One area in hospital operations that has gone largely untouched is reducing the cost of delivering safe, quality health care. This is where new thinking about workforce productivity, case management, and lean processes and policies can reduce the cost of running a hospital. Hospital leaders can transform their organizations into leaner, faster and better organizations—with sustainable improvements.

Hospital leaders often fear efforts to improve productivity will alienate staff or lessen quality. Including all stakeholders, redesigning processes and working toward national benchmarks will ensure that productivity improvements stick.

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How to Make Productivity Gains Possible and Profitable

EXPANDED COVERAGE CHANGES EVERYTHING

Mandated insurance coverage will change the game. Expanding coverage to currently uninsured people will cause an influx of new demand and revenue for hospitals. Although this sounds good for hospitals, there will be undesirable consequences.

First, the healthcare system will be challenged to meet the increased demand for services. Advocates for reform cited studies that showed that uninsured people seek care less often, and later, than people with insurance as an important social problem. Newly insured people, as experienced in Massachusetts, will flood hospitals and their EDs. The increased demand will cause government outlays to exceed budget and affordability (many of the newly insured will be paid for by government programs). Inevitably, this will lead to reimbursement reductions (a major concern at the AHA Annual Meeting in Washington last month).

A PERILOUS BALANCING ACT

Since Medicare is a break even business and Medicaid is an unprofitable business, future reimbursement reductions will make it harder to break even. Insurers, under pricing pressure and maybe government price regulation, will prevent cost shifting to them. Reform believers think that hospitals will be better off since more people will be paying customers. Others are concerned that the increase in the number of low paying customers will shift the payor mix and unfavorably alter hospital profitability. It’s not clear how hospitals will balance their books. Lowering pay to healthcare providers may balance the books, but what will it do to the supply, given that shortages already exist?

THREE STEPS TO HELP YOU PREPARE FOR THE FUTURE

Proactive hospitals need to prepare for the future – today.  Here are three areas you can act upon right now:

1. Tighter management of productivity while redesigning work processes

Productivity management and work processes are closely linked. If you improve productivity without redesigning work, other important outcomes might suffer. In addition, productivity gains are often short-lived if work processes haven’t changed. The stress of “short-staffing” results in declining productivity after the intensive focus on productivity evaporates.

2.  Throughput management

Another area receiving attention is throughput management, especially in acute care and the emergency department. More patients will be coming to emergency departments although ED capacity isn’t likely to expand. Hospitals that don’t figure out how to address throughput will have to address more complaints and patient safety problems. Similarly, hospitals will need to admit more patients but they won’t be able to increase beds or hire more nurses. Hospitals will need to manage care so patients are discharged when they no longer need hospital care. This may alter the perception of what is an unnecessary hospital stay.

3.  Readmissions prevention

Finally, hospitals are beginning to address readmissions prevention. Although there is no reimbursement for this service, new financial penalties will hurt hospitals with too many readmissions. And the rules may get tighter with time. Readmission prevention also makes more room for new patients.

Action today will smooth the path for tomorrow’s reform.

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There’s a lot of guessing about the impact of the Reform Act on hospital operations and bottom lines. A few patterns of prediction are emerging and , as in any major change, there will be winners and losers.

We’re witnessing significant commitments of investor money to hospital acquisitions, as the Detroit Medical Center and Caritas Christi announcements demonstrate and these folks don’t usually make dumb bets so they obviously think there is money to be  gained  in hospitals.

Two other trends are even more predictable for the impact of reform on hospital leaders.

The implications of these two very predictable trends are to get your house in order both in terms of compliance and through put.

First: there will be increased scrutiny as regulators seek to find and punish poor quality operations. We will see more state department of health surveys for cause and complaint response and more hospitals experiencing Immediate Jeopardy and threats of CMS termination based on same. The urgency to single out poor performers, whether accurate or not, will only grow.

Second: if the Massachusetts experience is in any way emulated as expanded coverage impacts, we’ll see a tremendous uptick in demand for care. More people covered will seek care for conditions they have ignored.

This does not mean you have to turn your entire hospital upside-down.

A more sensible approach might well be to focus on departments that are most likely to be impacted or that need improved efficiency or quality. For example, many of these “new to healthcare” patients who are unable to find an available primary care physician will likely enter the system through the ER. Is your ER efficient to handle a surge? What about the other departments that in turn are most likely to see admitted patients from ER such as surgical services or various nursing departments or increased demand on radiology or pharmacy. Working on areas where you know you have corrective issues now will prepare you to handle what seems to be a predictable outcome of reform.

It’s a familiar scene. A hospital inpatient unit chronically misses its productivity target or budget by approximately ten percent. The nurse manager for the unit repeatedly attempts to explain, but the targets remain unmet, and the financial ramifications of unnecessary hospital labor costs continue to mount.

Ingrained Attitudes Impede Improvement
In today’s hospitals, it’s not uncommon to encounter this type of defensiveness among inpatient unit managers who miss their targets. While some frustration amongst managers is understandable, the productivity losses that can accompany negative attitudes and biases pose a serious threat to hospitals’ bottom lines. So, before embarking on any hospital productivity improvement initiative, it is important to understand how misconceptions about productivity information and deep-seated biases can hinder progress.

When observing situations like the one described, we, as consultants, are not surprised to find certain attitudes and frustrations within hospital divisions like Nursing, Finance and Human Resources. Managers who think they are managing properly can begin to question the origin and validity of the data and targets contained in productivity reports and monthly financials. Likewise, nurse managers can express exasperation with relentless questioning of their productivity performance. And, attempted explanations of variances can solidify over time into institutionalized excuse-making and high hospital labor costs.

Different Perspectives Mean Different Biases
Within the Finance division, negativity regarding the motives and perhaps even the competence of unit managers who struggle with chronic productivity variances can arise. Members of hospital Finance divisions generally feel that they are supplying an abundance of valuable management information and frequently interpret productivity variances as evidence of overstaffing. In addition, those in Finance may express consternation when the request is made for a vacancy to be filled.

Similarly, members of the hospital’s Human Resources department may harbor negative misconceptions about nurse managers who have difficulty meeting their labor expense budgets. Such doubts may dampen the enthusiasm with which vacancies are recognized, posted and pursued to a speedy conclusion. Because, in general, members of hospital Finance and Human Resources divisions have little “clinical” education or background, there is a tendency for them to be inhibited about asking challenging questions that may actually illuminate the underlying causes of FTE variances and reduce hospital labor costs.

On the other hand, nursing administrators can also operate under their own set of faulty assumptions in the absence of a clear, fact-based understanding of productivity performance variance. This can lead to less time and energy spent on leadership and management development, and more emphasis on protecting managerial prerogatives. When you consider that typical hospital inpatient units are comprised of 40-45 FTEs, and their negative productivity variances can be 4-5 FTEs per unit, misconceptions and defensiveness can translate into significant, unnecessary hospital labor costs.

