Can hospitals do better by doing less? This is not to suggest that hospitals should provide less care for any individual patient. Rather the question is whether hospitals can provide better, less expensive care by limiting the scope of the services they provide. That is, instead of aiming to be a one-stop shop treating all ailments, could hospitals benefit from focusing on a narrow range of procedures?
The Globe and Mail tells a pretty compelling story that the concept of a “focused factory” to a hospital can greatly improve operations — in both the management and medical sense of the word (How the factory floor inspired a new model for health care, Nov 9). The article concentrates on Kensington Eye Institute, a Toronto non-profit provider of eye care.
Ms. Swarney was one of 27 patients that Wednesday, a slow day for one of the country’s busiest cataract clinics. It has single-handedly made a huge dent in the waiting list for cataract surgery in the Toronto area, where the wait is now 127 days for the surgery, down 60 per cent from 2005. Kensington is a leader in adapting manufacturing practices to medical care. From its unassuming perch on the sixth floor of a medical building in downtown Toronto’s eclectic Kensington Market neighbourhood, the private, not-for-profit clinic is quietly bucking the trend of health-care costs that seem to go nowhere but up.
When Kensington opened its doors in January, 2006, it received $5-million in funding to perform 6,700 cataract surgeries a year. Two years later, the clinic had increased its caseload to 7,200 patients a year with the same budget. “We did that through operating efficiencies,” says Brian McFarlane, chief executive officer of the clinic.
This is an impressive gain in performance although one has to admit that it is not totally unexpected. There are several other successful examples of focused hospitals providing superior care and service. Indeed, aficionados of operations management case studies will immediately point out that the best known example — hernia specialist Shouldice Hospital — is actually located just outside of Toronto.
What I find interesting in this example are the incentives involved. The growth of specialty hospitals in Canada has been driven in part by changes in how the provinces budget for care. As wait lists for necessary but not life-and-death procedures have grown long, provincial authorities have sought ways to increase the availability of treatment. They have thus experimented with budgeting funds for specific procedures and then got hospitals to bid for the work. If one provider could do cataract surgeries more cheaply, it won more business. Providers then had incentives to wring greater speed and cost savings from their resources and voila! waiting times shrink. (For more on this, see also this other Globe and Mail article, How a Vancouver hospital drastically cut its wait times, Nov 9.)
But what happens to the hospitals that don’t get to tap these funds? As the article presents it, they do OK.
The efficiency of “focused factories” like Kensington also help traditional hospitals by freeing up resources to focus on more complicated cases. Toronto Western Hospital, part of the University Health Network complex, transfers most of its routine, low-risk cataract patients to the clinic, said Dr. Robert Bell, the health network’s chief executive officer. The patients most at risk of developing complications, including those with underlying medical conditions, are treated at the hospital, which has more resources available.
So it seems that cherry picking by specialty hospitals does not endanger the long-term viability of standard hospitals. It is not clear that the same is true in the US, where such focused care has at times drawn fire. If a community hospital is set up to do a full range of, say, cardiac care, it is somewhat dependent on making a good return on the relatively easy cases so it can cover losses on harder cases. If a focused provider takes the easy cases, the general purpose hospital has to question whether it can still afford to be in the cardiac care business.
it seems like hospital execs have been thinking along these lines for a while now. Our local hospital, formerly rented to Tenet, had to be taken back by the hospital public agency. The manager they hired has tried to specialize in cancer and heart operations to improve the cash flow and efficiency. but the hospital still has to handle the large number of emergency cases from this very urban area, many uninsured. Private hospitals of the focused kind might be able to do what the Canadians are, but some public ones are forced to be general enough at least to handle emergencies. And they can’t palm their cases off on other hospitals, because the patients are nonpaying. In Canada the government picks up the tab at least in part.
A real dilemma.
