WU Requirements for High Reliability In Healthcare Discussion

programs, techniques, and tools for reducing costs and improving quality. It not only covers the basics of operations management, but also explains how operations and process improvement relate to contemporary healthcare trends such as evidence-based medicine and pay-for-performance. The book’s practical approach includes real-world examples to illustrate concepts. Included CD-ROM The book explains and demonstrates the use of various software tools associated with problem solving and decision making, including Microsoft Excel and Project. A version of Arena software is included in order to practice process modeling. Arena is a powerful simulation tool used by healthcare organizations to optimize patient flow, develop scheduling systems, and improve patient-care processes. Companion Website Visit ache.org/books/OpsManagement to access an extensive companion website that features various Excel templates, Arena models, tutorials, exercises, and PowerPoint presentations for each chapter. Daniel McLaughlin, MHA, is director of the Center for Business Excellence in the Opus College of Business at the University of St. Thomas, Minneapolis, MN. Previously,€he was the executive director of the National Institute of Health Policy at the University of St. Thomas, the CEO of Hennepin County Medical Center, and the director of a county health system. Julie M. Hays, PhD, MBA, recently deceased, was an associate professor in the Opus College of Business at the University of St. Thomas. She was the 1998 recipient of the Juran Fellowship awarded by the Juran Center for Leadership in Quality at the University of Minnesota. Healthcare Operations MaNagement T his book is about operations management and the strategic implementation of CD-ROM Inside Healthcare Operations Management McLaughlin/ Hays Order No: 2102 Daniel B. McLaughlin Julie M. Hays HEALTHCARE OPERATIONS MANAGEMENT Association of University Programs in Health Administration Health Administration Press Editorial Board for Graduate Studies Sandra Potthoff, Ph.D., Chair University of Minnesota Simone Cummings, Ph.D. Washington University Sherril B. Gelmon, Dr.P.H., FACHE Portland State University Thomas E. Getzen, Ph.D. Temple University Barry Greene, Ph.D. University of Iowa Richard S. Kurz, Ph.D. St. Louis University Sarah B. Laditka, Ph.D. University of South Carolina Tim McBride, Ph.D. St. Louis University Stephen S. Mick, Ph.D. Virginia Commonwealth University Michael A. Morrisey, Ph.D. University of Alabama–Birmingham Dawn Oetjen, Ph.D. University of Central Florida Peter C. Olden, Ph.D. University of Scranton Lydia M. Reed AUPHA Sharon B. Schweikhart, Ph.D. The Ohio State University Nancy H. Shanks, Ph.D. Metropolitan State College of Denver HEALTHCARE OPERATIONS MANAGEMENT Daniel B. McLaughlin Julie M. Hays Health Administration Press, Chicago AUPHA Press, Washington, DC Your board, staff, or clients may also benefit from this book’s insight. For more information on quantity discounts, contact the Health Administration Press Marketing Manager at (312) 424-9470. This publication is intended to provide accurate and authoritative information in regard to the subject matter covered. It is sold, or otherwise provided, with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. The statements and opinions contained in this book are strictly those of the author(s) and do not represent the official positions of the American College of Healthcare Executives, of the Foundation of the American College of Healthcare Executives, or of the Association of University Programs in Health Administration. Copyright © 2008 by the Foundation of the American College of Healthcare Executives. Printed in the United States of America. All rights reserved. This book or parts thereof may not be reproduced in any form without written permission of the publisher. 12 11 10 09 08 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data McLaughlin, Daniel B., 1945Healthcare operations management / Daniel B. McLaughlin, Julie M. Hays. p. ; cm. Includes bibliographical references and index. ISBN-13: 978-1-56793-288-1 (alk. paper) ISBN-10: 1-56793-288-6 (alk. paper) 1. Medical care—Quality control. 2. Health services administration—Quality control. 3. Organizational effectiveness. 4. Total quality management. I. Hays, Julie M., 1954- II. Title. [DNLM: 1. Quality Assurance, Health Care—organization & administration. 2. Decision Support Techniques. 3. Efficiency, Organizational—standards. 4. Total Quality Management—methods. W 84.1 M4785h 2008] RA399.A1M374 2008 362.1068—dc22 2007036070 The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library ™ Materials, ANSI Z39.48-1984. Acquisitions editor: Janet Davis; Project manager: Ed Avis; Cover designer: Chris Underdown. Health Administration Press A division of the Foundation of the American College of Healthcare Executives One North Franklin Street, Suite 1700 Chicago, IL 60606 (312) 424-2800 Association of University Programs in Health Administration 2000 14th Street North Suite 780 Arlington, VA 22201 (703) 894-0940 To my wife, Sharon, and daughters, Kelly and Katie, for their love and support throughout my career. Dan McLaughlin To my family, Kevin, Jessica, Jake, and Abby, for their constant understanding and support. Julie Hays • • • During the final stages of the completion of this book, Julie Hays unexpectedly died. As Dr. Christopher Puto, Dean of the Opus College of Business at the University of St. Thomas, said, “Julie cared deeply about students and their learning experience, and she was an accomplished scholar who was well-respected by her peers.” This book is a final tribute to Julie’s