites, or food service.

Develop standardized procedures. Once a team has figured out the most efficient method of handling a process, it must create tools — checklists, say — so that employees follow the same steps every time. One hospital that developed a process for catching unpaid emergency-room bills brought in an extra $3 million a year.

Keep taking small steps. Employees at lean companies practice continuous improvement, cutting waste wherever it appears. “You get better solutions by having employees involved,” says Mark Graban of the Lean Enterprise Institute. “They know where the waste is.” Peg Burnette, CFO of Denver Health, says her assistant CFO saved the hospital $40,000 a year by eliminating paper paychecks. — J.H.

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