Post on 10-Mar-2016
description
1
Will the Boom Bust Healthcare?
By Barry Calogero, with Anne Marie Halfmann
Executive Summary
The U.S. healthcare system is in turmoil. Wait times for service continue to mount, quality issues are
increasing, and the number of insured Americans is shrinking. On top of these trends, the first baby
boomers are reaching retirement age, which will add over 70 million Americans over the age of 65 to
the healthcare system by 2030. As a result, the current healthcare expenditures of $2 Trillion, 16% of
GDP, will double to just over $4.3 Trillion, nearly 20% of GDP, unless focused, significant actions are
taken. As these retiring baby boomers experience three times as many hospital days per thousand and
over half of these patients have at least one chronic health condition, the stress on the healthcare
system will become chronic unless changes are implemented.
Currently, there are significant impacts to cost, quality, and access, with baby boomers poised to
exacerbate this situation. The number of community hospitals in the United States decreased from
5,384 in 1990 to 4,915 in 2000. At the same time, the number of beds per 1,000 population also
declined, from 4.2 to 3.0 between 1990 and 2000. At the same time, the U.S. is in the middle of the
biggest hospital-construction boom in more than 50 years, a trend that likely will increase use of high-
tech medicine and add fuel to rising healthcare costs. In addition to the access and cost crunch, the U.S.
healthcare system is beset with significant quality challenges. Researchers estimate that roughly half of
American patients never get the most basic recommended treatments — like an aspirin after a heart
attack, for example, or antibiotics before hip surgery. The wide variation in treatments can translate to
big differences in death rates and surgical complications. In Pennsylvania alone, the mortality rate
2
during a hospital stay for heart surgery varies from zero in the best-performing hospitals to nearly 10
percent at the worst performer.
To improve this situation, three fundamental building blocks are required:
Implement Tort Reform – By removing the threat of litigation, defensive medicine and
unnecessary procedures will be eliminated. Through the implementation of Health Courts
instead, egregious behavior will still be monitored and controlled, while freeing up significant
resources. This will result in the elimination of up to $300B/year in costs.
Mandate Best Practices – Reimbursement systems pay for volume of procedures, with virtually
no correlation to quality of care. In fact, rework results in increased revenue for physicians and
hospitals. Creating industry best practices and holding doctors and hospitals to meeting
benchmark performance levels will reduce variation in healthcare, as high as 4:1 variation in
caregiving, resulting in higher quality and lower cost. For example, national cesarean birth rates
are climbing unabated and are almost 50% higher than medically necessary. These changes will
reduce the cost of healthcare between $200B to $500B/year.
Drive Systematic Process Improvement – The best performing industries in the U.S. have
eliminated waste and reduced process variation. The U.S. healthcare system is weighed down
with these issues. For example, typical nurses spend 25% of their time providing care in
patients’ room as the care giving processes inhibit nurses from providing patient care. Supply
chain costs are higher than necessary, with demand simplification and standardization
attainable to reduce costs by 10%. In addition, scheduling opportunities to increase equipment
and room utilization are abundant. Overall, these changes will eliminate between $200B to
$400B/year.
While many political initiatives are being discussed, they fail to solve the root causes of the challenges in
healthcare. Improving insurance coverage and preventative medicine are great ideas, they fail to
address the underlying causes of the cost, quality, and access challenges that exist today. Only through
freeing up critical resources, reducing process variation, and implementing process improvements can
the U.S. healthcare system cope with the coming demand from the aging baby boomer population.
3
Background
Every day that passes, another story is reported about the critical situation that exists in the U.S.
healthcare system. Significant capacity issues, manifesting in long wait times for care in Emergency
Departments, abound throughout the country. Cost increases are seemingly out of control, with the
cost of healthcare rising at a pace 2 to 3 times higher than inflation and real wages. Quality challenges,
with the U.S. ranked last out of 19 industrialized countries for preventable deaths, question the efficacy
of the system. However, this overburdened healthcare system is about to be hit with a tsunami of epic
proportions: aging Baby Boomers.