accomplished career and is dedicated to her legacy. ACKNOWLEDGMENTS A number of people contributed to this work. Dan McLaughlin would like to thank his many colleagues at the University of St. Thomas Opus College of Business. Specifically, Dr. Ernest Owens provided guidance on the project management chapter and Dr. Michael Sheppeck assisted on the human resources implications of operations improvement. Former U.S. Senator Dave Durenberger, of the National Institute of Health Policy, provided an impetus for this book, as he strongly feels that system change in U.S. healthcare must come from within—this is what much of this book is about. The outstanding professionals at Hennepin County Medical Center in Minneapolis, Minnesota, also provided much of the practical and realistic examples in this book. Finally, Dan McLaughlin would like to thank Professor Vernon Weckwerth of the University of Minnesota, who inspired the author early in his career to be numerate in his management but also careful “not to focus on counting wing flaps if the bird can’t fly.” Julie Hays would like to thank her many colleagues at the University of St. Thomas Opus College of Business, especially Dr. Thomas Ressler, who greatly influenced the statistics review chapter of this text. The authors would also like to thank Rockwell Automation for permission to use Arena and for support of its application in healthcare. The reviewers were particularly helpful with edits, comments, and suggestions for additions. Janet Davis, acquisitions editor at Health Administration Press, was invaluable in guiding the authors through the complex process of publishing in today’s multimedia world. BRIEF CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Part I 1 Introduction to Healthcare Operations . . . . . . . . . . . . . . . . . . . . . 1 The Challenge and the Opportunity . . . . . . . . . . . . . . . . . . . . . . . . 2 2 History of Performance Improvement . . . . . . . . . . . . . . . . . . . . . . 18 3 Evidence-Based Medicine and Pay-for-Performance . . . . . . . . . . . . 50 Part II Setting Goals and Executing Strategy . . . . . . . . . . . . . . . . . . . . 69 4 Strategy and the Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . 70 5 Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Part III Performance Improvement Tools, Techniques, and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 6 Tools for Problem Solving and Decision Making . . . . . . . . . . . . . 138 7 Using Data and Statistical Tools for Operations Improvement . . . . . 170 8 Quality Management: Focus on Six Sigma . . . . . . . . . . . . . . . . . . 226 9 The Lean Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 10 Simulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 Part IV Applications to Contemporary Healthcare Operations Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 11 Process Improvement and Patient Flow . . . . . . . . . . . . . . . . . . . . 312 12 Scheduling and Capacity Management . . . . . . . . . . . . . . . . . . . . . 342 13 Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 ix x Contents Part V Putting It All Together for Operational Excellence . . . . . . . . . . 399 14 Holding the Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 DETAILED CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Part I 1 Introduction to Healthcare Operations . . . . . . . . . . . . . . . . . . . . . 1 The Challenge and the Opportunity . . . . . . . . . . . . . . . . . . . . . . . . 2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Purpose of this Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 The Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 A Systems Look at Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 An Integrating Framework for Operations Management in Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2 History of Performance Improvement . . . . . . . . . . . . . . . . . . . . . . 18 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge-Based Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . History of Scientific Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service Typologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 20 20 21 22 24 29 41 43 44 46 46 Evidence-Based Medicine and Pay-for-Performance . . . . . . . . . . . . 50 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evidence-Based Medicine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tools to Expand the Use of EBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vincent Valley Hospital and Health System and P4P . . . . . . . . . . . . . . . . 52 53 54 58 64 xi xii Detailed Contents Using EBM and Public Reporting to Advance Health Policy: A Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II 65 66 67 67 Setting Goals and Executing Strategy . . . . . . . . . . . . . . . . . . . . 69 4 Strategy and the Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . 70 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moving Strategy to Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Balanced Scorecard in Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . Linking Balanced Scorecard Measures to Strategy . . . . . . . . . . . . . . . . . . Implementation of the Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study: Saint Mary’s Duluth Clinic . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 72 72 73 77 87 91 95 95 96 96 98 99 Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Definition of a Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Project Selection and Chartering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Project Scope and Work Breakdown . