Better Hospital Management — Better Health Care

Stephen DeAngelis

November 29, 2010

In a post entitled Hospitals and Supply Chains, I discussed cost savings and improved patient care resulting from better planning and management in progressive hospitals. A study conducted by researchers from the London School of Economics recently concluded that hospital management plays a critical role in providing better health care. The study’s authors identified “five simple rules for running a first-class hospital” [“How to save lives, The Economist, 21 October 2010]. The article reports:

“Measuring good health, in patients and hospitals alike, is one thing. Finding the causes is harder. … From America to Sweden, the best hospitals in a rich country outperform the rest. But how? Stephen Dorgan of McKinsey, a consultancy, and John Van Reenen of the London School of Economics have tried to answer this. They studied almost 1,200 hospitals in America, Britain, Canada, France, Germany, Italy and Sweden, using techniques more commonly applied to identify excellence in manufacturing industry. The hospitals with the best management practices (analysed as if they made things rather than curing people) also ranked best on a standardised measure of medical success: death rates among emergency patients experiencing heart attacks. That score works across countries and cultures, and has unambiguous results.”

Although patients might not like being thought of as goods proceeding through a manufacturing process, the fact is that almost every human activity involves some kind of process. Improve the process and you improve the outcome. The article reports that “researchers found five characteristics associated with the management of successful hospitals”: competition, size, ownership, training, and staff autonomy. Those may not sound like they have much to do with health care (except, perhaps, good training), but each characteristic plays a subtle but important role. The article first looks at why “competition—or at least the perception of having competitors” turned out to be an important characteristic.

“Hospital managers who named more than ten institutions that they competed with scored more highly on their management practice than those who saw fewer alternatives for their patients to choose from.”

Although the article doesn’t go into why that may be the case, the answer is obvious. When a business has competitors, it must differentiate itself from them in order to be successful. When it comes to health care, the best differentiation takes the form of better service and better care. The next characteristic (size) may sound counterintuitive. The study claims that having more and smaller hospitals doesn’t translate into better health care. The article explains:

“Having lots of small providers vying for patients will not on its own raise standards. The researchers also found that bigger is better when it came to good management. Hospitals employing 1,500 or more staff are better run than those employing more than 500, which, in turn, outperform those with more than 100 staff. Hospitals with less than 100 people working in them are particularly badly managed.”

One would intuitively think that the more facilities there are available and the smaller the patient load of those facilities the better care each could provide. Although the article doesn’t explain why bigger is better, I suspect it has to do with the fact that patient needs don’t change whether they are being cared for in a small or large facility and, therefore, the larger the facility is the more likely to have the kind of trained specialists available to provide the best care when that care is required. In addition, larger facilities can lower costs by taking advantage of economies of scale and cutting better deals with insurance companies. These are advantages that also have an impact on the next characteristic — ownership.

The article reports that, “Private ownership is another factor helping hospitals score more highly.” That’s all the article has to say on that topic — which seems highly unfair to publicly-owned facilities. It comes as no surprise to me that a privately-owned hospital can offer better care than a publicly-owned one because public hospitals accept all comers and are generally burdened with a higher number of uninsured patients. Sometimes access to care is just as important as the quality of the care. In the U.S., at least, it looks like there are going to be fewer publicly-owned hospitals [“Cash-Poor Governments Ditching Public Hospitals,” by Suzanne Sataline, Wall Street Journal, 29 August 2010]. Sataline reports:

“Faced with mounting debt and looming costs from the new federal health-care law, many local governments are leaving the hospital business, shedding public facilities that can be the caregiver of last resort. … More than a fifth of the nation’s 5,000 hospitals are owned by governments and many are drowning in debt caused by rising health-care costs, a spike in uninsured patients, cuts in Medicare and Medicaid and payments on construction bonds sold in fatter times. Because most public hospitals tend to be solo operations, they don’t enjoy the economies of scale, or more generous insurance contracts, which bolster revenue at many larger nonprofit and for-profit systems.”

The next characteristic that differentiates a great hospital from a good one is training. The article explains:

“Only in Italy must hospital managers have clinical degrees. That seems a good rule: institutions that employ clinically qualified staff in management score better than those that do not. Overall, Britain performs badly by this measure: in Sweden, 93% of hospital managers are former doctors, nurses or other clinical staff. In America, Canada and Germany, the proportion is 71-74%. In France it is 64%, and in Britain just 58%.”