With the current process under siege, how can the U.S. healthcare system deal with the burden of
caring for the addition of this aging population? If nothing changes, healthcare threatens to swamp our
tenuous economy. Tefen USA has performed an in-depth analysis of the drivers of the current
healthcare system, along with the major contributors of escalating cost and degrading quality. While
the situation looks bleak, there is indisputable evidence that all the major stakeholders can enact
process and structural changes to allow the U.S. healthcare system regain its reputation as the most
effective model for patient care.
Current proposals set forth in the political debate have centered on increasing access to care through
universal insurance coverage, healthcare information technology implementation, increased insurance
competition, and improved preventative care. The reality is that the U.S. healthcare system still has not
undergone the fundamental shift in process excellence that competitive industries in the U.S. have
experienced. Therefore, the building blocks necessary to realize the benefits of these political initiatives
are not in place. The challenge is to make the necessary changes to the root causes of the cost, quality,
and access issues to enable the healthcare system to absorb the certain increase in demand due to the
enormous increase in elderly baby boomers.
This article serves to answer the following questions:
What are the drivers of the growing crisis in the healthcare system?
What does the future hold without change?
How will the aging baby boomer population impact the U.S. healthcare system?
How can we preserve the foundation of the U.S. healthcare system while adapting to the
economic, medical, and political realities today?
4
Pressure is Building
Our healthcare system leads the world in creating new therapies, defeating disease and curing
previously fatal illness at a record pace. Our devotion to research and natural American competiveness
serves the global community in driving our scientific commitment to disease management. At the same
time, the economic realities of the healthcare system result in the United States rating last out of
nineteen industrial countries in preventable deaths with over 100,000 unnecessary American deaths per
year.i How is this paradox possible, given the overall wealth in America?
The free market system underpins the business of healthcare. In a free market system, the forces of
supply and demand, coupled with the power of competition, regulates prices along with access. The
free market system then is regulated by the tort system to ensure that failings in the efficacy of drugs,
medical devices, and medical services are adequately penalized. However, the free market system is
only partially in play, resulting in an imbalance that cannot be corrected without structural changes.
Currently, 45 cents of every dollar of healthcare reimbursement comes from government entities. In
addition, governments control the establishment of capacity, placing another non-market restriction on
the ability of hospitals to respond to changes in the demand for healthcare. Therefore, the underlying
tenants of competition and demand management are regulated and fixed outside of the market itself.
As a result, providers of healthcare have virtually no ability to manage prices. As a result, profit margins
are negligible for most hospitals, with the average net income rates in the 2%-4% range and many urban
institutions either closing or in financial distress.
The trend in healthcare facilities demonstrates this issue. The number of community hospitals in the
United States decreased from 5,384 in 1990 to 4,915 in 2000. At the same time, the number of beds per
1,000 population also declined, from 4.2 to 3.0 between 1990 and 2000. ii While this reduction of in-
patient beds is partially related to an evolution of increasing out-patient surgery, the physical reduction
of beds is particularly troublesome in urban areas across the country. Clearly, access is being stressed
throughout the industry.
At the same time, the U.S. is in the middle of the biggest hospital-construction boom in more than 50
years, a trend that likely will increase use of high-tech medicine and add fuel to rising healthcare costs.
The hospital industry has spent almost $100 billion in inflation-adjusted dollars in the past five years on
new facilities, a 47% increase from the previous five years, with spending likely to reach a record $23.7
billion in 2005, according to the Census Bureau. Rick Wade, senior vice president of the American
Hospital Association, said that he expects the hospital-construction boom to continue until 2010.iii
Much of this investment is replacing or improving outdated physical facilities throughout the country.
5
While replacing semi-private rooms with private rooms is an industry best practice and is appreciated by
patients, the number of inpatient beds is growing at a slow pace. Therefore, while overall capacity is
being reduced, the industry is in the middle of a major infrastructure commitment that will not be
accompanied by any incremental increase in revenue. Who is going to pay for this infrastructure?
The rate of growth in the cost of healthcare is staggering. According to the National Coalition on Health
Care, $2 trillion was spent on Healthcare in 2005 ($6700 per person), which is 16% of GDP. These total
national health expenditures rose by 6.9% -- two times the rate of inflation. At the same time, 47 million
Americans are not covered by any health insurance. This number is likely to increase as costs rise
further.iv This dramatic increase, unabated, will result in more patients arriving at a healthcare facility
with no means to pay for treatment. The lack of insurance has been cited as a contributing factor in the
preventable death rate. With no insurance, patients have no access to basic medical care, prevention,
and early diagnosis of disease.