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Project Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Quality Management, Procurement, the Project Management Office, and Project Closure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126 The Project Manager and Project Team . . . . . . . . . . . . . . . . . . . . . . . . 129 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Part III Performance Improvement Tools, Techniques, and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 6 Tools for Problem Solving and Decision Making . . . . . . . . . . . . . 138 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Decision-Making Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Detailed Contents Mapping Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Problem Identification Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Analytical Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implementation: Force Field Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 144 149 157 165 167 167 168 168 Using Data and Statistical Tools for Operations Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Graphic Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mathematic Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Probability and Probability Distributions . . . . . . . . . . . . . . . . . . . . . . . . Confidence Intervals and Hypothesis Testing . . . . . . . . . . . . . . . . . . . . Simple Linear Regression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiple Regression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 174 175 178 183 186 201 210 218 219 220 222 222 224 8 Quality Management: Focus on Six Sigma . . . . . . . . . . . . . . . . . . 226 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defining Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quality Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Quality Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Riverview Clinic Six Sigma Generic Drug Project . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 229 229 230 231 234 245 250 253 255 255 257 9 The Lean Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is Lean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kaizen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value Stream Mapping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measures and Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 263 263 264 265 266 267 279 xiii xiv Detailed Contents Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 10 Simulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Uses of Simulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Simulation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monte Carlo Simulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discrete Event Simulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV 284 285 286 287 288 295 308 308 309 310 Applications to Contemporary Healthcare Operations Issues . . 311 11 Process Improvement and Patient Flow . . . . . . . . . . . . . . . . . . . . 312 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Problem Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Process Improvement Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Process Improvement in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recommended Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 315 316 318 325 339 340 340 340 341 12 Scheduling and Capacity Management . . . . . . . . . . . . . . . . . . . . . 342 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staff Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Job/Operation Scheduling and Sequencing Rules . . . . . . . . . . . . . . . . . Patient Appointment Scheduling Models . . . . . . . . . . . . . . . . . . . . . . . Advanced Access Patient Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 344 346 350 352 356 366 366 367 369 13 Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 Operations Management in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tracking and Managing Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 374 375 375 Detailed Contents Demand Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Order Amount and Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procurement and Vendor Relationship Management . . . . . . . . . . . . . . . Strategic View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part V 378 383 391 392 393 394 394 395 396 Putting It All Together for Operational Excellence . . . . . . . . . . 399 14 Holding the Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Human Resource Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managerial Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Which Tools to Use: A General Algorithm . . . . . . . . . . . . . . . . . . . . . . Operational Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VVH Strives for Operational Excellence . . . . . . . . . . . . . . . . . . . . . . . . The Healthcare Organization of the Future . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study: VVH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 403 404 406 408 415 416 418 419 419 419 420 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 xv PREFACE T his book is intended to help healthcare professionals meet the challenges and take advantage of the opportunities found in healthcare today. We believe that the answers to many of the dilemmas faced by the healthcare system, such as increasing costs, decreasing profitability, inadequate access, and poor quality, lie within organizational operations—the nuts and bolts of healthcare delivery. The healthcare arena is filled with opportunities for significant operational improvements. We hope that this book will encourage healthcare management students and working professionals to find ways to improve the management and delivery of healthcare to increase the effectiveness and efficiency of tomorrow’s healthcare system. Manufacturing organizations have successfully employed the programs, techniques, and tools of operations improvement for many years. Recently, leading healthcare organizations have begun to employ the same tools. Although many operations management texts are available, few focus on healthcare operations, and none take an integrated approach. Students interested in healthcare process improvement have difficulty seeing the applicability of the science of operations management when most texts focus on widgets and production lines, while the students’ focus is on patients and providers. This book not only covers the basics of operations improvement, but also provides an overview of the significant environmental trends in the healthcare industry. We focus on the strategic implementation of process improvement programs, techniques, and tools in the healthcare environment with its complex web of reimbursement systems, physician relations, workforce challenges, and strong governmental regulations. This integrated approach will help healthcare professionals gain an understanding of strategic operations management and, more importantly, its applicability to the healthcare industry. How This Book Is Organized We have organized this book into five parts: 1. Introduction to healthcare operations; 2. Setting goals and executing strategy; xvii xviii Preface 3. Performance improvement tools, techniques, and programs; 4. Applications to contemporary healthcare operations issues; and 5. Putting it all together for operational excellence. Although this structure will be helpful for most readers, each chapter stands alone and can be covered or read in any order that makes sense for a particular course or student. The first part of the book, Introduction to Healthcare Operations, provides an overview of the challenges and opportunities found in today’s healthcare environment (Chapter 1). We follow that with a history of the field of management science and operations improvement (Chapter 2). Next, we discuss two of the most influential environmental changes facing healthcare today, evidence-based medicine and pay-for-performance (Chapter 3). In Part II, Setting Goals and Executing Strategy, Chapter 4 highlights the importance of tying the strategic direction of the organization to operational initiatives. This chapter outlines the use of the balanced scorecard technique to execute and monitor these initiatives to achieve organizational objectives. Typically, strategic initiatives are large in scope, and the tools of project management (Chapter 5) are needed to successfully manage them. Indeed, the use of project management tools can help to ensure the success of any size project. Strategic focus and project management provide the organizational foundation for the remainder of this book. The next part of the book, Performance Improvement Tools, Techniques, and Programs, provides an introduction to the basic decision-making and problem-solving processes and describes some of the associated tools (Chapter 6). Almost all process improvement initiatives (Six Sigma, Lean, etc.) follow this same process and make use of some or all of the tools in Chapter 6. Good decisions and effective solutions are based on facts, not intuition. Chapter 7 provides an overview of data collection and analysis to enable fact-based decision making. Six Sigma, Lean, simulation, and supply chain management are more specific philosophies or techniques that can be used to improve processes and systems. The Six Sigma (Chapter 8) methodology is the latest manifestation of the use of quality improvement tools to reduce variation and errors in a process. The Lean (Chapter 9) methodology is focused on eliminating waste in a system or process. Many healthcare decisions and processes can be modeled and optimized or improved by using computer simulation (Chapter 10). The fourth section of the book, Applications to Contemporary Healthcare Operations Issues, begins with an integrated approach to applying the various tools and techniques for process improvement in the healthcare environment (Chapter 11). We then focus on a special but important case of process improvement, patient scheduling in the ambulatory environ- Pre f a c e ment (Chapter 12). Supply chain management extends the boundaries of the system to include both upstream suppliers and downstream customers, and this is the focus of the final chapter in the section (Chapter 13). The book’s last section, Putting It All Together for Operational Excellence, concludes the book with a discussion, in Chapter 14, of strategies for implementing and maintaining the focus on continuous improvement in healthcare organizations. We have included many features in this book that we believe will enhance student understanding and learning. Most chapters begin with a vignette, called Operations Management in Action, that offers real-world examples related to the content of the particular chapter. Throughout the book we use a fictitious but realistic organization, Vincent Valley Hospital and Health System, to illustrate the various tools, techniques, and programs discussed. Each chapter concludes with questions for discussion, and Parts II through IV include exercises to be solved. We have included many examples throughout the text of the use of various contemporary software tools essential for effective operations management. Healthcare leaders and managers must be experts in the application of these tools and stay current with their latest versions. Just as we ask healthcare providers to stay up to date with the latest clinical advances, so too must healthcare