Marty,
It raises a number of questions related to the Cost of Healthcare. Immediate access to healthcare (geography) is essential when time is important (i.e. emergency). Access to good preventive AND diagnostic healthcare is still a matter of convenience. But access to services to resolve the diagnosed, non-emergency care isn’t really a matter of geography or even convenience. If I’m submitting to a heart operation, I’ll spend the extra time and effort to get the best care I can at the greatest value.
What I think I’m beginning to see is that the Healthcare industry built itself around convenience and broad services. In hindsight, those don’t seem like very good practices. Some of the new approaches, including specialization centers that support a broader region, make more financial sense. Interesting that it is the realization that costs are out of control that resulted in a government body recommending/encouraging the markets behavior. Doesn’t the Healthcare market realize their own flaw and structural weaknesses?
Steve,
I suspect that the evolution of medicine into ever tighter specialties plays into this. It takes some evolution of, say, cardiac procedures to have a specialty hospital in that area make sense. As that evolution is happening every hospital is incrementally adding to their portfolio of cardiac offerings. At some point, it would make sense to strip out heart surgery from most hospitals and put it into a specialty hospital but by then every hospital has an investment in this and doesn’t want to walk away from that. Note that this is potentially more extreme in the US then elsewhere since many private organizations own hospitals and invest in an uncoordinated fashion. Reimbursements also matter. Specialty hospitals are going to first target that for which insurers overpay. Community hospitals are going to be loathe to give up that work.
That said, check out this article on an alternative way of organizing care:
http://www.theglobeandmail.com/news/national/how-to-save-health-care-from-the-pale-green-maze/article1806958/
Marty,
I read with interest the article. The issues it raises are important and address the long term needs of any nations healthcare network. I’ve been doing quite a bit of research into this topic. What I’m developing is a cost/opportunity model for the hospital itself. For a hospital to be effective it must learn to live on the revenue from the reimbursement rates. My analysis seem to indicate approximately a 50% reimbursement rate; meaning the invoice may be $100 but the insurance company and the federal govt. are only paying $50. And yet these hospitals make around 6.5% net profit on these reduced rates.
So what makes a hospital think its services are worth $100 when the market is clearly telling them it is worth $50? And at $50, they still make profit.
A prudent hospital would want to manage their expenses to expand their profit at the $50 rate. And as Jack Welch famously said, expenses have shoes. The political structure of a hospital seems to be one of the culprits. The cultural aspects of the hospital seem to be another. If the powers that be get to do what they want in their little kingdom AND the doers look at expense as none of their concern….I think you get $19 aspirin’s and all the other antecdotal expenses. This looks and smells a lot like the Defense industry. Cost plus pricing was prevalent in the defense industry and apparently played a major role in the hospital industry as well. In either instance, the industry is doomed that thinks and acts this way and as the people that pay the bill we are fools to let it stand.
As an example: one sample hospital had net revenues (those paid for v. billed) of $995M and per patient revenue of $5,423.78. If they were to improve their productivity and accuracy by only 15% and reduce their inventory levels by 25% they would increase their profits on same dollar revenue by $34.75M per year. That is a profit increase of 65%. From what I’ve witnessed and through interviews with industry experts, those improvements are easily attained.
So while new facility designs, strategies for wellness v. repair, etc. all play an important part in the future of health care, we have 17% of our economy being thrown down a black hole of inefficiency, inaccuracy and waste. People used to scream about the $500 hammer the Pentagon would buy. I’m just surprised no one is screaming about the cost of healthcare in the same manner. Instead the insurance companies are blamed, who themselves are simply actuarially calculating the cost and spreading it across their “population”.
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognize the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialize in a few key procedures […]
[…] 10 years is recognize the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialize in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognize the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialize in a few key procedures […]
[…] In addition, some hospitals have already tried to recognize their potential to be more factory-like in the past 10 years. New hospitals that offer new procedures and organize workflow in a more streamlined and industrial way are called “focused factories.” […]
[…] 10 years is recognize the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialize in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]
[…] 10 years is recognise the potential to be more factory-like, and hence more efficient. The term “focused factories” has been used to describe some of these new hospitals that specialise in a few key procedures […]