Positive Change from Objectivity
Constructively addressing hospital productivity means properly interpreting variance. It requires carefully examining multiple factors within the hospital as potential contributors to departures from expectations. A 4.1 FTE variance rarely means that there are four too many nurses working on a given inpatient unit, rather it is a mathematical relationship between actual and expected productivity within the hospital. Factors like overtime, incremental time, errors in scheduling, actions of the central staffing office, actions of the shift supervisor, etc. can all contribute to variances in hospital productivity measures, so it’s rarely possible to “blame” underperformance on a single factor or person.

So, when addressing hospital productivity, it is very important that analysis of data is undertaken in a neutral, objective manner, devoid of preconception or prejudice. Such efforts can help to diffuse defensive attitudes amongst hospital staff and aid members of multiple departments—like Finance, Nursing and Human Resources—in understanding the true implications of productivity data. Giving nursing managers and others the benefit of the doubt, and working to reverse negative attitudes can be crucial to the success of any hospital productivity initiative.

For more information about how to achieve improvements in hospital productivity, contact Eric Dam at 513.241.0142.

Given this information, the question for hospital executives and other healthcare leaders becomes:

How can we decrease labor costs without affecting quality, patient safety, and satisfaction?

In fact, a better question is:

How can we improve quality, patient safety, and satisfaction while decreasing labor cost?

Many times productivity and workforce management are not addressed in hospitals because clinicians fear the process of looking at these crucial elements will affect patient care negatively. But, a few techniques, if implemented successfully, can help hospitals lower costs while continuing to provide high-quality care and creating a very positive experience for everyone in the organization.

• Using a balanced scorecard or operations dashboard shows concern for protecting the interests of all stakeholders. The dashboard should measure employee metrics, patient/quality metrics, and business practices. This helps to demonstrate organizational responsibility and recognition that changing one dimension can affect others unless they are all monitored and managed simultaneously.
• Put in place a productivity system that is transparent, that everyone understands how to use, and that encourages everyone in the organization to find ways to improve processes or find waste to out-perform their benchmarks/targets.
• Often, optimizing value-add or revenue generating activities is difficult because too much time is spent on waste. Implement lean concepts.
  • 5 S’s (Sort, Straighten, Shine, Standardize, Sustain) for improved people, proficiency, and productivity
  • Identify non-value-added activities (waste or muda), and eliminate them; the seven key areas in which to look for muda are overproduction, inventory, repair/reject/defects, motion, processing, waiting, and transport.
• Address throughput issues that create inefficiencies. Throughput issues are hospital-wide problems, not just departmental problems. Inefficient or broken processes in one area of the hospital can have an impact on the ability of another department to function efficiently. The culture of the hospital must focus on the systems, not the “silos.”
• To sustain improvements, implement tools to help managers achieve and monitor their progress. Examples of tools that are helpful to managers are:
  • A staffing plan based on average workload
  • A position control of employees that matches the staffing plan
  • A flexible staffing plan for a department that has fluctuating volume
  • A daily and biweekly productivity tracking monitor

Planning for success and involving employees in changes can increase the likelihood of achieving savings through workforce management. Productivity gains come when everyone at the hospital works to be part of the solution, when there is a groundswell of support and a hospital-wide commitment to become better. Improving hospital labor productivity, while maintaining quality of patient care and employee satisfaction, is an important accomplishment. A hospital that achieves success with productivity and workforce planning, becomes a hospital that can embrace change in the future, opening it up to the potential for even greater improvements.

Cary Gutbezahl, MD

Cary Gutbezahl, MD, president of Compass Clinical Consulting, recently wrote an article published in Hospitals & Health Networks magazine on turning conflict into a positive force to create better American hospitals.

Here’s an excerpt:

Managing Hospital Conflict: Avoidance of conflict is neither healthy nor productive when the conflict is over sincere differences of opinion about solving problems. Instead, allowing team members to disagree often leads to the best solutions and the most productive work systems.

There are two types of conflict. The undesirable and too familiar type of conflict is called relationship or affective conflict, which is based in dislike and distrust. It has a strong emotional component and manifests itself in disrespectful behavior and speech, which result in nonproductive and disruptive interactions.

The other type of conflict is called task or cognitive conflict. This type of conflict originates from differences in perspective about how to perform a task. Studies show that groups that generate task conflict and manage it well perform better than do groups that have little task conflict.

The article then explains how to manage task conflict. Read the full story: The Benefits of Conflict.

Every Good Idea has Downside Implications

Medicare’s Acute Care Episode Demonstration Project (ACE) has attracted a lot of attention as a way of encouraging greater physician and hospital alignment – presumably to lower the cost of delivering healthcare.

Hospitals like the idea of ensuring that physicians share the hospital’s concerns to reduce unnecessary utilization, supply control and improving patient safety. Physicians like the idea of the potential for gainsharing. Of course, each side has concerns about control and the degree of cooperation they will face from their new partners.

Stated and Unstated Goals of ACE

That’s all well and good. But the ACE demonstration has implications beyond the stated purpose of the project. Implications that could run counter to providing better care and counter to reducing the financial impact of malpractice legal issues.

Let’s realize that Medicare’s purpose is not just to lower government costs but to place the physician and the hospital in the position of deciding what is needed to treat the patient.

On the surface, this sounds nice.

The public certainly does not want the government deciding whether a patient needs a consultation or a test. But they are giving the physician-hospital partnership the authority to make these decisions under conditions of financial influence!

How is this financial influence different from the financial influence of pharmaceutical companies and medical device manufacturers?

Reality says that financial pressures will shape decision-making, thereby taking some chances with patient welfare that might not be taken if there were no financial influence. Critics of capitation have argued that patients suffer when care is limited by financial influence on the decision-makers. Yet isn’t the government’s purpose in proposing ACE to alter decision-making by transferring financial responsibility to others?

The ACE project also has implications for patient satisfaction with both their doctor and hospital experience.

Remember that Medicare, in response to a beneficiary complaint, instituted the Important Message from Medicare process. This unfunded burden on hospitals requires that hospitals notify patients, close to the time of discharge, that the patient has a right to appeal the discharge order to the QIO if they feel they are being discharged sooner than is appropriate for the patient.

Trouble Brews When Patients Trust in Providers is Put in Doubt

Won’t the ACE payment result in an increase in the patient’s concern that their interests are being subordinated to the physician’s or the hospital’s financial interests?

How will these concerns affect the patient’s assessment of their satisfaction with the hospital?

