The Potential for Proven Analytics and Planning Tools in Healthcare Delivery

I’ve spent time in a hospital.  I was well cared for, but I didn’t like it, and I worried about the cost and how well I would be able to recover (pretty well, so far!)  Also, my daughter is a doctor (obviously takes after her mom!), so healthcare is obviously an area of high interest for me.

To say that managing a large, disaggregated system such as healthcare delivery with its multitude of individual parts, including patients, physicians, clinics, hospitals, pharmacies, rehabilitation services, home nurses, and more is a daunting task would be an understatement.

Like other service or manufacturing systems, different stakeholders have different goals, making the task even more challenging.

Patients want safe, effective care with low insurance premiums. 

Payers, usually not the patient, want low cost. 

Health care providers want improved outcomes, but also efficiency.

The Institute of Medicine has identified six quality aims for twenty-first century healthcare:  safety, effectiveness, timeliness, patient-centeredness, efficiency, and equity.  Achieving these goals in a complex system will require an holistic understanding of the needs and goals of all stakeholders and simultaneously optimizing the tradeoffs among them.

This, in turn, cannot be achieved without leveraging the tools that have been developed in other industries.  These have been well-known and are summarized in the table below.

While the bulk of the work and benefits related to these tools will lie at the organization level, such techniques can be applied directly to healthcare systems, beginning at the environmental level and working back left down to the patient, as indicated by the check marks in the table.

A few examples of specific challenges that can be addressed through systems analysis and planning solutions include the following:

1 – Optimal allocation of funding

2 – Improving patient flow through rooms and other resources

3 – Capacity management and planning

4 – Staff scheduling

5 – Forecasting, distributing and balancing inventories, both medical/surgical and pharmaceuticals

6 – Evaluation of blood supply networks

Expanding on example #5 (above), supply chain management solutions help forecast demand for services and supplies and plan to meet the demand with people, equipment and inventory.  Longer term mismatches can be minimized through sales and operations planning, while short-term challenges are addressed with inventory rebalancing, and scheduling.

Systems analysis techniques have been developed over many years and are based on a large body of knowledge.  These types of analytical approaches, while very powerful, require appropriate tools and expertise to apply them efficiently and effectively.  Many healthcare delivery organizations have invested in staff who have experience with some of these tools, including lean thinking in process design and six-sigma in supply chain management.  There are also instances where some of the techniques under “Optimizing Results” are being applied, as well as predictive modeling and artificial intelligence.  But, more remains to be done, even in the crucial, but less hyped, areas like inventory management.  Some healthcare providers may initially need to depend on resources external to their own organizations as they build their internal capabilities.

I leave you with a thought for the weekend – “Life is full of tradeoffs.  Choose wisely!”

Applying Analytics and Supply Chain Tools to Healthcare

To say that understanding and managing a large, disaggregated system such as healthcare delivery with its multitude of individual parts, including patients with various medical conditions, physicians, clinics, hospitals, pharmacies, rehabilitation services, home nurses and many more is a daunting task would be an understatement.  Like other service or manufacturing systems, different stakeholders have different performance measures.

Patients want safe, effective care with low insurance premiums. 

Payers, usually not the patient, want low cost. 

Health care providers want efficiency.

The Institute of Medicine has identified six quality aims for the twenty-first century healthcare system:  safety, effectiveness, timeliness, patient-centeredness, efficiency, and equity.  Achieving these goals in a complex system will require an holistic understanding of the needs and performance measures of all stakeholders and simultaneously optimizing the tradeoffs among them.

This, in turn, cannot be achieved without leveraging the tools that have been developed in other industries.  These are summarized in the table below.

While the bulk of the work and benefits derived from the application of these tools will lie at the organization level, these tools are well-developed concepts that can be applied directly to healthcare systems, beginning at the environmental level and working back left down to the patient, where indicated by the check marks.

Industrial engineers and operations researchers use systems analysis tools to understand how complex systems operate, how well they perform, and how they can be improved.  For example, mathematical analyses of system operations include queuing theory which can be used to understand the flow of patients through a system, the average time patients spend in a system, or bottlenecks in the system.  Discrete event simulation is another tool that can aid in a more detailed examination of system characteristics and sensitivity to inputs and changes in the system.  Economic and econometric models, based on data-driven analysis, help identify causal relationships among system variables.  Supply chain management tools help forecast demand for services and relate that demand to available resources.  Longer term mismatches can be minimized through sales and operations planning, while short-term challenges are addressed with capacity planning and scheduling.  A few examples of specific challenges that can be addressed through systems analysis tools include the following:

  1. Staff scheduling
  2. Improving patient flow through rooms and other resources and elimination of wait time and waste in work flow
  3. Capacity management in hospitals
  4. Evaluation of blood supply networks
  5. Distributing and balancing consumable supplies
  6. Ensuring the availability of medical device kits
  7. Optimal allocation of funding

Systems analysis techniques have been developed over many years and are based on a large body of knowledge.  These types of analytical approaches while very powerful, require appropriate tools and expertise in order to apply them efficiently and effectively.  Many healthcare delivery organizations are beginning to build staff who have at least some familiarity with a few of these tools, particularly Lean thinking in process design and six-sigma in supply chain management.  There also instances where some of the tools under “Optimizing Results” are being applied.  But, it is clear that much more remains to be done and many healthcare providers will initially need to depend on resources external to their own organizations in order to leverage many of these tools.

