My Takeaway from Michael L George’s Lean Six Sigma for Services Part 2

Using the Voice of the Customer



Aligning corporate strategy with LSS
The flow from high-level strategy to individual projects requires an understanding of where and how value creation.


Some definitions:
Economic Profit% = % change in Return on Invested Capital – weighted % cost of Capital
Economic Profit = Owners Earning / Invested capital = (Profit after tax) – (3 year average CAPEX)
+ (D&A) – (Increase in working capital)
Process Cycle Efficiency = Value added time / Total lead time
Lead Time = Amount of WIP / Average completion rate
Waste Driver = (Total Demand) x (Set up Time) x (No. of different offerings) / [1 – (Defect Rate) – (total demand) x (Processing time)]
Capacity constraints limits output whereas a time trap causes the longest delays in the stream

My Takeaway from Michael L George’s Lean Six Sigma for Services Part 1

Basics
Similarity
• Both Lean and Six Sigma (SS) help reduce process complexity.
• Both are data driven and measurable and have a framework for effective problem solving
• Both need to be supported by people (from top to bottom) and culture
• Both reinforce each other such that return on invested capital ( goods and people) is faster compared to what is achieved if anyone is implemented
Dissimilarity
• SS recognizes the variation in process that hinders consistent quality outcomes
• Lean centers on identifying and eliminating waste (non value adding) activities and improve the flow speed
• SS is prescriptive in its approach whereas Lean is more inrospective not mandating where the voices of the customer must be included.

There is a preconceived notion that both SS and Lean are only for manufacturing, however that is far from real. In service applications, costs that add no value to the customer are higher than in manufacturing in terms of percentage and absolute dollar value. Because, manufacturing used both these methodologies were widely, the terminology like WIP, workstation turnover, pull systems etc appear to have no meaning for people from services industry.
Why services are replete with waste:
Service processes are slow. Slow processes are usually expensive and prone to poor quality. A service process is usually slow due to wait and queuing. Lack of information, multiple decision loops, and red tape are common waste generators.
Lean Six Sigma (LSS) is about getting rapid results, which track to the bottom line in support of strategic objectives. It allows organization to leverage cost, quality and speed rather than making a tradeoff between them.

Core elements of SS
A powerful SS concept is that the outcomes of a process are a result of the inputs to the process. Y = f(X1, X2, X3,,, Xn). A deeper meaning to this equation is that the LSS team must discover the various Xs that will actually alter the outcome Y. A promise of SS is that one full time Master Black Belt will be able to generate $500,000 worth of increased operating profit per year. To facilitate a SS project, basic requirements include the involvement of senior management, essential workforce training, resource allocation, and reduction of the variations in the CTQ (Critical to Quality) requirements of the customer.
A handful of terms
Lead-time = Amount of WIP/Average completion rate (Little’s Law). WIP can be emails, calls, orders etc. Reducing WIP cost mostly intellectual capital whereas it takes investment capital to alter the completion rate (Usually used when the work involves a direct customer handling. Customers are not the same as Things-in-Process and often show unpredictable patterns in demand).
Delay (Q time) = Time for which a task sits waiting to be worked upon
Value add / non-value add = any work that the customer will pay for is value add. Anything else is non-value add (waste). Long set up times are also non-value adds.
Process efficiency = Value add time/Total lead time
Core elements of Lean
Most processes are “fat.” One mechanism of controlling lead-time is to reduce WIP. Every process should operate on pull to eliminate variation in lead-time. Each organization needs to create its own pull system. Pareto’s principle of 80/20 is valid. Only work that is visible (data based) can be improved. In services, it is difficult to draw out the process and even more difficult to judge the amount of WIP. A good example of such an activity is the set up time or bring lock in period in moving from one task to the other.
High velocity of an object through a process does not reduce quality because the speed comes by reducing wasteful activities and not the key steps. A lean service process typically is one whose value added time is at least 20% of cycle time.
Why do they need each other
It is important to note that speed and cost gains from lean can instantly be erased by an increase in variation leading to WIP and lead times.Conversely any process (even the near perfect ones) will eventually become slow, cumbersome and coslty if it is not continuously tuned for reducing waste.