In addition to the access and cost crunch, the U.S. healthcare system is beset with significant quality
challenges. Researchers estimate that roughly half of American patients never get the most basic
recommended treatments — like an aspirin after a heart attack, for example, or antibiotics before hip
surgery. The wide variation in treatments can translate to big differences in death rates and surgical
complications. In Pennsylvania alone, the mortality rate during a hospital stay for heart surgery varies
from zero in the best-performing hospitals to nearly 10 percent at the worst performer, according to the
Pennsylvania Health Care Cost Containment Council, a state agency.v Academic medical centers vary in
how they care for patients. Patients at New York University Hospital had 76 doctor visits per person in
the last six months of life, while those at the Mayo Clinic in Rochester, Minn., had 24.vi
While the Center for Medicare Services (CMS) has adopted some rudimentary penalties for non-
compliance with basic best practices, the practice that dominates the regulation of quality practices is
the tort system. Every day, doctors, hospitals, pharmaceutical companies, and medical device firms are
sued by tort lawyers. The cost of defensive medicine is staggering: Ten percent of every dollar spent on
healthcare is attributed to the costs of liability and defensive medicine.vii Doctors routinely adopt
practices that have developed “out of fear of being sued or losing a lawsuit… 79 percent of doctors said
that there have been times when they have ordered more tests than was medically necessary.”viii The
Chief of Emergency Medicine of one of the busiest Emergency Departments in Maryland recently
estimated that 50% of all tests performed in his unit are unnecessary.ix
With a doubt, cost, quality, and access are being impacted simultaneously. So what happens when baby
boomers get added to this equation?
6
Stretched to the Breaking Point
During the years of 1946-1964, the Baby Boomer period resulted in a bubble of growth to the US
population. Today, there are an estimated 76 million baby boomers born between during these years.
Older Americans (65 and older) currently make up about 12 percent of the U.S. populationx. By 2030,
once this group retires, the number of Americans aged 65 and older will more than double to 71 million
older Americans. Older Americans will constitute roughly 20 percent of the U.S. population.xi This
growth to the senior population will have a devastating impact on the consumption of healthcare
services.
In 1999, people over the age of 65 years experienced nearly three times as many hospital days per
thousand than the general population. This ratio goes up to nearly four times for people over the age of
75.xii Acquisition of Medicare coverage increases the use of preventive services such as cholesterol
testing, mammography, prostate examinations, and medical visits dealing with arthritis.xiii Sixty-two
percent of 50-to-64-year-olds in working households reported they had at least one of six chronic
conditions, such as:
Arthritis
High cholesterol
Cancer
Diabetes
Heart Disease
Hypertension
As evidenced by the graphs in Appendix A, the use of healthcare services by the aged climbs rapidly.xiv
Paradoxically, it is the advancements in therapeutic discoveries that are helping Americans live longer,
only to result in these same Americans becoming a greater burden on the healthcare system long-term.
What does this mean from a cost standpoint? At the current pace, healthcare spending will double in 10
years, rising to over $4 trillion by 2017. This means healthcare costs will then be 20% of gross domestic
product (GDP).xv Medicare and Social Security will nearly double as a share of the economy by 2035 (7
percent of the U.S. GDP today to almost 13 percent of GDP by 2030 and to more than 15 percent of the
nation's output by 2050).xvi As these costs grow, the problem of uninsured Americans also becomes
more severe. Today, employers are aggressively working to rid themselves of the burden of retiree
healthcare coverage. At the same time, employers are reducing their contribution to healthcare
premiums, while others have begun eliminating the healthcare benefit. The growing number of
uninsured is exacerbating the gap between the cost growth and diminishing reimbursement by
hospitals.
7
As depicted in Figure 1, the slope of this growth portends potential disaster for the US economy. At this
pace, if healthcare spending continues on its same trajectory, the United States will reach the point —
probably several decades from now — where every penny of the annual increase in gross domestic
product would have to go for healthcare. There would be less and less money for other things, like
education, environmental protection, scientific research and national security, that may be equally or
more important to the well-being of society. Governmental budgets will face the crisis even sooner.
