Applying Six Sigma Principles to Your Hospital’s Operations and Management
Author: Jack SieberEven though “lean management” has been around for years, many hospitals are still reluctant to embrace the system. Lean management may not be the cure for everything that challenges your facility, but lean concepts are definitely worth considering.
Cut the waste
Lean management got its start from a Toyota automobile production system. The process involves removing waste and improving workflow. Lean management is sometimes coupled with Six Sigma principles. These use statistical analysis to minimize variations in process execution that can lead to waste.
Now, lean management is being adopted in health care settings. And for hospitals, the functions that typically benefit most from lean principles include admissions, discharge, radiology, purchasing and billing, and the ER.
Practically every organization, including hospitals, operates using a series of processes or sequences of actions that are designed to create value for their customers (or, in this case, patients). With lean management, you can distinguish value-adding process steps from non-value-adding steps, thus allowing you to cut any wasteful steps.
Not a one-time project
Employing lean activities doesn’t mean you can simply assign a handful of employees to do this as a one-time project. If your hospital decides to fully embrace going lean, every staff member will need to learn the system’s principles. Why? Because eventually they will all be called on to help streamline workflow and identify wasteful steps.
Being fully committed to lean practices means you’ll need to identify key processes in your hospital’s value stream. Perhaps it’s an inpatient stay, an office visit or a trip to the ER. You’ll also want to look at both internal processes (supporting primary processes) and primary processes (serving patients and their families) to determine the value that each one aims to create.
The next step is to conduct a kaizen (continuous, incremental self-improvement) event. It’s a three- to five-day session that not only analyzes the hospital’s processes, but also implements changes. Participants must map out how each process functions and then document and quantify the value that was created by each step — as well as the waste in steps or between steps.
Moreover, a conversion to lean may require you to employ the mnemonic PDSA (Plan-Do-Study-Act) system. PDSA describes the steps in changing a process:
- Devise small tests of a change (Plan),
- Conduct the tests on a small scale (Do),
- Measure results against the present state and consider how it could be further improved (Study), and
- Implement changes hospitalwide, monitoring the process for at least 90 days to ensure stability and sustainability (Act).
An exemplary use
Many hospitals use lean management in processes such as moving patients through OR procedures from beginning to end and preparing claims for submission to a payor.
The Exempla Lutheran Medical Center in Colorado provides a detailed case study. The Center wanted to address foot traffic going in and out of the OR during surgical procedures because excessive, unnecessary entry and exit can produce airflow disruptions that can increase the risk of nosocomial infections. Plus, such movement can become a distraction for the OR team, resulting in medical errors.
So the facility conducted a “rapid improvement cycle,” via a four-day kaizen event. They pulled together physicians and frontline staff to analyze the current state of OR work processes and determined how often, when and why someone left or re-entered the OR.
Once they found that the leading cause was the need to retrieve missing instruments, supplies and equipment, the kaizen team redesigned processes to improve equipment and supply availability in the OR. After the changes were made, total OR foot traffic actually dropped by 32% and surgical site infections fell by 14%. Another benefit: 7.9 hours of staff time per day were freed up.
Not for the fainthearted
If going lean sounds good to you, be prepared for a few bumps in the road. Why? Because it requires getting all staff members to buy into the system. Plus, it will likely consume a great amount of time and resources as you look at your hospital’s processes. The end results, however, will be worth it.
If you have any questions about lean management or any other healthcare issue, give us a call at 716.847.2651, or you may contact us here.
New Rule Includes Core Objectives for Hospitals
CMS has, at long last, released its final rule regarding Stage 2 of the Electronic Health Record (EHR) Incentive Program. These final regs address several key areas you should be aware of.
The final rule requires all hospitals to satisfy some 16 “core objectives” and three of six “menu objectives.” The new regs also replace and add other objectives. In Stage 1, for example, hospitals were required to fulfill 14 core objectives and five of 10 menu objectives. Some Stage 1 objectives were either eliminated or combined, but most of them have been finalized. Many require meaningful use by higher thresholds of the patient population, however.
Core objectives of “capability to exchange key clinical information” and “provide patients with an electronic copy of their health information” have now been replaced. The respective replacements are “transitions of care” (which requires the provision of a summary of care record for each referral or transition) and “electronic/online access” to patients’ health information within 36 hours of being discharged.
The final rule also adds a new core objective that requires that facilities “automatically track medications from order to administration using assistive technologies in conjunction with an electronic medication administration record (eMAR).”
And the rule adds these five new menu objectives:
- Record electronic notes in patient records.
- Offer access to imaging results available through Certified EHR Technology (CEHRT).
- Record patient family health history as structured data.
- Generate and transmit permissible discharge prescriptions electronically.
- Provide structured electronic lab results to ambulatory providers.
The sixth menu objective — which is to record whether a patient 65 years old or older has an advance directive — is a holdover from Stage 1.