Addressing Quality in Health Delivery Part 2

IV. ELEMENTS OF QUALITY IN A PROVIDER SETTING

Within a provider setting, quality can be scrutinized in a number of functions.
1. Information Management – Any judgement is only as good as the information on which it is based. Healthcare is no exception. Disparities in provision of care can be minimized by carefully managing information. Some of the ways are given below[5]
a. Stratify clinical performance measures according to socioeconomic/ethnic disparities
b. Make information available for public reporting
c. Synchronize data collection efforts
2. Create an alternative for fee for service - The fee-for-service payment system in the United States leads to more care, but fails to create high-quality and efficient care. Some of the alternatives include
a. A new payment model based on a set of severity adjusted evidence-informed case rates (ECR). Risks maybe categorized as [6] –
i. Probability risk (Based on the likelihood of a negative event not controlled by the provider). Example: genetic makeup of the patient. This will be the financial responsibility of the insurer
ii. Technical risk (Providers responsibility). This includes readmissions. One of five Medicare beneficiaries discharged from the hospital is readmitted within 30 days, and half of non-surgical patients are readmitted to the hospital without having seen an outpatient doctor in follow-up [8].
3. Eliminate process waste through Lean management initiatives – The core idea is to replace waste with value. Value is defined as the capability to deliver exactly the (customized) product or service a customer wants with minimal time between the moment the customer asks for that product or service and the actual delivery at an appropriate price [11]. The key here is that value must be defined from a consumer perspective.
In sum, all quality endeavours point to incremental and sustained integration between interfacing entities in the healthcare provider space. Let us talk about the each of them in brief.
V. INFORMATION MANAGEMENT

Information has to be managed from creation to archival such that it is accurate, contextually relevant, and available in a timely manner. Only such information is of value. Example - Clinical performance measure is a subtype of quality measure and captures data on access, outcome, patient experience, process and structure during episodes of care. Non clinical data such as master patient index are also to be managed with care.
Pros
1. Quality measures are used for process improvement, higher accountability and research
2. Avoid repeat therapy. This is especially valuable in case of indigent care and charity care
Cons
1. Even though these data are collected by institutions they are largely for private use. Public sharing of such information is neither mandated nor voluntarily offered. The reason is that this genre of information is considered to be of competitive advantage and fiercely protected by the providers.
2. The physicians perceive that every patient with associated medical conditions is unique. The nature of relationship between physician and the hospitals are contractual and there are not enough incentives for the physicians to devote additional time towards such initiatives.
3. Data collection puts additional strain on human and technological resources. Smaller institutions may not have the resources to bring in these practices
VI. PAYMENT REFORM – BUNDLED PAYMENT
At the very heart of integrated care is the bundled payment. It would mean more collaborative care. Bundled payments provide a single payment to both hospitals and physicians thereby creating the need for synergy between hospitals and physicians.
Pros
1. 180 degree turnaround on the current mode of payment. Hospitals and physicians, currently paid on separate fee schedules, would now have financial incentives to collaborate and work together.
2. Is likely to bring down the number of readmission through shared accountability
3. Will pave the way for unified billing
Cons
1. Likely to cause a disruption in the current system. Adoption will be slow and recalcitrant. Needs the cultural change of “putting patients first”.
2. Will encourage more hospitals to have physicians on salary and will be resisted by the older generation of physician community. Smaller physician(s) or groups will eventually be driven to join larger groups
3. It is possible that short term cost cutting initiatives will result is degrading the value offered to patients resulting in delayed access.
The Medicare Payment Advisory Commission has created a policy path to transition to bundled payments. This includes [13] [14]:
1. Phasing-in various aspects of bundled payments first, to providers who are fairly well integrated, and then slowly encouraging other providers to adopt the payments.
2. Capture and share service and resource usage data
3. Adjust payment based on resource use over an episode of care on select conditions (acute care)
VII. LEAN MANAGEMENT