States are already complaining that they have to crimp other vital activities, like education, to meet
soaring Medicaid costs. And federal spending on Medicare and Medicaid is surging upward at rates that
will cause the deficit to soar. That means politicians will have to raise taxes, severely cut a wide range of
other governmental programs, or chop back the health programs themselves.xvii
Figure 1xviii
So what can be done to reverse this trend and make high quality healthcare affordable for all
Americans?
Restoring the Mantle of World-Class Healthcare
The US is now confronted with two fundamental choices: replace our system with a single-payer system
or make structural and process changes to the system. While the single-payer system, a.k.a., Socialized
Medicine, has some advantages from an access standpoint, there would be direct, negative impacts to
the development of new therapies. It is not possible to replace one major aspect of the current
healthcare system without unintended consequences. A system operates like a series of interconnected
-500.0
1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 4,000.0 4,500.0 5,000.0
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
US Healthcare Expenditures1993-2017
Projected with Baby Boomer Impact
8
gears – replace one and the system fundamentally may cease to function. While single-payer may seem
fairer, it does not address the cost and quality issues.
Therefore, we propose that the following changes be put in place:
Implement Tort Reforms
Mandate Use of Best Practices
Drive Systematic Process Improvement
Implement Tort Reforms
The current form of regulating quality of care through threat of lawsuit is not effective today. The
purpose of regulating quality is to identify procedural problems, make them visible, and punish the
offender so that the faulty service is not repeated again. In the current system, however, that is not the
case. Rather than exposing poor quality and driving root cause analysis, care givers hide problems and
engage in unnecessary procedures to avoid potential negative occurrences.
Industrial sectors around the world learned that, to eliminate future occurrences of quality problems, it
is necessary to make them visible and confront them. In the Toyota Production System, employees are
required to identify errors, document them, and put preventative actions in place to eliminate the
source of variation. The Toyota Production System was created by Taiichi Ohno of Toyota, perfected in
the 1970’s and subsequently applied to multiple industries around the globe. One of the basic tenets of
the system is a relentless focus on the elimination of waste. Every occurrence of quality variation and
waste must be confronted, analyzed, and the source of the waste or variation eliminated through
improved process design. This system has resulted in enormous improvements in productivity in many
industries and the rise of Toyota as the global leader in high quality automobiles.
This is not the case in healthcare. If a care giver documents a mistake, they are immediately exposed to
litigation. Obfuscation and secrecy become the standard practice when confronted with errors.
Therefore, rather than making quality issues visible, knowledge is suppressed and mistakes will
invariably be replicated. Not only is learning suppressed within one healthcare institutions, other
hospitals do not benefit from the learning from other hospitals.
Since the tort system is not improving quality, it is only serving to provide monetary rewards for
plaintiff’s attorneys and the patients who experienced this quality variation. In 2004, tort costs totaled
$28.7B with no correlation to improved quality. While these awards have succeeded in providing Tort
9
Attorneys with a lucrative living and victims of mistakes with some cash rewards, they have not made
healthcare safer. A much more effective mechanism for overseeing quality is the use of Health Courts.
They would be made up of peer reviews and independent analysis of procedural errors. Damages would
be reasonable to the mistake and would differentiate between human error and negligence.
What is proposed in Health Courts: A Better Approach to Malpractice Reform, is a new system with
trained judges who have expertise in healthcare. These judges would rely on neutral outside experts to
help them make decisions about the standard of care in malpractice cases. Noneconomic damages
would be awarded in accordance with a schedule of benefits that would provide for predetermined
amounts for specific types of injuries.
The concept of having particular disputes resolved in special courts is not new. Special courts exist today
for workers' compensation, tax and patent disputes, vaccine liability, and in other areas where complex
subject matter demands special expertise for dispute resolution. In addition, mental health courts have
been established to improve the response of the criminal justice system to people with mental illness.