This payment also may have an impact on the roles that physician’s play in a patient’s care. For example, some surgical specialists have gotten used to consulting hospitalists to provide non-surgical care for the patient. Will new financial constraints place pressure on surgeons to resume the former practice of assuming all care responsibility of patients?

Another intentional consequence of ACE is a reduction in the number of consultants involved in a patient’s care. On the surface, this reduces confusion and cost. But financial interests change behavior in unintended ways. Internists may reduce the frequency of referrals to subspecialists, such as cardiologists and pulmonologists. The only problem is that common sense suggests that people who specialize in cardiology have a higher level of expertise in cardiology than a general internist. Could ACE cause internists to stretch themselves beyond their expertise resulting in harm to some patients?

New malpractice liability concerns might arise from the ACE project

Tests may be conducted to identify risks that when identified, alter treatment decisions. Financial incentives are intended to influence decisions on whether the test is necessary for the patient’s care. Hospitals and physicians are likely to develop guidelines for when tests are necessary. In many cases, there is not sufficient research to inform these decisions. Yet, without guidelines, practices will vary and errors will be made. When guidelines are developed, they will probably include cost benefit analysis, which depend upon probabilistic information. As with all probabilities, sometimes a patient is the rare event. Although physicians make these judgments now, they do so without any financial incentive influencing their decision. Won’t the presence of financial incentives influence a jury trial assessing whether the physician erred in not ordering a test?

Every change has intended and unintended consequences.

The demonstration project should look for unintended consequences, as well as the intended ones. Patients are entitled to know the full effect for how such a change in the healthcare system, while seemingly benign, could well have significant impact on their lives.

Every payer is looking for ways to cut costs, and surely costs must be cut. But instituting financial incentives to care givers to favor their own income rather than delivering safe, quality healthcare to every patient needs to have plenty of professional and public scrutiny. Otherwise, the only benefactors will be the attorneys handling yet another wave of medical malpractice cases.

The unintended demons should be carefully analyzed as this demonstration project moves forward.

When an organization has a performance problem, managers seek information to identify and assess the causes of the performance failure. Similarly, an analysis of a social problem should require policy analysts to identify and assess all significant contributors to the social problem. Our public discussion on health care reform has failed to meet this expectation.

The debate about health care reform has focused on several significant issues, such as getting financial coverage for the uninsured’s medical needs, building incentives for hospitals and physicians to provide better care, and removing inefficiencies from the fragmented delivery system.

However, there is an elephant in the room that is not being discussed – personal responsibility for health. For years, studies have shown that up to 70% of disease is influenced by personal (not provider) behaviors. As such an important aspect of health care costs, this issue cannot be ignored.

Why is personal responsibility being ignored? As health care providers know, changing patient behaviors is extremely difficult. The first step is for the patient to want to make the changes and not every patient wants to change their behavior to get better. Patients who struggle with emphysema still smoke. Patients with diabetes eat cakes and candies. They choose to continue the behaviors that got them sick despite the counsel of their physicians and other health care providers. From a psychological perspective, there are many reasons why this happens. Providing better access to care is not going to change this.

Talking about the need for personal behavior change is not politically popular. When he was president, Jimmy Carter advised Americans to reduce energy consumption. This unpopular message contributed to his failed reelection bid. Admonishing people is not an effective way to build a coalition of support. Yet, the failure of individuals to adopt pro-health behaviors will cause accidents and disease that will have to be treated, at great expense, after disease or injury occurs.

The elephant has to be addressed. Can we effectively control health care costs without including individual incentives? Assigning responsibility for patient behaviors to health care providers is easier from a political standpoint. But it fails to address a known driver of health care costs. It also has the unintended potential for creating discrimination against people who struggle to control their behaviors. Providers may terminate care relationships with patients who fail to comply with medical advice. Similarly, physicians may screen patient to determine whether a new patient is likely to fail to comply with medical advice. Ultimately, these patients will wind up in emergency rooms and other venues that cannot turn patients away.

Policy makers have a public obligation to understand the complex dynamics of the health care system before they propose changes that may have adverse effects that are as undesirable as the problems within the current system. “First, do no harm” does not only apply to caring for individuals.

By Kate Fenner, RN, PhD, Chief Executive Officer, Compass Clinical Consulting

Everyone is waiting for the shoe to drop – the impact of Healthcare Reform on hospitals. The details change daily depending upon which government plan is getting attention by various Congressional committees.

No one yet knows what shape reform may take but the predictable is being prognosticated by the pundits; we will most probably be asked to do more with fewer resources. One CEO of a for-profit system acknowledged to us recently that reform is one of the issues that is robbing him of sleep. Another CEO of a prestigious academic hospital is already taking steps to be out ahead of the game with a major workforce planning and productivity process redevelopment for when the inevitable decisions are made into law.

When you know the inevitable, why wait for details?

The cost pressures will not disappear. Increased access to high-quality healthcare must be paid for by everyone – including hospital providers.

1. Increased access brings both problems and opportunities. Problems for those not ready and opportunities for those hospitals that are getting ready to turn difficulty into advantage.
2. Cost pressures on providers likewise hang like a sword over every hospital leader, with little foreseeable advantage to community and academic hospitals. Again, however, there is opportunity for the prepared.

Smart executives can begin girding their hospitals for reform, regardless of requirements. How so? By stepping back two paces, taking a dispassionate eye to evaluating the status quo and going about the business of needed change before it’s mandated.

Several changes are predictable.

First, is the necessity of absolute efficiency. This is just a restatement of the Four Rights: right people with the right skills using the right processes in the right numbers. There will be no room for bloat, redundancy, inefficiency and overstaffing. Well-managed productivity systems and processes will be critical to preparedness.

Second, will be managing patient throughput, length of stay and case management. This requires admitting only those who need to be admitted, treating efficiently/effectively and discharging in a timely manner while minimizing waste, unnecessary care and readmission. Shaving patient days for particular DRGs will translate into millions of dollars in greater efficiency.

Third, will be managing revenue cycles with a draconian eye towards effectiveness; idle money, cumbersome systems and obscure processes must be banished.

Underlying these three critical requirements is the use of benchmarks. Valid yardsticks for measuring one institution’s performance against peers are ubiquitous; courage to dispassionately apply them is needed. But one hospitals benchmarks and targets cannot be arbitrarily dropped on another hospital. Each situation is unique and both senior and mid-management must be in agreement and take responsibility for making changes to hit the targets they collectively agree to meet.

A dispassionate assessment of current organizational state is the foundation for prioritizing and then addressing the areas above. Executives frequently have a “gut feel” that an area isn’t functioning at its optimal level. Application of measurement derived from objective industry standards permits validation of that feeling and opens the door to the necessity of corrective action. Armed with realistic targets and needed process changes, leaders can bring order to the potential chaos threatening the viability of the organization.