managers stay current with these basic tools. Student Resources We have developed an extensive companion website with links to a vast amount of supplementary material. This website, ache.org/books/OpsManagement, provides links to material we have developed, as well as other supplemental material. In particular, we have developed, and make available, various Excel templates, Arena models, tutorials, exercises, and PowerPoint presentations for each chapter. Additionally, links to many of the cited articles and books can be found on this website. Finally, the site provides links to a wide variety of information and material related to specific topics, including videos, webcasts, web demonstrations, exercises, and tutorials. Because new and valuable information is constantly being added to the web, we encourage readers to share any relevant sites they find so that we can include them on the companion website. A password is not necessary for access to the website. Included with this book is the student version of Arena software. This simulation software provides a powerful tool to model and optimize healthcare processes such as patient flow and scheduling. The animation features of Arena provide the healthcare professional with an accessible and easily understood tool to engage colleagues in the intense and complex work of operations improvement. xix xx Preface Instructor Resources For instructors who choose to use this book in their courses, accompanying resources are available online. For access information, e-mail hap1@ache.org. Contained in these resources are answers or discussion points for the end-ofchapter questions and exercises; teaching tips; and recommended teaching cases, with links to sources as needed. We hope that this text is helpful to you and your organization on your journey along the path of continuous improvement. We are interested in your progress whether you are a student of healthcare administration, new member of the health administration team, seasoned department head, or physician leader. Please use the e-mail addresses on the companion website to inform us of your successes and let us know what we could do to make this a better text so that we, too, can continuously improve. —Dan McLaughlin —Julie Hays PART I introduction to healthcare operations CHAPTER 1 THE CHALLENGE AND THE OPPORTUNITY CHAPTER OUTLINE Introduction Purpose of this Book The Challenge The Opportunity Evidence-Based Medicine Knowledge-Based Management A More Active Role for the Consumer A Systems Look at Healthcare The Clinical System System Stability and Change An Integrating Framework for Operations Management in Healthcare 2 Vincent Valley Hospital and Health System Introduction to Healthcare Operations Setting Goals and Executing Strategy Performance Improvement Tools, Techniques, and Programs Applications to Fundamental Healthcare Operations Issues Conclusion Discussion Questions References KEY TERMS AND ACRONYMS Agency for Healthcare Research and Quality (AHRQ) consumer-directed healthcare evidence-based medicine (EBM) health savings account Institute of Medicine (IOM) knowledge-based management (KBM) patient care microsystem Vincent Valley Hospital and Health System (VVH) 3 Introduction to Healthcare Operations Introduction The challenges and opportunities in today’s complex healthcare delivery systems demand that leaders take charge of their operations. A strong operations focus can reduce costs, increase safety, improve clinical outcomes, and allow an organization to compete effectively in an aggressive marketplace. In the recent past, the success of many organizations in the American healthcare system has been achieved through executing a few key strategies: First, attract and retain talented clinicians; next, add new technology and specialty care; and finally, find new methods to maximize the organization’s reimbursement for these services. In most organizations, new services—not ongoing operations—represented the key to success. However, that era is ending. Payer resistance to cost increases and a surge in public reporting on the quality of healthcare are strong forces driving a major change in strategy. To succeed in this new environment, a healthcare enterprise must focus on making significant improvements in its core operations. This book is about how to get things done. It provides an integrated system and set of contemporary operations improvement tools that can be used to make significant gains in any organization. These tools have been successfully deployed in much of the global business community for more than 30 years (Hammer 2005) and now are being used by leading healthcare delivery organizations. This chapter outlines the purpose of the book, identifies challenges that current healthcare systems are facing, presents a systems view of healthcare, and provides a comprehensive framework for the use of operations tools and methods in healthcare. Finally, Vincent Valley Hospital and Health System (VVH), which is used in examples throughout the book, is described. Purpose of this Book Excellence in healthcare derives from three major areas of expertise: clinical care, leadership, and operations. Although clinical expertise and leadership are critical to an organization’s success, this book focuses on operations— how to deliver high-quality care in a consistent, efficient manner. Many books cover operational improvement tools, and some focus on using these tools in healthcare environments. So, why a book devoted to the broad topic of healthcare operations? Because there is a real need for an integrated approach to operations improvement that puts all the tools in a logical context and provides a road map for their