Since the study was looking at management practices, it naturally looked at who was managing hospitals rather than who was actually providing the care. Education and training is going to be critical in the future in order to provide the number trained professionals needed to provide care to an aging population. In posts entitled Let’s Talk Jobs, Part 1 and Let’s Talk Jobs, Conclusion, I pointed out that health care is one economic sector that is anticipated to create a significant number of jobs that can’t be outsourced. In another post entitled Shortages of General Practice and Family Doctors are Impacting Emergency Health Care, I noted that economic factors are forcing more doctors into specialties and out of general practice. One way to help close the gap between general practice needs and available providers is to train more physicians’ assistants and nurse practitioners. Will that happen? Probably not. Not only do many doctor oppose that course of action but James Ledbetter reports that the U.S. has claimed to have had a shortage of nurses since the 1950s [“Maybe it’s job retraining that needs to be retooled,” Washington Post, 1 August 2010]. Ledbetter admits that there are, however, mixed signals on this subject. He explains:

“According to the U.S. Bureau of Labor Statistics, the job category that will grow the most over the next decade is nursing; nearly 600,000 new registered nurse positions will be created by 2018, increasing the size of the potential nursing workforce by 22 percent. Yet it is hard to see how America will be able to fill those jobs, since apparently we can’t fill the nursing jobs we have now. Various health-care associations estimate that there are 135,000 nursing vacancies today. Experts place the blame for this shortage on the burdens created by the aging baby-boom generation, but that is only part of the story. … At the same time, USA Today last month cited a “rare glut of nurses” as a reason that recent nursing grads can’t find work. Is it possible to have a shortage and a glut at the same time?”

Ledbetter answers his own question by noting that need estimates for jobs reflect theoretical constructs rather than real jobs. In other words, “The shortages aren’t real.” He explains:

“When medical organizations speak of shortages, they are measuring current workforce levels against a theoretical number per capita. Just because health professionals say they need more employees doesn’t mean that the market has the capacity to support them. This would explain why we appear to have both shortages and gluts, and why retrained workers don’t always find positions.”

Whether enough trained staff will be available or not, the McKinsey/LSE study indicates that, whatever staff is available in hospitals, they will only be able to provide improved care if they have the autonomy to make decisions. The Economist article explains, “Good staff … need the freedom to exercise their own judgment: managers with the most autonomy fare best.”

Given those five characteristics (i.e., competition, size, ownership, training, and staff autonomy), it might surprise you that university-associated hospitals ranked high in the study. The article concludes:

“Hammersmith Hospital is one of five such institutions run by Imperial College, London. Stephen Smith, who is responsible for the hospitals, is also principal of the faculty of medicine. In America, Johns Hopkins is not merely a highly rated university based in Baltimore, but its medical arm also runs a hospital of high repute. Big, professional, autonomous, mostly independent and ferociously competitive: elite universities seem to offer all five important characteristics for saving lives.”

The CEO of IDEO, a well-known design firm, believes that innovation is “no longer limited to new physical products but includes new sorts of processes, services, interactions, entertainment forms, and ways of communicating and collaborating” [“Change by Design,” Bloomberg BusinessWeek, 24 September 2009]. Although you wouldn’t immediately think of using a design firm to help change management practices, Kaiser Permanente did. Brown reports:

“In 2003, Kaiser set out to improve the overall quality of the health-care experience from the point of view of both patients and medical practitioners. My design consultancy, IDEO, proposed that rather than hire a slew of internal designers, the existing staff should learn the principles of design thinking and apply them themselves. Over the course of several months we conducted a series of workshops with nurses, doctors, and administrators that led to a portfolio of innovations. One of them—a project to reengineer nursing staff shift changes—involved a strategist with a nursing background, a specialist in organizational development, a technology expert, a process designer, and a union representative.”

If you are unfamiliar with IDEO “principles of design thinking,” you might want to take a few minutes and watch the following ABC Nightline piece called “The Deep Dive.” Although the clip is about redesigning the humble grocery cart and not health care practices, the “deep dive” process is what is important.