Don’t be a sitting duck. Smart executives aren’t waiting for reform to materialize, they are preparing now by getting their organizations lean and effective in anticipation of the requirements that are inevitable, regardless of what reform regulations become law.

For more information on hospital preparation BEFORE reform hits, visit Operational Improvement.

By Cary D. Gutbezahl, MD, President, Compass Clinical Consulting:

This week, the administration of Broward General Medical Center announced that a nurse had been reusing single-use IV tubing and saline bags. This problem had gone on for years, putting patients at risk for infectious diseases. Upon learning of the problem through the compliance hotline, the hospital acted responsibly. But one can’t help but ask, “How could this happen?” More importantly, we must ask, “How could this have gone on so long?”

As we all know, sometimes things happen in hospital operations that result in patient harm. Not infrequently, the proximate cause is that one or more people are not doing what they are expected to do. Although many factors may contribute to an avoidable injury, investigations often reveal that the policy and procedures were in place, the staff was trained on and understood the policy and procedures, staffing was adequate to do the work, but people didn’t follow the policy. Upon further investigation, it is often found that this one negative event was not a unique occurrence. Rather, lots of people fail to follow the policy, this just happened to be one time when the problem was detected. So, you have to ask, “How could this happen?”

The common managerial response to such adverse events is to punish those who were caught. Executives believe that this shows leadership and sends a message to others. But does it have any lasting effect? And does it convey the right leadership message? Punishing the guilty is appropriate, but it conveys the message that bad apples are the source of problems and that getting rid of them solves those problems. In other words, it’s not the system; it’s the people. Not only is this not a humanistic management message, but it ignores the observation that many people weren’t following the policy. Furthermore, a one-time event is not likely to have a more sustained impact on behavior than the original training on the policy.

To fix the problem, executives and managers must do two things. First, you have to investigate why people aren’t doing what they know they should be doing. You have to involve people who haven’t been doing their jobs to understand their reasoning. While it may be a challenge to do this in a non-threatening way, gaining the trust of the participants is critical to developing a systematic solution to the problem. You can’t assume that the problem was due to “bad people.” People act in response to their environments, whether that means workflow interruption or cultural norms. You can’t fix the behavior if you don’t understand the source.

The second step is to fix the problem. A highly attractive, but rarely available method is to develop mechanisms that force the desired behavior to occur. These types of solutions are usually technology-driven, e.g., an alert that is only turned off after blood pressure is checked. Of course, people may find ways to circumvent such technology. People can falsify documentation so modifying documentation requirements is not foolproof.

One critical component for management, especially when implementing a corrective action, is to design and implement a management information system that monitors the desired behaviors. You can’t assume that one-time corrective actions will continue to have the desired effects. Behaviors can drift over time. You need information, and you need to be creative in thinking about how to get that information. For example, if one-time use material is being reused, one should observe unexpectedly low supply costs.

In healthcare we also have an obligation to assure the competence of our staff. People have to be evaluated not just on knowledge, but on practice. Supervisors need to work side by side with staff to observe behaviors and make sure that the staff is following the policies and procedures. If this isn’t happening, management needs to find out why.

Finally, in our work investigating adverse events, we have found episodes of mass non-compliant behavior. Undetected errors lead to patterns of errors. At one hospital, “everyone” took wheelchairs across the entrance into the MRI suite, but “this was the first time that the metal wheelchair was (violently) pulled into the magnet.” These are particularly hard issues to monitor, unless you get out and see what’s going on. MBW (or Management By Wandering around) is still a good idea – old ideas should not be discarded just because they are old. But you have to look for problems, not just socialize.

The absence of a detected problem is not evidence that policies and procedures are implemented as designed. As hospital executives and managers, you don’t want to ask, “How could this happen?” because you’ll be reading your answer in the newspaper. Instead ask yourself, “How do I know what really is happening?”

To learn more about hospital policies and patient safety, visit Executive Leadership.

In interviews conducted with senior Chief Financial Officers of hospitals it is abundantly clear that there is a fear to pursue improved productivity / Labor Cost Management. Many hospital leaders, especially in the non-profit sector of the healthcare industry, fear productivity or are otherwise reluctant to pursue a formal productivity assessment and coordinated program to improve their labor cost management.

Among the possible causes of fear and reluctance cited are:

• Productivity has a richly deserved bad reputation based on failed attempts that executives have participated in or heard about e.g. the slash-and-burn approach
• Hospital leaders are in a precarious and insecure position: high turnover, short tenure, concern about trustee, leadership, and employee reaction
• Hospital leadership often assumes that trade-offs are necessary due to potentially competing goals e.g. Decreasing labor costs will lead to decreased quality and patient satisfaction
• Hospital leaders have a concern that if an objective assessment of hospital productivity reveals significant improvement opportunities, the result will be interpreted as a failure of management
• Many hospitals have an existing productivity measurement system in place and in the absence of an objective assessment, feel that productivity has already been maximized
• In the context of a perceived nursing shortage many executives are reluctant to pressure nursing productivity for fear of losing nurses to competing hospitals
• In some highly mission-driven hospitals, an emphasis on productivity can be seen to be in conflict with concern for employee well-being

How to help alleviate the fear:

Respect for operational and strategic realities. Any productivity target should be carefully tailored to individual departments based on a thorough understanding of circumstances, strengths and challenges of the department. These circumstances can include strategic initiatives of the hospital—for instance expanding a cardiology program—that have definite consequences for a department. This core principle makes good sense to managers. The establishment of arbitrary quartile or percentile targets is generally resented or dismissed by department managers.

Fair and all-inclusive. Another guiding principle, and one that managers find to be reassuring, is that the process of establishing productivity targets should be fair and all-inclusive; that no sector or department should be left out of the process; that politics should not influence the setting of targets. While one or two individual departments may feel singled out by this principle, the vast majority of managers applaud it.

It’s not just cuts. Although expense reduction is the ultimate goal, the credibility of the standard-setting process is enhanced by the stated willingness to add to staffing whenever it is indicated.

There are also other payroll expense reductions that are not related to FTEs e.g. overtime, premium, skill mix changes.

Respect and genuine interest. Really listen to your mangers concerns about issues in their department. How could process changes assist them in meeting a reasonable target? How can you help?

Trust building. Don’t be locked into a departmental standard for life. You will build trust with managers if you are open to changing a standard as new information evolves, changes occur within the department or new insights emerge.

Support for “managing to the numbers.” Provide tools and education to managers so that you are not only giving them the objective, but also the means of reaching the objective.

To read more about hospital productivity, see Labor Cost Management.