Two notes of caution as we move forward:

  1. In our efforts to consider end-to-end processes and their inherent tradeoffs, we must ensure that we do not enforce a complex structure to the detriment of disruptive innovations that will lead to more efficient and effective health care as described by Christensen et. al. in The Innovator’s Prescription.
  2. We must also take care not to base our data analysis and decision models on faulty cost data or inadequate outcome data.  In most cases, neither reimbursements nor charges reflect costs and the measurement of outcomes is significantly underdeveloped.  Some of the tools outlined above will be helpful in addressing these challenges.

Thanks again for stopping by Supply Chain Action.  I leave you with a thought from Mother Teresa, “We can do no great things – only small things with great love.”

Have a wonderful weekend!

The Opportunity in Health Care

In what industry is the potential to improve results while reducing costs the greatest? 

The title to this blog post gives the answer away, but you might ask yourself, “Seriously, could that be true?”

It’s Friday, and I’m on a plane with the September 2011 Harvard Business Review.  I have a passion for applying the principles of operations management to health care and some of us at e2e have done work in the space, but “How to Solve the Cost Crisis in Health Care,” by Harvard professors Michael Porter (If you haven’t read Competitive Advantage, you need to.) and Robert Kaplan (Think activity-based costing and Balanced Scorecard™) really lays out the contrast in the way operations are managed in healthcare as opposed to other industries.  It isn’t the first time Porter has written on the topic.  I read his 2006 HBR article, and although I always intended to read his related 2006 book (Redefining Health Care:  Creating Value-Based Competition on Results, co-authored with E.O. Teisberg), it is still on my list of books to read.  Ever since then, I have wondered how any debate on healthcare, much less any legislation or regulation could take place without guidance from Porter.  Maybe that dialog with Porter has taken place, but I don’t think you could infer that from the public dialog or the legislative and regulatory results.

If you read my piece onFinding Value in Your Value Network,” you know about the PSV Matrix and how it can help prioritize and accelerate process improvement.  That can also be useful in healthcare . . . someday, but at the moment, some of the basic building blocks for process improvement are just not there.

Kaplan and Porter argue that there health care organizations have a “complete lack of understanding” of the costs to deliver care and how to compare those costs with outcomes.

WOW!  So, good luck with legislative efforts to control costs and improve outcomes with across the board cuts to reimbursements . . . and I’m not making any comment on any particular legislation, regulation, person or political party.  But charges do not equal costs and reimbursements may equal neither.

If you don’t understand your costs, then you can’t link them to either outcomes or process improvements.  The game is over before you start.

Kaplan and Porter argue that the proper goal of health care delivery is “patient outcomes achieved per dollar expended”.  That means that both costs and outcomes must be measured at the patient level, with outcomes considering survival, ability to function, duration of care, discomfort, and complications.  But, if costs are wrong and outcomes aren’t tracked, you don’t have much hope of improving either.

They propose Time Based Activity Based Costing (TBABC) and walk through an example of how to do it.  With accurate costs and outcome data, you can forecast demand, predict the resources required to meet demand, and plan and manage capacity.  You can also standardize processes and increase quality while at the same time lowering costs.  With this kind of basic foundation, the PSV Matrix can be configured for healthcare and the principles of process improvement rigorously applied.  What’s more, health care policy can focus on fostering competition and value-based reimbursement.  “Those organizations and care-givers that deliver desired health outcomes faster and more efficiently, without unnecessary services, and with proven, simpler treatment models will not be penalized by lower revenues.”

Neither the authors, nor I, are making any political point.  This is about operations and how to improve them in healthcare.  I will say that any policy that is not informed by these insights will not have the desired outcome.

My review of the article here doesn’t do it justice, but if you work in healthcare or are interested in the topic, this article and Porter’s other work in the space is a must read.  The article in the September 2011 HBR is Reprint R1109B.  I plan to order a couple of copies for friends.

I’m still on the plane.  I’m returning from San Francisco where I had the chance to attend the IBF Supply Chain Planning and Forecasting Conference where I heard a terrific presentation by John Brown of The Coca-Cola Company on supply chain risk management.  If you are part of my LinkedIn network or follow me on Twitter, you saw or can see some of the highlights of that presentation.  I also had the opportunity to listen to other great sessions led by leaders within their respective organizations and to network with lots of supply chain professionals.  Well done, IBF.

I won’t be back home until after midnight.  No complaints.  It was my choice, but I hope your Friday wasn’t spent on a plane and that your weekend will be wonderful.

Thanks for reading.

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