Today, governmental, corporate and individual customers increasingly are resisting insurers’ attempts to pass on rising healthcare costs. Healthcare providers’ costs meanwhile are escalating in the face of an aging population, expensive technologies and therapies… Both payers and providers must determine their true competencies and find ways to remain profitable despite leaner margins. In 1994, Massachusetts General Hospital (MGH), with its $1 billion budget and its dozens of thousands visits per year, is urged to find a new business model to resist cost pressure?
In other words, how MGH could lower its costs while enhancing the quality of care provided? Financially speaking, evidence shows that MGH’s cost structure is so important that it hampers dramatically its profit margin. Considering Exhibit 1, the ratio of after adjustments on Total Operating Revenues does not even go beyond 2%. In fact, even if the whole industry faces huge cost pressures, it seems that MGH is underperforming compared to its local competitors (the Boston area does not count less than 9 other major hospitals).
Many patients stay longer in the hospital and often receive more tests and expensive medication than they actually need. Exhibit 6 and Exhibit 7 show that patients spend on average 2 to 4 days more at MGH than anywhere else. If we look at the Charlson Index for Brigham ; Women’s, Exhibit 7 also shows that the severity of illness does not account for a higher mean length of stay (LOS); we may infer that we are dealing with a structural problem in terms of capacity management.
Moreover, 80% of the MGH’s CABG patients are on the Diagnosis-Related Groupings (DRG) payment method, which means that the hospital receives the same fee from the government for all patients diagnosed, regardless of how costly the patient is to treat or how long she stays in the hospital. Hence, MGH cannot adopt any different pricing policy to improve its profit margin; the only way for it to be more profitable is to trim down its operating costs.
A study of MGH’s internal resources shows for instance that its workforce is not allocated the most cost-effective way it could be: nurses and other highly trained, highly paid technicians perform functions that could be assigned to less expensive personnel. If we are to focus on its accounting systems, it seems that they contain only poor data and are even unable to trace costs to individual patients.
As a result of this lack of information relative to the efficiency of different treatment methods, we do not even know which treatment provides the best outcomes. How to improve in such conditions? One may argue that in any cases, doing nothing is always a solution. However, with increased cost pressure and competition, MGH must do something; it must rethink its way of curing its patients, its way of doing business. That said, MGH will sooner or later have to deal with the inherent reluctance that medical staff has in considering its job as a business.
Basically, the conditions for success in the healthcare industry are focus on costs of services, average length of stay (which also has a high impact on costs) and quality (often measured through mortality rates, the patient’s perception of quality, which will depend on a successful outcome, a good follow-up and a positive experience before, during and after the operation. ). In terms of cost reduction, MGH can reduce the number of nurses and increase the number of medical assistants to perform low value-added tasks for example.
MGH can also strive to consolidate its services Brigham’s & Women’s Hospital, after their merger. As a matter of fact, one solution is to standardize procedures as far as possible without adversely affecting the quality of the outcome. One way to do it is to apply Total Quality Management techniques to MGH, in a comprehensive approach: MGH would have to identify and define its processes and its areas of improvement, by creating lists of recurrent problems for each process.
In brief, MGH could improve its operating processes by creating a “care path”, i.e. reengineering the service delivery process to make it shorter and smoother. The aim of such an initiative is to minimize delays in the flow of interventions (rearranging sequencing and compressing time-lines), optimize resource and capacity utilization (personnel, beds? ), while maximizing the quality of care (checking whether the patient is either “on the path” or “off the path” as a quality indicator). One of the main objectives is to shorten hospital stays for instance.
Another objective is to create a stable process of care flexible enough so that the medical staff can respond to every patient’s individual needs. Yet, as long as the hospital changes its processes, it will also have to change its decision systems and powers accordingly so that the decision-making process is as smooth as possible. Such a care path would also require greater coordination and communication between various medical disciplines.
Managing change and changing behaviors across departments would thus be a crucial part of the solution if MGH wants the project to be accepted and efficiently implemented Inspired by the successful example of the orthopedic surgeon’s care path (the costs and the length of stay were reduced by 30% without altering the quality of the outcome), MGH finally decides to undertake the reengineering of its CABG department. At first sight, it is a win-win situation insofar as both the hospital and its patient would benefit from cost reduction and quality enhancement (a patient would probably not complain about staying less at the hospital).
Furthermore, such efforts help the hospital maintain prestige and attractiveness since the patients’ perception of quality gets higher. With such wide a project, it seems relevant to form cross-functional teams to think about the processes and the eventual implementation. However, it is all the more important to designate a leader for the project, someone who would be able to monitor coordination and communication, someone who would be able to sell the virtues of the project to the other departments, later on.
Even if the design of the new care path is complex in itself, it is also critical to prepare the CABG department for the change. For the project to succeed, it is necessary to ensure that everyone is committed and the best way to do that is to involve people at some time. Indeed, if we want people to buy into it, the care path manager must educate both the employees (training on Clinic Quality Management? ) and the patients (assistance and explanations on what is going on before, during and after their stay).
Since most people learn and integrate through visualization, it is essential to create a tangible version of the care path for both the medical staff and the patients (paper checklist). In practice, MGH can reduce costs by saving resources (lean management: 2 units of blood prepared prior to surgery instead of 4), by optimizing capacity utilization (shorten hospital days for patients and hence reduce bed counts), by reallocating expensive resources (highly paid medical staff for example) to the most critical processes and tasks…
As for the implementation itself, it seems that the slow option is the more appropriate if MGH takes the reluctance of its medical staff into consideration: people need time and education to accept the change. In addition, physicians and surgeons rely all the more on experimental evidence since they have a scientific background. Hence, they would probably wait to see the first results to adopt the project.
Finally, implementing the care path with only one surgeon will provide the others with indispensable learning which they could use to improve their own care path before implementing it. Despite the dramatic improvements MGH made with the new path care in terms of average length of stay (from 12 to 9, see Exhibit 10), there is still room for greater improvements. For instance, it would be relevant to find additional criteria to measure their performance in terms of quality such as waiting time, size of the waiting lists, number of patients treated?
MGH should also keep their care path flexible. Strict standardization of the care path is necesary for MGH’s first step in the CABG division since this developed version can be considered as the framework for the whole hospital.
However, the care path has to remain flexible so that they can adapt it to other departments, with other needs and other processes. Ad hoc, keeping the care path flexible will also allow the medical staff to improve it continuously. Finally, MGH should also consider creating a system of incentives to foster innovation and continuous improvement in their services.