When we are asked to help a hospital that has major financial or quality problems, we almost always find that these problems didn’t begin overnight. In fact, there was evidence of problems for many years. In retrospect, it is easy to point fingers at those individuals and boards that “missed the problem.” The more important issue is whether the problem should have been recognized at an earlier time, when the problem could have been corrected without significant damage to the organization.

Our experience says that while hospitals sometimes overlook indications of problems, more often, CEOs and boards tolerate a series of ineffective attempts at fixing the problem.

Why would that be?

One reason we have found is that there exists a limited understanding of the real nature of the problem. Many organizations don’t think through what is driving poor performance issues. The best way to gain an understand of the problem is to mix knowledge with novelty. We recommend bringing knowledgeable insiders together with “uncontaminated,” but capable participants. The insiders provide factual information about what is going on, while people who are uninvolved can ask questions to surface issues that might be overlooked by people involved in the issue every day.

Another cause of poor performance is an unwillingness or inability to figure out how to deal with the drivers creating the problem. For example, sometimes people are afraid of asking the medical staff to change. In reality, this should not be difficult if hospital leaders develop a good solution that meets everyone’s needs.
Again, this is a situation in which unbiased participants can spur innovative solutions. Non-participants can ask questions or challenge assumptions that prevent creative solutions. As an interim CMO, I have often approached problem physicians and achieved positive outcomes. I don’t think this was because we were both physicians since other physician leaders had made failed prior attempts. The source of my success was that as a newbie, I wasn’t afraid of approaching the physician, I showed respect and that I brought a fair and unbiased perspective.

Often, failed problem-solving begins when the wrong people are invited to solve the problem. Many hospital managers when faced with a problem of poor performance have a tendency to “round up the usual suspects” (apologies to the movie, Casablanca). Frequently, this means the very people who have been unable to solve the issue before are still asked to come up with a new answer. The people who are involved in long-standing or slowly simmering problems had plenty of time to fix the issue but have been unable to arrive at a durable solution. This is a case of what you don’t know can hurt you – and it calls for a new set of eyes to bring about sustainable improvement in performance.

To create solutions to persistent problems, leaders and managers need to think differently. That usually requires gathering new perspectives from people who haven’t been part of the problem.

Read more about how hospital leaders can impact hospital performance.

What Health Care Reform will certainly bring:  It’s difficult to predict the specifics of what health care reform will bring, but it is clear that it won’t be business as usual. We believe that three things will be certain results of the current public debate.

First, reimbursement changes are going to increase the importance of managing the cost of delivering services. Hospitals will need to pursue operational efficiencies with a vigor that has not been widespread. Labor costs, work processes, duplication reduction, and reducing unnecessary utilization will be critical for preserving the bottom line.

Second, coordinating care will become more important. The public debate has highlighted the lack of coordination of care providers. For example, the debate on readmissions has blamed the problem, in part, on poor follow-up after hospital discharge. Post hospitalization care is a responsibility shared among hospitals, physicians, nursing homes and home health care providers. Yet, no one seems to “own” coordinating care. Regardless of the structure of reimbursement changes, someone is going to get blamed (and penalized) for letting patients fall through the cracks. This requires rethinking the health system’s business design, from being a collection of provider assets to a unified, single provider that cares for a patient.

The third major change will be increased accountability for failure to ensure patient safety (as measured by results, not processes) and treatment plans consistent with best practices and evidence-based medicine. Oversights will not be tolerated. While much can be learned from investigating undesirable events, there will be much more emphasis on error prevention. After an event, staff may be motivated to prevent a recurrence and willing to make changes, but preventing an occurrence will require changing current practices when the staff may not appreciate the degree of risk.

Many hospitals will struggle with this cultural challenge. Case management should be an important part of achieving these goals. Many hospitals fear implementing an effective case management program because they perceive that case management is similar to insurance company authorization process. This is a misconception. Health system based case management should be built to optimize multiple care process outcomes (financial, quality, and patient experience). Case managers collaborate with other care providers; they don’t evaluate them. When operating properly, case managers are valued by patients, physicians and hospital staff. Case management can multiply the effectiveness of other initiatives. Smart hospitals are not waiting for new legislation. Their leaders see the writing on the wall and are steering their organizations to make changes now!

In our experience in case management, both in hospitals and in managed care organizations, we have found many reasons why patients are readmitted to hospitals. These include medical reasons (such as a complication or instability of the disease), patient reasons (such as lonely people who don’t want to stay at home alone or patients who don’t want to eat a low-salt diet), and post-hospital care provider issues (such as nursing homes that are short-staffed and want to send “sick” patients back to the hospital). All of these are not single solution problems. The only clear fact is that hospitals are not responsible for causing these problems.

So, how can the hospital be held responsible for all this?

Because hospitals are an easy target and other more realistic solutions are harder to implement or not politically acceptable (holding patients and their families responsible for unnecessary readmissions).

The public does not realize that Medicare, under current regulations, does not pay for long hospitalizations. In fact, the DRG payment system creates financial incentives to shorten hospitalizations and creates financial penalties to hospitals that have long hospital lengths of stay. Medicare also wants patients to go home (without home nursing care) rather than to a nursing home. Medicare is no more compassionate than any other insurer.

Medicare also requires that hospitals provide patients with a list of post-hospital care providers and expects the patients to choose. Hospitals cannot, by regulation, indicate preference to their own home care company.  Doesn’t this further complicate the degree of responsibility that a hospital can reasonably assume for rehospitalization?

If this unreasonable penalty against hospitals is implemented, Medicare should allow hospitals to refer patients to their own nursing facilities and home health care agencies. This will provide better continuity of care and enable the hospital to be a true health system responsible for providing a wider scope of services to patients in their community.

Congress: First Do No Harm

The Democrats in Congress are discussing whether to apply reconciliation procedures to passing health care redesign legislation (I would call this redesign rather than reform, since the latter term implies improvement, which is not established at this time).

Reconciliation procedures were originally created to prevent the government from shutting down over budget disagreement. They allow passage of legislation with a simple majority and prevent filibustering, which requires 60 votes to close.

Our experience as healthcare management consultants validates that the principles underlying reconciliation procedures are dangerous for organizations.

Research on conflict management shows that conflict can be beneficial for decision-making if used correctly. Conflict arises from differences in points of view. By discussing these differences in perspective, organizations can uncover hidden assumptions about a wide variety of issues, which are important considerations.

Research shows that failing to consider these types of differences results in poorer decision quality. Cutting off discussion prematurely has the same adverse effects as groupthink.

Managers can fall into the same trap as Congress by rushing an opportunity to make change.

Leaders know how hard it is to mobilize people for change. Consequently, there is a desire to seize the moment. Wise leaders use the moment to create momentum, but understand that poor preparation for change can have unanticipated and undesirable effects.