The critical issue in most medical malpractice cases is whether or not the doctor complied with the
appropriate standard of care. Juries make these decisions in our existing system, even though they
generally are poorly equipped for this responsibility since trial judges have little or no health care
expertise to instruct them in their deliberations. As a consequence, it is hardly surprising that jurors
often reach different decisions based on similar fact patterns. The unreliability of justice that this creates
puts providers in the difficult position of not knowing what it will take to avoid a lawsuit.
In a health court system, judges would make rulings about the standard of care as a matter of law. Of
course, determining the standard of care can be a complex undertaking, given that there may be several
reasonable courses of treatment in a particular circumstance. To help health court judges reach
consistent decisions from case to case, judges would consider clinical practice guidelines based on
evidence-based practice standards.xix
The key advantage is, without the encumbrances of expensive lawsuits, the cost of insurance, lawsuits,
and defensive medicine could be minimized. Using conservative data, we have estimated that we could
eliminate 15% of the total cost of healthcare today. At the same time, a reporting system would be put
into place to make quality issues visible so they could be eliminated in the future. Therefore, based on
2005 spending data, this change would eliminate up to $300B of the cost of healthcare, while
simultaneously improving the quality of care delivered.
10
Mandate Use of Best Practices
As previously noted, a significant percentage of healthcare costs are paid for at fixed prices by a
government entity. Many have suggested increased competition and access to pricing information will
serve to support free market pressures, resulting in patient choice using cost as a major criteria. These
forces would, theoretically, align all healthcare providers to provide comparable care at better prices.
However, these theories are completely divergent from the reality of patient choice and practice
utilization today.
Today, insurance companies negotiate prices with doctors and hospitals, resulting in a uniformity of
pricing across the industry. Governmental prices serve as a benchmark and keep prices fairly consistent.
Therefore, a physician and hospital can only optimize revenue through increasing the utilization of
procedures. Typical medical reimbursement system in this country-doctors and hospitals are paid
mainly for delivering more care — not necessarily better care. Under the typical system, missing an
antibiotic or giving poor instructions when a patient is released from the hospital results in a perverse
reward: the chance to bill the patient again if more treatment is necessary. As a result, doctors and
hospitals have little incentive to ensure they consistently provide the treatments that medical research
has shown to produce the best results. xx
The reimbursement system also results in widely divergent results on a regional basis in the US. If all
hospitals were as efficient as the best low-cost areas, researchers say, spending on hospitals and
physicians could fall by about 30% a year. Pioneering studies by researchers at Dartmouth have shown
enormous disparities in expenditures on healthcare from one region to another with no discernible
difference in health outcomes. Doctors in high-cost areas use hospitals, costly technology and platoons
of consulting physicians a lot more often than doctors in low-cost areas, yet their patients, on average,
fare no better. There are hints that they may even do worse because they pick up infections in the
hospital and because having a horde of doctors can mean no one is in charge. Prices charged by
hospitals are just a small part of total spending: Chronically ill patients in high-spending areas get more
physician visits, hospitalizations and diagnostic tests, driving up spending. Even so, patients in high-
spending areas have slightly shorter life spans and are less satisfied with their care.xxi "The problem is
waste and over-use in high-rate states, regions and hospitals — not under-use and healthcare rationing
in low-rate areas and institutions.xxii
Therefore, creating more insight to what a hospital’s commercial list prices are for a procedure is
meaningless. Patients with insurance are not paying these prices and the uninsured generally are
getting services for free using whatever government or hospital subsidies are available. Patients do not
11
make decisions on price for this reason. Competition is not an effective mechanism for regulating prices
in industries with substantial price controls.
However, what is effective is to define a series of quality and access standards and holding caregivers
accountable for delivering healthcare using best known practices and protocols. Tefen USA has
conducted extensive studies and found dramatic variation among physicians within the same hospital,
with even greater variation between institutions. When we evaluated a number of factors in Emergency
Departments, including ancillary service utilization, length of stay, billing practices, and treatment
patterns, we found a variation of up to 4:1 between individual physicians (See Figure 2). Since all
physicians had a large patient population to normalize for acuity between patient groups, these results
were startling. Similar patterns exist in many specialties, e.g., Obstetrics, where length of stay, cesarean
delivery rate, and induction rate vary drastically.