use. An integrated approach 4 Chapter 1: The Challenge and the Opportunity uses a clinical analogy—first find and diagnose an operations issue, then apply the appropriate treatment tool to solve the problem. The field of operations research and management science is too deep to cover in one book. In Healthcare Operations Management, only tools and techniques that are currently being deployed in leading healthcare organizations are covered in enough detail to enable students and practitioners to “get things done” in their work. Each chapter provides many references for deeper study. The authors have also included additional resources, exercises, and tools on the website that accompanies this book. This book is organized so that each chapter builds on the next and is cross-referenced. However, each chapter also stands alone, so a reader interested in Six Sigma could start in Chapter 8 and then move back and forth into the other chapters. This book does not specifically explore “quality” in healthcare as defined by the many agencies that have a mission to ensure healthcare quality, such as the Joint Commission, National Committee for Quality Assurance, National Quality Forum, or federally funded Quality Improvement Organizations. The Healthcare Quality Book: Vision, Strategy and Tools (Ransom, Maulik, and Nash 2005) explores this perspective in depth and provides a useful companion to this book. However, the systems, tools, and techniques discussed here are essential to make the operational improvements needed to meet the expectations of these quality-assurance organizations. The Challenge The United States spent more than $2 trillion on healthcare in 2007—the most per capita in the world. With health insurance premiums doubling every five years, the annual cost for a family for health insurance is expected to be $22,000 by 2010—all of a worker’s paycheck at ten dollars an hour. The Centers for Medicare & Medicaid Services predict that within the next decade, one of every five dollars of the U.S. economy will be devoted to healthcare (DoBias and Evans 2006). Despite its high cost, the value delivered by the system has been questioned by many policymakers. Unexplained variations in healthcare have been estimated to result in 44,000 to 98,000 preventable deaths every year. Preventable healthcare-related injuries cost the economy between $17 billion and $29 billion annually, half of which represents direct healthcare costs (IOM 1999). In 2004, more than half (55 percent) of the American public said that they were dissatisfied with the quality of healthcare in this country, compared to 44 percent in 2000 (Henry J. Kaiser Foundation, Agency for Healthcare Research and Quality, and Harvard School of Public Health 2004). 5 6 Introduction to Healthcare Operations These problems were studied in the landmark work of the Institute of Medicine (IOM 2001), Crossing the Quality Chasm—A New Health System for the 21st Century. The IOM panel concluded that the knowledge to improve patient care is available, but a gap—a chasm—separates that knowledge from everyday practice. The panel summarizes the goals of a new health system in six “aims.” (Box 1.1) BOX 1.1 Six Aims of a New Health System Patient care should be 1. Safe, avoiding injuries to patients from the care that is intended to help them; 2. Effective, providing services based on scientific knowledge to all who could benefit, and refraining from providing services to those not likely to benefit (avoiding underuse and overuse, respectively); 3. Patient-centered, providing care that is respectful of and responsive to individual patient preferences, needs, and values, and ensuring that patient values guide all clinical decisions; 4. Timely, reducing wait times and harmful delays for both those who receive and those who give care; 5. Efficient, avoiding waste of equipment, supplies, ideas, and energy; and 6. Equitable, providing care that does not vary in quality because of personal characteristics such as gender, ethnicity, geographic location, and socioeconomic status. SOURCE: Reprinted with permission from Crossing the Quality Chasm—A New Health System for the 21st Century © 2001 by the National Academy of Sciences, Courtesy of the National Academies Press, Washington, D.C. The IOM panel recommended ten steps to close the gap between care with the above characteristics and current practice (Box 1.2). BOX 1.2 Ten Steps to Close the Gap The ten steps to close the gap are: 1. Care based on continuous healing relationships. Patients should receive care whenever they need it and in many forms, not just face-to-face visits. This rule implies that the healthcare system should be responsive at all times (24 hours a day, every day), and that access to care should be provided over the Internet, by telephone, and by other means in addition to face-to-face visits. 2. Customization based on patient needs and values. The system of care should be designed to meet the most common types of needs, but have the capability to respond to individual patient choices and preferences. Chapter 1: The Challenge and the Opportunity 3. The patient as the source of control. Patients should be given all relevant information and the opportunity to exercise whatever degree of control they choose over healthcare decisions that affect them. The health system should be able to accommodate differences in patient preferences and encourage shared decision making. 4. Shared knowledge and the free flow of information. Patients should have unfettered access to their own medical information and to clinical knowledge. Clinicians and patients should communicate effectively and share information. 