There is no substitute for planning that integrates task conflict (good conflict), and when necessary, undertakes small tests of change before widespread implementation. We have a highly visible example right before our eyes with the Massachusetts Healthcare Reform experiment. While still to early to fully assess, already we are seeing unexpected consequences that should not be ignored as we move forward with national reform.

Our political leaders are failing all of us by rushing to a pre-conceived solution and then using the reconciliation procedure to eliminate constructive conflict to arrive at a more well thought-out solution. Two tactics are being used to interfere with constructive conflict.

First, Declare an Emergency to Stop Cognitive Discussions

The first technique that people follow when they want their own way is to declare that the situation is “an emergency.” They announce that the emergency requires immediate action.

Keep in mind that an emergency is not the same thing as a need to change or reform a broken system.

Example: A person with significant coronary artery disease may need angioplasty or cardiac surgery, but the condition is not an emergency unless that person has elevated enzymes or arrhythmias. So we do more discovery and testing to arrive at the best treatment. If we do have a real cardiac emergency, medical practioners have well-tested methods for addressing the emergency.

The exact opposite is true with large-scale healthcare reform. If we concede that we are really in an emergency situation, we don’t have a well-studied roadmap for resolution.

The principle of “First, do no harm” is about not rushing into action before an action plan is well-designed. And a well-designed plan is not rushed to implementation until sufficient discussion, information-gathering, and exploration has been conducted – with people who have a range of ideas that can lead to a better, more effective implementation.

Second, Drive a Stake Deep into the Ground and Refuse to Discuss Options

The second technique to stop constructive conflict is that both sides are unwilling to see the other party’s view. Republicans refuse to agree to the legislation proposed by the Democrats.

This is a perfect example of poor conflict management.

In a successful organization, the goal of conflict management is not to force the opposition to accept the majority perspective but to encourage the opposition to explain the reasons why opposition exists.

After the reasons are identified, the organization’s leadership tries to resolve the differences of opinion (it always comes down to opinions) by discussion, seeking more data, or conducting experiments that help resolve differences of opinions.

Exploration of the conflict usually results in a better solution.

As advocates of Better American Hospitals, we want to encourage Washington to develop legislation that provides hospital managers with the ability to care for patients. We do not want to see any process put in place that will result in incomplete planning and testing before implementation.

Congress needs to act like responsible managers and ensure (not just hope) that legislative changes enhance the health care system’s ability to provide care. Do Americans deserve less than the best plan? Like good organizational leaders, in an effort to “first, do no harm”, Congress ought to ensure that a full debate on any proposed legislation occurs before any redesign legislation is passed.

In response to this type of oppositional thinking, I hope they don’t repeal “First, do no harm”.

Emergency Room diversions continue to be an issue in the news. The Washington Post, the beltway paper, recently reported on the problems associated with ER diversions in the District of Columbia and Maryland.

Diversions are when ambulances are sent to another ER because the nearest ER is too busy and does not believe they can safely provide care.

Since everyone else reported on the potential for adverse effects caused by extra travel, I thought it might be useful to understand that the hospital goes on diversion because it has determined that patient safety might be at risk if more critical patients were added to those already at the hospital.

Adding more work beyond the capacity of the ER not only jeopardizes the new patient but puts all the other patients at risk. For example, when an ER nurse has too many ER patients, there isn’t enough time to check on their status, comfort or educate them (or their families).

You might say, “Hire more nurses.” But, there may not be enough nurses available. And financially, where will the money come from when Medicare and Medicaid pay so poorly (not to mention the many uninsured patients)?

But there is another aspect of the problem that is controllable. Many hospitals do not adequately manage hospital length of stay. Many patients can be discharged or moved to another, less expensive, care provider safely and earlier. Critical care and telemetry beds are often filled with patients who don’t need those specialized services.

One hospital scrapped plans to build additional ICU beds after implementing a more effective case management/throughput management program. By managing bed utilization better, beds are made available for quicker transfer from the ER.

Other changes that would also speed ER patient care are to do more testing on patients who might need to be admitted in observation beds (non-ER) or in inpatient units instead of waiting for all the tests to be done before the patient is admitted. To make this happen, other things need to be done – but these also are within the hospital’s control.

Similarly, many times tests done in Emergency Rooms can be done for patients as outpatients. It’s a matter of coordination of care and reallocating resources.

The fact is that things can be done to admit patients to an inpatient bed faster or discharge patients from the ER faster. When these things are done the ERs can see more patients (and provide safer care), thereby reducing the need for ER diversions.

The solution is not “either/or” but “and.” We need social policies that reduce the influx of patients to the ER and we need management practices that do the best with what we have. Health care providers must do what they can, even if it’s not the total solution.

By Jim Mahon

Target Corporation ran a contest on Facebook, giving away $3 million to charities.  St. Jude’s Children’s Research Hospital was  the winner of the “Bullseye Gives” contest in which 10 charities vied for votes from the social network’s users.

St. Jude’s, founded by the late actor Danny Thomas, received  26.6% of the 291,399 votes cast and won $797,123 from Target.

In a close second place finish came The American Red Cross with 26.5 percent of the votes and $793,942 from Target.

Contests on social media are a new and growing way for charities to raise money.  The sponsor Target also achieved its goal, with more than 97,000 new fans joining the retailer’s Facebook page during the contest, and daily views of its page increased by 4,800%. A nice win-win for Target and the charities.

According to Ed Bennett who tracks hospitals using social media, 277 hospitals are now using social media to initiate public conversations and visibility for fund raising.

A graph tells a thousand words. In 1991 about 15% of medical school grads went into primary care. Then came a surge of PCPs from 1997 to 2000 when 35 to 40% of graduates set off on primary care careers. Today that number has plunged a steep drop to around 18%.

Without primary care doctors, there will not be anywhere for those who might soon be covered by some form of national health insurance to go for care. The emergency rooms will feel the pinch. Costs will go up. And, by the way, did we mention that the number of ER facilities in America is also dropping.

Source: New York Times

 Whether discussing the financial meltdown, governmental affairs or health care performance, the vogue word is TRANSPARENCY. The term is defined as the ability of “outsiders” (customers, citizens, patients) to peer into the inner workings of the subject and judge efficacy, equity, clarity and/or accountability.

 For many good reasons, healthcare has been particularly allergic to adopting transparency:

• Our necessity to maintain confidentiality
• Our fear of litigiousness
• Our aversion to bureaucracy that frequently accompanies external evaluation

These issues combine to create a culture loathe to disclosing even minimal performance data. We worry and quibble over the validity and objectivity of each proposed system of public measure.

But we need not only to overcome this aversion but to embrace the inevitable wave of open information descending upon the field. Even Zagat, the famous customer originated restaurant review system is getting into healthcare through their troubling plunge into patient ratings of physicians!