Figure 2xxiii
These variations in practices are the result of allowing each physician to determine what he/she feels is
medically necessary. As with any population, there is a normal distribution of skills and capabilities
between individual physicians. The variation that we found is actually predictable. It is not because
physicians are not interested in providing the best possible care that these conditions exist. It is because
the art of medical care encourages variation.
It is important to begin to change this approach. Professional organizations, including American College
of Emergency Physicians (ACEP) and American College of Obstetrics and Gynecology (ACOG), have the
ability to define standard protocols and metrics for performance. Hospitals and doctors can then have
Average Duration (min), In Room to Departure
5/1/06 to 8/30/06
Providers with > 500 Visits
0
100
200
300
400
500
600
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
490 min.
302 min.
Physicians PA NP
95 min.
Practice Pattern Variation
Exam Duration for Abdominal Strain Patients
>500 Patients/Physician
12
revenue & compensation tied to achieving these metrics. With potential rewards and penalties for
improving practice patterns, tied to medical outcomes, it is viable for insurance companies to change
their role in ensuring more consistent medical practices and outcomes. Women or physicians who elect
a cesarean birth because it is more convenient would find this practice a thing of the past. From an
industry standpoint, this result is advantageous.
The evidence is clear that the use of best practices holds great promise. Aetna said its billing records
showed that 77 percent of colonoscopy patients in the New York metropolitan area were receiving an
anesthetic, compared with 10 percent or less in other regions. No data has surfaced linking such regional
practice differences to better outcomes. All three major medical associations for specialists who
perform colonoscopies have published guidance statements saying the anesthetic was not needed for
routine proceduresxxiv, yet there exists no mechanism to support compliance with broad-based
guidance.
In institutions with strong medical leadership, it is possible to gain a glimpse of what is possible. The
least-expensive hospital in the nation's least-expensive state was the 25-bed Cassia Regional Medical
Center in rural Burley, Idaho, owned by Intermountain Health Care. Ken Harman, CEO at Cassia, credits it
to his medical staff and paying attention to the latest evidence on what treatments work and what may
be unnecessary care.xxv
The evidence from many other businesses, from automotive companies to financial services firms, is
that variation reduction can have massive impacts. GE’s Six Sigma program, widely heralded as a major
force in improving the firm’s products and services, is an excellent model for consideration in
healthcare. We estimate that the use of best practices in healthcare can result in a reduction in
healthcare spending of between 10% - 25%, an overall major improvement in quality, with a dramatic
reduction to the preventable death rate. These savings, estimated at between $200 billion to $500
billion, will be enabled by tort reform and the transformation of the role of insurance companies.
Likewise, it will require physicians to work together in teams to implement these changes in their
institutions and their practices. While some will argue this means acceding control, the result is quite
the opposite. When doctors take away decisions about the norm, they can focus more attention on the
exceptions, knowing they are always using the best medical procedures possible.
Drive Systematic Process Improvement
The best way to describe the state of care giving in the US is that it functions similarly to the way
artisans or craftsmen perform their art. While there are similarities in style and substance from one
piece of art to the next, they essentially treat each project uniquely. The same is true in healthcare.
13
Each patient receives specifically tailored care, with widely different methods for treating the same
symptoms. The care giving process is highly variable with an enormous amount of waste built in. This
waste manifests itself in excessive wait times for patients, extended length of stay, inefficient use of
nurse capacity, and high supply cost.
The combination of an increase in older Americans, coupled with an increase in capacity utilization, has
resulted in the built-in waste in healthcare becoming untenable any longer. Cost pressures, combined
with nursing shortages, are placing severe strain on the system. According to a report released by the
American Hospital Association in April 2006, U.S. hospitals need approximately 118,000 RNs to fill vacant
positions nationwide. This translates into a national RN vacancy rate of 8.5%.xxvi Based on finding from
the Nursing Management Aging Workforce Survey released in July 2006, it is estimated that the U.S.
shortage of registered nurses (RNs) will increase to 340,000 by the year 2020.
When compared to other industries in the US, healthcare remains as the single largest sub optimized
industry in the US economy today. Tefen USA has found rampant opportunities to transform processes
from serial to parallel, eliminating wait times, while at the same time eliminating unnecessary activities
in the care giving process. A recent study performed by Tefen USA on nurse time found that roughly
25% of a nurse’s time at a major academic medical center was actually care giving in a patient’s room.