Brown continues:

“Working with frontline caregivers at each of four Kaiser hospitals, the core team identified the problems that occur when shifts change. Departing nurses routinely spent 45 minutes briefing the arriving shift about the status of their patients. The procedures were unsystematic and differed from hospital to hospital, and methods used for compiling information varied from Post-it notes to numbers scrawled on hospital scrubs. Knowledge was often lost, and many patients felt the shift change created a hole in their care. What followed from these observations were the now-familiar elements of a robust design process—videotaping, brainstorming, role playing, prototyping—carried out not by professional designers from IDEO but by Kaiser’s own staff. The result was a complete change in approach. The first prototype, built in only a week, included new procedures and simple software that enabled nurses to call up previous shift-change notes and add new ones throughout their shifts. More important, patients were now part of the process and could bring up additional details important to them. Kaiser measured the impact of this change and found that the mean time between a nurse’s arriving on shift and first interacting with a patient was more than halved. The innovation also had an impact on how nurses felt about their job. In a survey, one commented: ‘I’m an hour ahead, and I’ve only been here 45 minutes.’ Another admitted: ‘This was the first time I’ve ever made it out of here at the end of my shift.’ The new procedure had an impact on patients and nurses but on its own was a long way from achieving the desired goal of a systematic improvement in the overall quality of health care at Kaiser. To achieve that, the core team of nurses, development experts, and technologists went from carrying out their own projects to acting as consultants to the rest of the organization. Through the Kaiser Permanente Innovation Consultancy, the team now pursues the mission of enhancing the patient experience, envisioning Kaiser’s ‘hospital of the future,’ and introducing innovation and design thinking across the Kaiser system.”

What Kaiser-Permanente learned was that staff autonomy improved hospital management as well as the care provided to its patients. Because the staff was not only involved but took ownership of the changes, staff members avoided the culture shock that often accompanies change. Change, however, can be good. One last example of how change can improve health care in hospitals comes from Canada [“The Ottawa Hospital’s Supply Chain Transformation,” by Steve Banker, Logistics Viewpoints, 5 October 2010]. Banker writes:

“The Ottawa Hospital has three campuses and about 1,200 inpatient beds. The hospital began a supply chain transformation in 2004, which was aided by the province of Ontario’s willingness, starting in 2005, to fund operational excellence initiatives in back office and supply chain operations. This transformation was based on a Supply Chain Strategic Plan the hospital developed to improve the efficiency of delivering Material Management services, as well as to achieve a benchmark cost profile within the industry. The strategic plan was organized around seven key initiatives aimed at reducing supply chain management costs and providing customer-focused service to support quality patient care. … In effect, the hospital wanted to get leaner by ordering and stocking only what it truly needed. This transformation could create larger opportunities for The Ottawa Hospital. There are 17 hospitals in the region and they are exploring the possibility of leveraging their total procurement spend to realize savings. Once TOH has transformed its internal processes, it will play a leading role in regional sourcing.”

Banker, in interviewing people at The Ottawa Hospital (TOH), confirmed what the McKinsey/LSE researchers concluded about the importance of size in improving hospital management. He went to describe how the supply chain worked in the hospital system and what changes were made. He continues:

“In hospitals, quality patient care is the ultimate goal. But quality care can often be achieved at a lower cost. TOH put in place a Product Evaluation Committee to ensure new products are reviewed by all interested stakeholders prior to being ordered and placed in inventory. No product can be ordered unless it is on the approved list managed through the Product Evaluation Committee. If a doctor wants a new product to be sourced, they must make their case to the committee. The committee looks at whether there are already similar SKUs available and then balances clinical need against costs. The hospital’s business case outlined a four year payback, longer than what most companies achieve when implementing supply chain programs. However, its goal was not only to reduce supply chain costs, but also to enhance patient care. This program delivers the right products, in the right quantities, to the right clinical locations. … TOH’s supply chain was interesting, but its discussion about implementing best practices was even more interesting. In preparation for this project, the hospital examined supply chain best practices in both private industry as well as leading hospitals in Europe.”

Banker reaches the same conclusion that the McKinsey/LSE researchers reached — better management practices means better health care. Better management practices also mean lower costs, which will become increasingly important in the years ahead.