Successfully adapting to this unyielding wave of openness

A seismic shift in our culture of secrecy is required. Cultural norms that reinforce secrecy, “need to know information”, data dynasties and other barriers to open accountability for outcomes must be rooted out, evaluated and exterminated wherever possible. As in all significant organizational change, leadership must go first into the fray, or why else the term leader?

We must get comfortable with broadcasting performance dashboards to all audiences; publicizing clinical outcomes and financial results even when the results are suboptimal.

Paul Levy’s example at Beth Israel Deaconess stands as an exemplar for emulation.

Begin in small ways, but set an ambitious agenda for cultural change. Failure to do so just hastens the inevitable external inquiry, so we might as well control the process rather than to become a victim of the momentum!

The primary rule of medicine is “first, do no harm”.

Why can’t health care policy makers adopt the same principle? Otherwise, in the not too distant future, we’ll be scrambling to replace the next broken healthcare system.

While the current health care system has generated its share of problems and complaints, the Federal Government is busily working on a successor program. We applaud the focus on improving access and managing costs, but wave a yellow flag about some basic opinions that seem to be the basis of evolving healthcare reform.

As the debates roar on in Washington, considerable attention has been focused on the so-called success of Medicare and recent Massachusetts health care reform.

Government policy analysts consistently err in predicting the effects of health policy.

Did anyone in 1964 think Medicare expenditures would be as high as they are today? The fact is that decision makers failed to look forward from a factual, predictive basis. They would have realized that there would be many more beneficiaries due to longer life spans, technological advances, and greater intensity of service. Despite monopolistic price control by the Federal Government, the sheer number of Americans now receiving coverage has driven Medicare expenditures through the roof.

Two recent news reports suggest that what we are promised may not be what we get.

The first story is from Massachusetts, the state whose model for health insurance reform is touted as a model for federal reform. Just this month, the State dramatically exceeded their own predictions and incurred an increase of nearly 25% to subsidize health care insurance in the last fiscal year. It should be noted that these are not healthcare consumers who fall under the poverty definition for Medicaid eligibility. Instead, the overrun was created by an increase in the number of people who purchase State-subsidized insurance. The cause for the increase is the number of eligible people; not increases in the cost of insurance.

Playing Politics with Healthcare

Similarly, government estimates of the cost of the end-stage renal disease program were grossly underestimated. Such gross underestimates of the costs of health care programs is more common than accurate estimates. These underestimates allow politicians to build a consensus for change. But the agreements underlying the consensus are eroded due to cost overruns. When the unanticipated results occur, financial distress forces the politicians to modify the deals that initially were made to get the legislation passed. Changes include health care provider taxes, reductions in payments to physicians and hospitals, and utilization review techniques.

Payment reductions and administrative hassles lead to the second news report. Last week, the New York Times reported that Medicare enrollees are having difficulties gaining access to physicians. Studies show that an increasing number of physicians are withdrawing from Medicare because payment levels are too low and there are too many administrative hassles. Physicians are often willing to negotiate a private arrangement with the patient, but they would rather forgo business than continue to practice under Medicare’s rules.

Physicians Choosing to Quit Serving Medicare Patients

That physicians are choosing to withdraw from Medicare has important implications for policy making. First, some voices in the public debate contend that the success of Medicare should be spread to other health care consumers. While Medicare is a success in many ways, it should be recognized that it has generated many problems as well. Medicare does not pay its fare share of health care costs. Since the beginning of Medicare, expenditures have far exceeded any predictions when Medicare was approved. In response to rising expenditures, due in large part from rising demand, the government has unilaterally set lower prices. We are now seeing that this is hurting access to care.

Pay-for-Performance Sounds Good Until You See How it Increases Costs

In addition, government plans to increase “pay for performance” are not likely to reduce the “hassle factor”. In fact, recent demonstration programs noted that many physician groups reported great difficulties (and expense) in trying to comply with the program’s reporting requirements. In other words, physician reimbursement reform may result in more administrative hassles, rather than fewer. Similarly, proposals to create bundled payment for hospitals and physicians are likely to create problems from a new set of built-in financial incentives and fights over “splitting the pie”.

If the government policies reduce the willingness of physicians to see patients, we will be creating a new set of problems. This issue should not be ignored since another lesson from Massachusetts is that expanding the numbers of insured people has resulted in shortages of physicians due to higher demand.

Where’s All This Headed?

There is a joke among compensation consultants that every company is working with three incentive plans. The one they one they just implemented, the one they just replaced, and the one they are working on to replace the new program. It seems likely that the same thing may happen to health care.

If we do healthcare reform right, we can perhaps avoid being the butt of the joke.

Image: http://erlc.com 

• Saved a small community hospital over $2 million annually in labor costs
• Helped rescue a hospital from imminent loss of accreditation
• Improved throughput in operating rooms and emergency departments
• Helped improve patient safety and patient satisfaction scores
• Increased net revenue and enhanced operating margins
• Improved labor relations and recruitment and retention in key clinical areas
• Enhanced productivity throughout the hospital
• Devised and implemented long-range medical staff strategic plans
• Helped develop innovative marketing strategies and key clinical service product lines
• Assisted with recruitment and transistion of new permanent executive and departmental leaders
• Mentored and developed existing staff and junior leadership

As many as a fifth of all Medicare patients are re-admitted within a month of being discharged and a third are re-hospitalized within 90 days.

Dr. Stephen F. Jencks, a former Medicare official, authored a study which analyzed Medicare claims data on patient re-admissions. He estimated that this cost was $17 billion in 2004 alone. Many re-admissions could be prevented with better follow-up care, according to Jencks’ study  in the New England Journal of Medicine and as reported in the New York Times.

The Obama administration has already identified hospital readmissions as a source of potential cost-cutting. The president’s budget calls for $26 billion in savings from patient re-admissions over 10 years, which includes lowering payments to hospitals with high numbers of patients who are re-admitted. Such a kneejerk reaction simply penalizes hospitals for following the rules — get patients out of the hospital according to DRG rules.

More Unintended Consequences

In our opinion, a kind of reaction by government is the wrong way for an enlightened leadership to address hospital readmissions. Simply decreasing payment to hospitals with high rates is an example of not seeing the whole situation. Penalizing hospitals by reducing payment for readmitted patients will create yet more unintended consequences.

Instead, more thought should be given to helping hospital leaders solve the problem with educational and outpatient care that is reimbursed. This approach can lower readmissions without making hospitals bear the financial consequences for failed policy.