Hospitals and CQMs
While the final rule removes clinical quality measure (CQM) reporting as a core objective, facilities must still report on CQMs to demonstrate meaningful use. And specifically, all facilities must report on 16 out of 29 CQMs, beginning in 2014.
Moreover, hospitals must select CQMs from at least three of six key health care policy domains as identified in the Department of Health and Human Services’ National Quality Strategy. The domains include:
- Patient and family engagement,
- Patient safety,
- Care coordination,
- Population and public health,
- Efficient use of health care resources, and
- Clinical processes/effectiveness.
Beginning in 2014, Medicare providers that are beyond the first year of demonstrating meaningful use must electronically report CQM data to CMS. Hospitals will provide reporting through the EHR Reporting Pilot infrastructure for hospitals or electronic submission of aggregate data through a CMS Portal.
Medicare payment adjustments are supposed to take effect in fiscal year 2015 (Oct. 1, 2014). Medicare hospitals that demonstrate meaningful use this year will avoid a 25% payment reduction that applies to the percentage increase to the inpatient prospective payment system (IPPS) reimbursement amount in 2015. A Medicare hospital that first demonstrates meaningful use in 2014 will avoid that penalty by registering and attesting to meaningful use by July 1, 2014. If the increase in the IPPS amount in 2015 is 2%, for example, a hospital failing to meet meaningful use would only receive a 1.5% increase (1 – 25% reduction = 75%; 75% × 2% IPPS increase = 1.5% increase for nonconforming hospital).
The final rule also lists three categories of hardship exceptions that facilities may apply for to avoid any payment adjustments: infrastructure, new eligible hospitals and unforeseen circumstances. In the first category, hospitals must demonstrate that they’re in an area without sufficient Internet access or face insurmountable barriers to obtaining infrastructure (for example, the lack of broadband).
The second category allows hospitals with new CMS Certification Numbers that would not have had time to become meaningful users to apply for a limited exception for one full-year cost reporting period. And the third category regards unforeseen circumstances, such as natural disasters.
Getting a jump on the deadline
The Stage 2 rule offers providers more time to meet the Stage 2 criteria than was originally laid out in the Stage 1 regs. Now, the earliest that hospitals must meet Stage 2 criteria is in fiscal year 2014. But savvy hospitals will likely take steps to get a jump on the deadline to avoid 2015 Medicare payment adjustments.
If you have any questions about the Stage 2 rule or any other issue pertaining to the rule change, give us a call at 716.847.2651, or you may contact us here.
Acquiring Physician Practices Brings Risk Along with Benefits
The number of hospitals pursuing acquisitions of physician practices is on the rise. Why? Because they hope it will help improve care, cut costs and boost profits. However, such transactions aren’t without risk and they require comprehensive due diligence. On the financial side, a hospital should perform due diligence in these areas in particular.
The sustainability of the practice’s revenues is key to its value as well as the eventual success of the transaction. But revenues can be inflated because of overdependence on either a limited number of referral sources that could dry up, or a small number of providers who might depart.
Moreover, trends in reimbursement rates may also distort revenue. If rates for one of the practice’s primary services are dropping, the services might bring in less revenue down the road.
Practice revenues and the distribution of procedure codes both should be compared to appropriate benchmarks to determine reasonableness. The facility should also determine each physician’s age and estimate how long he or she might remain with the practice.
Another area to scrutinize is the revenue cycle. Ask yourself how long it should take to convert a procedure into revenue. Also consider the patient flow process, collections and denials, and billing and documentation practices.
Understanding expenses and capital requirements
Do you anticipate any major expenses on the horizon, such as increased rent for more space, supplies or costly equipment? If so, prepare a list of all incurred but unpaid accounts payable and accrued expenses as of your balance sheet date. Next, compare operating expenses, overall and by category, with appropriate benchmarks.
It’s likely that physician compensation is the source of any substantial jumps in expenses. Make sure you review every physician’s employment agreement and compare their compensation with benchmarks. If you find any significant discrepancies, get further explanation.
You should also think about the practice’s future capital requirements. For instance, will significant investment be necessary to implement needed technology upgrades for electronic health records (EHRs)?
Consider other financial obligations
Your facility should gather copies of all outstanding debt agreements and summarize the relevant terms, including covenants, repayment terms and assets pledged as security. Also confirm that no loans are in default.
Some hospitals decline to assume a practice’s debt as part of the transaction. But there may be similar obligations lurking out there in the form of commitments or contingencies that don’t appear on the balance sheet. Your hospital should be aware of any change-in-control payments that could be triggered by a transaction, for example. And a self-insured practice might have incurred, but never reported, a medical malpractice claim that may come back to haunt the hospital.
Do your due diligence
Comprehensive due diligence requires all hospitals to consider many other areas that will affect both the practice’s value and the success of the transaction.
Make sure you engage legal and consulting advisors who are experienced with hospital purchases of physician practices. They can help you navigate all of the compliance, legal, and transition matters that must be addressed.
If you have any questions about due diligence or any other issue pertaining to hospitals, give us a call at 716.847.2651, or you may contact us here.