The rest of the time was consumed with paperwork, ordering/gathering supplies, consulting with others,
and motion. While nurse shortages abound, the current processes in place are taking nurses away from
patients rather than placing them in a patient’s room. If wasteful processes could be optimized and
value-added time increased for nurses, the gap anticipated by the shortage of nurses would be much
smaller and manageable by the industry. Otherwise, draconian measures would need to be
implemented, including significantly higher pay to attract new nurses or reductions in care levels for
patients.
Analysis of operational processes has shown that great opportunities exist to change this paradigm. By
removing redundant tasks, streamlining communication and reporting processes, and eliminating supply
management tasks, we have demonstrated the ability to more than double the time nurses spend in
care giving, with the attendant improvements in quality of care. We see these same opportunities in
ancillary services, e.g., labs, radiology, and pharmacy, to increase the productivity of the staff and
improve utilization of equipment. Typically, a laboratory is able to increase the number of tests
performed by at least 20%, often with fewer resources.
14
Supply chains have shown to be rich areas for eliminating waste. Strategic sourcing has saved many
hospitals 10% on their annual spend. In addition, formularies, substitution, and standardization have
proven to eliminate unnecessary, duplicate, and expensive supplies. These help to reduce obsolescence
and significant inventory reductions. Also, implementation of a visual card/bin system, aka, a Kanban
system for material management where material replenishment is done without nurse ordering, has
eliminated clinical personnel from supply ordering, while improving the validity and availability of
material. All of these have made major improvements in procedures and patient care, while freeing up
critical clinical resources.
Scheduling is another area teeming in opportunity in healthcare. In Surgical Suites, the standard
practice has been Block Scheduling of OR time for groups or individual physicians. Unfortunately, when
physicians do not utilize this time, valuable surgical capacity goes unused while surgical support staff sits
idle. We have now reached the point where new demand-based scheduling methods are necessary to
gain better use of this valuable capacity. This not only improves utilization of scarce resources, but it
also affords hospitals to smooth out variation in patient census to improve consistency of care and
people management. The cost to add a new operating room is roughly $1.5M, which is a percentage of
the overall cost to staff and operate a surgical suite. Leveraging existing capacity better will be crucial to
support the surge of Baby Boomers and free up critical capital to develop the facilities necessary to meet
the needs of the growing aging population.
Lastly, resource scheduling practices in healthcare are just not effective. Twelve hour shifts for nurses
and some support personnel, which may be convenient for some, are not closely aligned enough to
patient demand patterns. In hospitals where we plot demand patterns, Tefen USA has seen a wide
discrepancy between patient arrival patterns and nurse staffing by time of day and day of week. We
have demonstrated a reduction of nurse hours required between 8% - 20%. This reduction is generally
realized by reduction of overtime and better utilization of existing nurse staff. As we cope with a nurse
shortage, this technique will be critical for providing high quality care for patients.
If all hospitals across the US were to undergo an intense focus on Operations Excellence, the cost
benefits would reach a range of 10%-15% of the total cost of healthcare, or $200B to $400B per year.
While it would take several years to realize this total benefit, the improvements in quality and access
would result in the elimination of thousands of hours of patient wait times with improved clinical
outcomes.
15
Summary
The US healthcare system is beset with significant structural and process challenges. With the onslaught
of Baby Boomers, there is a high probability that the system will break under the weight of this
challenge. Since the cost of providing healthcare for an older American is three to five times greater
than the cost for someone younger than 65,xxvii there is a moral, social, and economic imperative to
transform the healthcare system. As depicted in Figure 3, it is possible to maintain the core components
of the system while making it an efficient and effective delivery mechanism. Ultimately, the healthcare
system can be robust and healthy – eliminating up to 50% of wasted resources. With the slope of the
line returned to the level of economic growth, the US economy can absorb and support the healthcare
system and reap the benefits of improved quality and access.