We stand solid behind the need for rapid healthcare reform, but not by going so fast that the reform comes out wrong. Penalizing providers will have repercussions that hurt patients and, in the end, increase healthcare costs. Working with providers on a comprehensive and financially supported plan to overcome a serious problem is a necessary part of successful reform.

Hospitals, like all businesses, are in a race to become much more efficient, accomplishing more with the same, or even fewer resources. Stagnant or declining hospital revenue increases motivation to eliminate activities that bring little value, or even undermine quality outcomes, delivery and service.

We face is some ways “the perfect storm” — a movie about a fishing trawler caught in a perfectly coordinated fury of nature that led after a brave fight to the sinking of the boat and the loss of the crew. The perfect storm of 2009 for healthcare is a recession so deep that it is causing consumers to reduce their seeking healthcare services, a national economic reform that is so large that virtually no one can see the whole picture, and the near certainty of some form of universal access that will in one swoop double the potential number of patients coming into a supply system that is geared for much lower numbers.

Few businesses have the complexity that hospitals must deal with on a day-to-day basis. That means simply there is no magic bullet that is going to cure hospitals as fast as the government and other payers want things fixed.

Conflicting Signals

In fact, one part of government is pushing for cost reduction while another is pushing for higher levels of certification that call for increasing some areas of cost. Yet another is pushing for universal access to the system, a noble and essential pursuit of humanity, but it is being done without concern for the supply of care … today’s medical practitioners and facilities are not equipped for massive new numbers of patients.

While some may want less spent on healthcare, this movement toward universal access demands additional providers and facilities, combined with new ways of working effectively and efficiently. There may be attempts by government to push cost by containing payments to providers, and that will almost certainly lead to unintended consequences like the brightest of future college students seeking careers outside healthcare.

Such is the box we all find ourselves in with an impending struggle between government, physicians, hospital leaders and consumers of healthcare.

Admittedly, there are ways in which hospitals can move forward in both efficiency and effectiveness. That, after all, is precisely the task that the people at Compass Clinical Consulting have dedicated themselves.

We all need to make sure that unintended consequences of reform do not tear down what is still – with all its room for improvement – the best healthcare system in the world.

We know from experience that you cannot boil the ocean. The first thing is to begin listening. Our ears must be tuned to hear problems and discontinuities, especially those that seem counterproductive to producing a better hospital. No two hospitals are alike. Practically speaking, even no two DRGs are exactly alike. So when you ferret out the distinctive qualities that make you a good hospital and those that can be improved to make you a better hospital, you have begun the process of prioritizing action.

The time for such productivity improvements is now. If we wait for the perfect storm to swallow us, it will be too late to make the changes needed.

I would suggest it is also a good time for existing hospitals to consider changes that can make them into better hospitals. Bad economic times practically force change upon us. The immediate change many CEOs make is staff reduction and that might well be necessary. But stopping with staff cutbacks is only half the solution. The other half is looking closely at total hospital operations.

Based on your hospital’s vision and business strategy for differentiating your hospital from competitors, what changes can you make to bring vitality back to the organization?

When starting a new business, the author of leanblog.org suggests getting the right people on the team is the most critical element:

“It is very likely that you’ll need 3-4 key team members, your co-founders, to help you get this thing off the ground. Each will bring his or her specialty to the venture: a boss (CEO); an idea guy (R&D, technology); a bean-counter/administrator (CFO or controller); and a chief sales rep (VP/Director Sales/Marketing). If you get the right people in place things like “who is our customer, what are we going to sell them, and how will we make it” have a way of getting figured out. That’s what talented people do.”

The same is true of hospitals. Significant, deep and meaningful change is one of the hardest tasks that hospital leaders face. There is tremendous cultural drag. There are conflicting motivations to deal with. So getting the right people on the team to lead change is your most important decision. The second is dealing with those you know from the start are going to fight change to the death. You have to win these recalcitrants over before you get too far or they will submerge the best intended of plans. They need to see the personal value of change and how they will benefit. If they don’t go along, then their tenure may be questionable. The last thing you need is a mole undermining every advance your “change team” puts forth.

Because change during a recession is stimulated by revenue / profit concerns, part of the change must be aimed at improving productivity — the positive side of eliminating waste. We know from experience that when we are brought in on as part of the “change team” we have been able to put 3 to 5% on the bottom line while strengthening the hospital’s ability to deliver its vision and business strategy.

For a hospital in Texas, we were able to identify $23 million in savings opportunities during the 14-month target-setting process and $8 million was achieved upon completion of the assignment. But this kind of performance improvement is not possible unless the CEO assembles the right internal team to look freshly at the situation and have the courage of conviction to move forward.

While health care is typically seen as the one part of the economy least affected by downturns, recent reports show the financial meltdown already is affecting health care decisions. Almost one third of patients surveyed by Kaiser Family Foundation last month said they had skipped medical treatment, up from 24 percent in April. Drugmakers like Pfizer Inc. (nyse: PFE – news - people ) also have reported fewer prescriptions are being filled compared with this time last year.

Forbes did put some numbers that confirm the reality we all live with. When a third of patients decide to defer medical treatment, the old belief that healthcare was recession-proof takes a red-hot dive. Even the insured are backing off from spending. “Whenever you say there’s a health care crisis, most Americans say, ‘Gee, it must be my neighbor, not me,’ ” says Uwe Reinhardt, an economics professor at Princeton. “That’s because most Americans are not very sick. But when they really do need several different drugs, it can very quickly be very expensive.”

Layoffs are hitting most hospitals. Typically, cutbacks are made in departments that are not delivering care to patients but in reality there’s no department in a competitive hospital with community responsibilities that is easy to whack. Marketing and public relations take a fast hit — just when their skills are most needed to communicate to the public how to make good healthcare decisions when money’s tight. Which means simply that there are no easy places to cut … what is needed is a means to make all of these people more productive.

Put that news up against an article this week in the Washington Post:

Obama aims to make a “very substantial down payment” toward universal coverage by trimming tax breaks for the wealthy and squeezing payments to insurers, hospitals, doctors and drug manufacturers, a senior administration official said Wednesday. Embedded in the budget figures are key policy changes that the administration argues would improve the quality of care and bring much-needed efficiency to a health system that costs $2.3 trillion a year.

There will be a lot of pain to spread around.

As never before, the medical profession will be challenged to find new ways of delivering effective care more efficiently. This does not have to be doom and gloom unless we choose to see an empty glass. Instead, it calls on all of us who work in and support the nation’s hospitals to become more innovative in how we deliver clinical care. Many hospital leaders well have to rethink their entire strategies — in much the same way that President Obama appears to be reshaping the nation’s priorities.

Clinical process improvement, team collaboration, communications systems, revenue cycle management — every aspect of running a better hospital needs to be reassessed and reinvented. Those of us who like tackling a big challenge are in the right business!