Lean is an innovative philosophy that can be applied to the health delivery processes to sustain operational quality and address socio technical issues. Operationally Lean management provides better organization, increased productivity and reduced waste – all encouraging process improvement by reducing process variation. The technical risks or artificial variability has a lot to do with the efficiency of health delivery and often contributes to “waste” in the system.
In the healthcare world, there are multiple definitions to value. The administration may have interest in the quality adjusted life year value while the physician may concern himself only with the clinical value. According to Lean the value is an inherent property of the system at work bounded by design and not by the individual talent or will. Lean initiatives are at the heart of Integrated Care Programs or Pathways.
Pros
1. Artificial variability related to controllable factors is minimized in the design and management of healthcare systems. One example of artificial variability is medication management.
2. By balancing operational and socio-technical aspects of Lean, exponential improvements are possible. Value stream analysis is a good way to make sure the process and the people performing the process are aligned.
3. Will naturally help the evolution of integrated pathways for care and administration
Cons
1. Natural variability of the process is caused by the fact that no two patients are identical. This has to be recognized while applying Lean management in healthcare.
2. The practice of Lean thinking could negatively impact the population of healthcare workers. WHO data suggests there are about 6-7 million healthcare workers in the US including, pharmacists, midwifes, physicians, nurses, lab workers, management and support workers. This can be pre-empted by fostering a culture of Lean and managing change responsibly.
3. Will need information standardization and sharing
4. Healthcare professional are trained to be fiercely independent and need to be aligned to the merits of collaborative care and working in an interdependent environment.
5. Qualified leaders and managers that foster creation of an environment of collaboration are scarce. This manpower is vital for success.
6. Lean is not a piece meal approach but system wide. So it requires top level endorsement. The senior management must trust Lean to increase value for the patient and drive profits.
Socio-technical aspects of Lean - Lean interventions have the potential to make jobs simple and accurately repeatable. Simple jobs may not be found to be challenging enough for highly trained physicians. Lean interventions may also give rise to jobs that require more thinking, planning and responsibility which may be resisted by workers depending on the nature of employer-employee relationship.
VIII. POLITICS AND POLICY OF REFORM – NOW AND ROAD AHEAD
A Commonwealth Fund survey shows the following [19]
1. 70% of the opinion leaders think that the fundamental payment reform is at the root of meaningful reform
2. 62% of the leaders feel that fostering integrated health delivery systems is the most effective way to bring down healthcare costs
The HITECH act is a great example of what the government can do to empower the health delivery systems to build quality in their domain. In the current reform drafts, the president has set a target of 155 billion in costs saving from the hospitals that translates roughly to about 2.6 million per year per hospital in cost savings. Interestingly the hospitals CEOs are upbeat on achieving this target using a variety of methods including Lean [18].
From 1912 till today there have been several attempts at tactical health reforms. These have not been strategic successes because they have been at odds with the core interest and benefits of the Americans at large. In my view, a high level roadmap could be as follows:
1. Bring on payment reform through bundled payments. Government must help providers to structure themselves to adopt the new payment mechanism. Hospitals will play along if they are incentivized as with HITECH Act to work in a collaborative model. It will bring up new models of nurses-physician-hospital/group engagement.
2. Create incentives to adopt integrated delivery systems with targets to reduce adjusted cost per episode of care, year on year. The government will struggle to make this objective and set up outcomes reporting mechanism.
3. Create health exchange to share information from both insurance and provider. It will have ample support from consumers and insurers, who will begin to enjoy more choices among providers. Hospitals will drag their feet because it would means sharing of competitive information. They will come along as they see its merits in providing indigent care. The government will have the opportunity to conduct evidence based research using this data to arrive at setting national levels of care and reimbursement guidelines.
Some of the factors that can aid the reform can be
• Continued tort reform like putting a limit of the economic damages
• Decrease “morale hazard” by getting the consumers to have a stake in keeping the cost of healthcare spending down (perhaps through health savings accounts)
• Putting a cap on the administrative costs of insurers.
The steps above is likely to result in reduction of redundant therapy (repeat imaging services), address over-reimbursements issues, expand the scope of practice for non physicians, reduce medical errors and create incentives for preventive medicine. Subsequent to the quality based reform, the government can proceed with legislations to increase coverage and introduce public option. For now moving the reform on the quality angle allows us to keep the value of healthcare proportional to the cost – a proposition that will resonate with the most Americans.

IX. REFERENCE
[1] Socialism vs. Capitalism: Which is the Moral System? On Principle, v1n3 October 1993 by: C. Bradley Thompson. [Available] http://www.ashbrook.org/publicat/onprin/v1n3/thompson.html

[2] Public Health Then and Now January 2003, Vol. 93, No. 1 | American Journal of Public Health by: Beatrix Hoffman, PhD [Available] http://www.ajph.org/cgi/content/abstract/93/1/75

[3] About that health-reform cost study Tuesday, October 20, 2009: by Karen Ignagni. [Available] http://www.washingtonpost.com/wp-dyn/content/article/2009/10/19/AR2009101902936.html