Figure 3
Many proposals exist to modify healthcare in the US. They range from universal access to insurance
coverage, implementing healthcare Information Technology, and increasing competition to drive down
costs. While they may be politically correct or popular, they fail to address the causes of the problems
in the system. Giving insurance coverage to an overtaxed system does nothing to improve the function
of the system. Automating inefficient processes results in an inefficient automated process. And
competition only works in a free market system, not a government regulated system.
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
5,000.0
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
US Healthcare Expenditures1993-2017
Projected "As Is"
16
The measures proposed herein will take significant change management and stakeholder support to
implement. Changes of this magnitude will face enormous resistance. Those who stand to lose will use
fear and intimidation to attempt to defeat these modifications. However, the alternative to these
measures will result in an increase in sentinel events, a continued degradation in the quality of care for
the poor in this country that will begin to migrate upwards in the economic stratus of the country. It is a
solid public policy approach to making sure all Americans have insurance coverage to improve access to
preventative care.
Providing universal insurance coverage is important; providing universal, cost effective high quality of
care is an imperative.
17
Appendix A
Medical Procedures on Patients and the Impact of Aging
18
19
i Measuring the Health of Nations: Updating an Earlier Analysis conducted by the London School of Hygiene and Tropical Medicine, 2007. ii Holton , Lisa. “Hospital expansion trend brings challenges, opportunities”. ACP Hospitalist. March 2007
iii “USA Today Examines Recent U.S. Hospital Construction Boom”. Medical News Today. 4 January 2006
iv “Health Insurance Cost.” The National Coalition on Health Care
v Francis, David. “Healthcare Costs are Up. Here are the Culprits.” The Christian Science Monitor. 15 December
2004. vi Appleby, Julie. “Spending on health care varies widely by state, hospitals.” USA Today. 16 May 2006.
vii “Healthcare Under Attack.” sickoflawsuits.org.
viii “Are Frivolous Lawsuits Driving Up Healthcare Costs?” About.com. 22 November 2003.
ix Interview by Barry Calogero, President Tefen USA, 24 September 2007.
x “Baby Boomers: Will We Treat Future Generations Fairly?” e Max Health.
xi “The State of Aging and Health in America 2007 Report.” Department of Health and Human Services-Centers for
Disease Control and Prevention. xii
“USA Today Examines Recent U.S. Hospital Construction Boom”. Medical News Today. 4 January 2006. xiii
“Growing Older in America-The Health and Retirement Study” National Institute on Aging, National Institutes of Health-U.S. Department of Health and Human Services. xiv
Collins, Sara, Ph.D., Davis, Karen, Ph.D, Schoen, Cathy, M.S., Doty, Michelle M. Ph.D., and Kriss, Jennifer L. “Health Coverage for Aging Baby Boomers: Findings from The Commonwealth Fund Survey of Older Adults”. The Commonwealth Fund. 20 January 2006. xv
“Health Insurance Cost.” The National Coalition on Health Care. xvi
“Baby Boomers: Will We Treat Future Generations Fairly?” e Max Health. xvii
Editorial. “The High Cost of Health Care.” The New York Times. 25 November 2007. xviii
U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, “National Health Expenditure Projections 2007-2017,” February 2007. xix
Health Courts: A Better Approach to Malpractice Reform, Paul Barringer, BNA Health Law Reporter, June 23, 2005. BNA's Health Law Reporter, Vol. 14, No. 25 (June 23, 2005). xx
Francis, David. “Healthcare Costs are Up. Here are the Culprits.” The Christian Science Monitor. 15 December 2004. xxi
Editorial. “The High Cost of Health Care.” The New York Times. 25 November 2007. xxii
Appleby, Julie. “Spending on health care varies widely by state, hospitals.” USA Today. 16 May 2006. xxiii
Tefen Emergency Department Diagnostic, Boston, MA 2007 xxiv
Feder, Barnaby J. “Aetna to End Payment for a Drug in Colonoscopies.” The New York Times. 28 December 2007. xxv
Appleby, Julie. “Spending on health care varies widely by state, hospitals.” USA Today. 16 May 2006. xxvi
“Nursing Shortage.” American Association of Colleges of Nursing. October 2007. xxvii
“The State of Aging and Health in America 2007 Report.” Department of Health and Human Services-Centers for Disease Control and Prevention.
20