[4] Inequality in quality: addressing socioeconomic, racial, and ethnic disparities in health care. JAMA. 2000 May 17;283(19):2579-84: by Fiscella K, Franks P, Gold MR, Clancy CM. [Available] http://www.ncbi.nlm.nih.gov/pubmed/10815125

[5] Lean and Collaborative care at Thedacare. [Available] http://www.leanblog.org/2009/10/lean-collaborative-care-at-thedacare.html

[6] Francois de Brantes: A New Payment Model for the U.S. [Available] http://www.commonwealthfund.org/Topics/Health-Care-Quality.aspx

[7] The Nation’s Health Dollar, Calendar Year 2007: Where it Went? [Available] http://www.cms.hhs.gov/NationalHealthExpendData/downloads/PieChartSourcesExpenditures2007.pdf

[8] New Study: 20 Percent of Hospitalized Medicare Patients Readmitted To Hospital Within 30 Days; Half Rehospitalized Without Seeing a Doctor After Discharge. [Available] http://www.commonwealthfund.org/Content/News/News-Releases/2009/New-Study-20-Percent-of-Hospitalized-Medicare-Patients-Readmitted-To-Hospital-Within-30-Days.aspx

[9] Change the Microenvironment: Delivery System Reform Essential to Controlling Costs. [Available] http://www.commonwealthfund.org/Content/Publications/Commentaries/2009/Apr/Change-the-Microenvironment.aspx

[10] State wise per capita income. [Available] http://www.bea.gov/newsreleases/regional/spi/2009/pdf/spi1009pc_fax.pdf

[11] Application of lean thinking to health care: Issues and observations [Available]: International Journal for Quality in Health Care 2009; Volume 21, Number 5: pp. 341–347 Advance Access Publication: 19 August 2009

[12] Using Measures. [Available] http://www.qualitymeasures.ahrq.gov/resources/measure_use.aspx

[13] Bundled Payment. [Available] http://www.andrew.cmu.edu/user/aspark/policyarea.html

[14] MedPac [Available] http://www.medpac.gov/transcripts/0408_pathtobundling_public_pres.pdf

[15] WHO [Available] http://apps.who.int/globalatlas/dataQuery/reportData.asp?rptType=3

[16] Wikipedia QALY [Available] http://en.wikipedia.org/wiki/Quality-adjusted_life_year

[17] Going Lean in Health Care. IHI Innovation Series white paper. Cambridge, MA: Institute for Healthcare Improvement; 2005. [Available] http://www.IHI.org

[18] Hospital CEOs: Reform savings goals doable with lean, Six Sigma, Toyota methods. [Available]
http://www.fiercehealthfinance.com/story/hospital-ceos-reform-savings-goals-doable-lean-six-sigma-toyota-methods/2009-09-10

[19] Commonwealth Fund. Commonwealth Fund Health Care Opinion Leaders Survey, April 2009. HCOL_Slowing_Growth_of_HC_Costs__Chart_Pack_Slides_04242009_PF [Available] www.commonwealthfund.org

[20] AEI Outlook Series: The Politics and Principles of Health Care Reform by Joseph Antos [Available] http://www.aei.org/docLib/11-HPO-Antos-Sept-09-g.pdf

Addressing Quality in Health Delivery Part 1

Abstract: Understand the healthcare reform in the context of the social and economic factors. Analyse the alternatives in the reform and their tradeoffs. Provide a workable framework and discuss its sustainability.

I. BACKGROUND
The current efforts in reform have seen two proposals emerge. Both primarily address the issues around coverage and tried to resonate with American vote bank. This is quite akin to catching a tiger by its tail because the serious cost repercussions associated with addressing coverage is likely to bring on a financial disaster in the near future. A look into the social stratification will help us understand the economic and social preferences of the country.
A. Creation of classes - America has been neither a collectivist (socialist) nor an individualist (capitalist) state. History of America is dotted with experiments in creation of a mixed economy and welfare state - a system that permits private property at the discretion of government planners. As a consequence three classes of people have been created. First - a class that survives on the wealth sourced from the working class - typically includes the indigent and “habitually” unemployed (people who have no motive to earn a livelihood). Second - the working class which is a taxpaying, law abiding segment (includes the non working retirees). Third - a class of government planners and wealthy influencers who are typically at the top of the food chain. [1]
B. Social/Industrial/Economic/Movement – There has been a gap between the healthcare reformers and their political constituencies. So while grass root activism has won minor changes, it has not been able to alter the very nature of the system [2]. The demographics of the patient population, a 500 billion USD insurance industry, vested interests of the members of the Congress to get re-elected, gullibility of the people and dissemination of misinformation by media are some of the factors to be recognized while providing a critical analysis of the health reform.
The raison d'etre of the health reform is to make available a good quality healthcare infrastructure for the people of America and that is possible only when the reform is based on quality frameworks that will reduce cost and make it meaningful for people to get insured. The remainder of the paper will outline one such possible framework.

II. THE ECONOMIC AND SOCIAL FACTORS AT PLAY

The healthcare system today is unstructured and has misplaced financial incentives. The economic theory of “morale hazard” has played out among the players in the current system. As a result the system has been abused by all those who participate in it. Some of the current social and economic factors at work are listed below.
• Social factors
o Aging population, a small percentage of which is consumes most of the healthcare expenses
o Indigent, uninsured and underinsured population resulting in a skewed flow of finances for episodes of care.
o Distorted ratio of care givers between primary and specialty levels
o Providers preferring more number of diagnostic tests to appease patient sentiments and to practice defensive medicine
o Death is viewed not as a natural phenomenon but rather a scientific challenge that needs to be overcome.
• Economic factors
o Cost of care high with respect to outcomes in care rendered in comparison with other developed nations
o Insurance providers have more interest in return on equity than providing indemnity for patients. Currently there are no cross-state plans.
o High cost of medication and lack of medication management
o High cost of education leading to debts that the doctors seek to recover through fee for service reimbursements. The fee-for-service payment mechanism has been recognized as a challenge.
o High cost of compliance for numerous regulations, liability insurance and technology.
o Medication errors, re-admissions and death.
o Declining economy and earnings but increasing sickness is draining the state exchequer.
o Misplaced competition currently focuses on shifting of cost among government, insurer and provider. The competition must be brought back into the provider space so that they are able to bring value to the patients through low cost and high standard of care. This single value driver will give them competitive advantage and consequent market share. Transformation in this segment will positively impact other areas of the healthcare system.

III. STATE OF THE CURRENT REFORM

Coverage Pros
• Requires individuals to have health insurance. It is enforced through individual mandate and by raising the income limit for Medicaid eligibility. Insurance is proposed to be made available through state seeded health gateways or health exchanges. Includes penalties for non compliance and subsidies/exception for special cases
• Employers mandated to offer health insurance or pay a penalty if employee chooses to buy from exchange. Employers to pay at least 60% of the premium.
• Insurers cannot deny coverage on grounds of pre-existing conditions in non group market. Create a high risk pool for all people with pre-existing conditions and cover them through consumer driven co-operatives.
Coverage Cons
• Constitutional hurdle in warranting health insurance as a prerequisite for citizenship.
• Penalty may be lower than the overhead of providing insurance. This could also lead to unintended consequence like retrenching regular employees in favour of subcontractors.
Cost Pros
• No annual and lifetime limits on coverage. Limit on annual spending by the enrollee. Issue community rated insurance plans (premiums charged differ only on basis of age and gender)
• Higher scrutiny of insurance companies.
• Employ payment bundling to contain cost.
• Public option as a competition to private insurance companies
Cost Cons
• Will warrant major regrouping of the insurance companies and the providers. Smaller independent practices will have to merge into larger networks.
• May cause people to defer buying good insurance plans until they become sick.
• Insurance companies will find work around to “cherry pick and lemon drop”
• Younger population likely to pay inflated premiums for coverage not suitable to their circumstances.
• Government run program have historically shot over their budgets [3].
Quality Pros
• Explore bundled payment
• Preventive medicine and evidence based research
Quality Cons
• Objectives are not quantitative and the efforts may not give instant results.
• Unless quality drives are not driven by value directives (low cost, acceptable standard of care resulting in patient well being), it can be counterproductive.
• Hospital and physician services each account for about one third of private healthcare spending [7]. The outcomes do not commensurate to the level of spending seen.
The diagram below depicts a schematic interplay of different actors in healthcare. Though the issues of quality are quite pervasive, this paper will limit itself to the application of quality in the provider space. The problem statement is as follows: What needs to be done in the provider space to ensure every American can get affordable medical care based on their needs (and not on preferences, tastes or wants). In the diagram below, the arrows leaving the rectangle show an outflow of money (Expenses) and the arrows incoming to the rectangle show and inflow of money (Income)