5. Evidence-based decision making. Patients should receive care based on the best available scientific knowledge. Care should not vary illogically from clinician to clinician or from place to place. 6. Safety as a system property. Patients should be safe from injury caused by the care system. Reducing risk and ensuring safety require greater attention to systems that help prevent and mitigate errors. 7. The need for transparency. The healthcare system should make available to patients and their families information that allows them to make informed decisions when selecting a health plan, hospital, or clinical practice, or when choosing among alternative treatments. This should include information describing the system’s performance on safety, evidencebased practice, and patient satisfaction. 8. Anticipation of needs. The health system should anticipate patient needs rather than simply react to events. 9. Continuous decrease in waste. The health system should not waste resources or patient time. 10. Cooperation among clinicians. Clinicians and institutions should actively collaborate and communicate to ensure an appropriate exchange of information and coordination of care. SOURCE: Reprinted with permission from Crossing the Quality Chasm—A New Health System for the 21st Century © 2001 by the National Academy of Sciences, Courtesy of the National Academies Press, Washington, D.C. Many healthcare leaders have begun to address these issues and are capitalizing on proven tools employed by other industries to ensure high performance and quality outcomes. For major change to occur in the U.S. health system, however, these strategies must be adopted by a broad spectrum of healthcare providers and implemented consistently throughout the continuum of care—ambulatory, inpatient/acute settings, and long-term care. The payers for healthcare must engage with the delivery system to find new ways to partner for improvement. In addition, patients have to assume a stronger financial and self-care role in this new system. Although not all of the IOM goals can be accomplished through operational improvements, this book provides methods and tools to actively change the system to accomplish many aspects of them. 7 BOX 1.2 Ten Steps to Close the Gap (continued) 8 Introduction to Healthcare Operations The Opportunity Although the current American health system presents numerous challenges, opportunities for improvement are emerging as well. Three major trends provide hope that significant change is possible. Evidence-Based Medicine The use of evidence-based medicine (EBM) for the delivery of healthcare is the result of 30 years of work by some of the most progressive and thoughtful practitioners in the nation. The movement has produced an array of care guidelines, care patterns, and new shared decision-making tools for both caregivers and patients. The cost of healthcare could be reduced by nearly 29 percent and clinical outcomes improved significantly if EBM guidelines and the most efficient care procedures were used by all practitioners in the United States (Wennberg, Fisher, and Skinner 2004). Comprehensive resources are available to the healthcare organization that wishes to emphasize EBM. For example, the National Guideline Clearinghouse (NGC 2006) is a comprehensive database of evidence-based clinical practice guidelines and related documents and contains more than 4,000 guidelines. NGC is an initiative of the Agency for Healthcare Research and Quality (AHRQ) of the U.S. Department of Health and Human Services. NGC was originally created by AHRQ in partnership with the American Medical Association and American Association of Health Plans, now America’s Health Insurance Plans (AHIP). Knowledge-Based Management Knowledge-based management (KBM) employs data and information, rather than feelings or intuition, to support management decisions. Practitioners of KBM use the tools contained in this book for cost reduction, increased safety, and improved clinical outcomes. The evidence for the efficacy of these techniques is contained in the operations research and management science literature. Although these tools have been taught in healthcare graduate programs for many years, they have not migrated widely into practice. Recently, the IOM (Proctor et al. 2005) has recognized the opportunities that the use of KBM presents with its publication Building a Better Delivery System: A New Engineering/Healthcare Partnership. In addition, AHRQ and Denver Health provide practical operations improvement tools in A Toolkit for Redesign in Healthcare (Gabow et al. 2003). Healthcare delivery has been slow to adopt information technologies, but many organizations are now beginning to aggressively implement electronic medical record systems and other automated tools. Hillestad et al. (2005) have suggested that broad deployment of these systems could save up to $371 billion annually in the United States. Chapter 1: The Challenge and the Opportunity 9 A More Active Role for the Consumer Consumers are beginning to assume new roles in their own care through the use of health education and information and more effective partnering with their healthcare providers. Personal maintenance of wellness though a healthy lifestyle is one essential component. Understanding one’s disease and treatment options and having an awareness of the cost of care are also important responsibilities of the consumer. Patients will become good consumers of healthcare by finding and using price information in selecting providers and treatments. Many employers are now offering high-deductible health plans with accompanying health savings accounts (HSAs.) This type of consumer-directed healthcare is likely to grow and increase pressure on providers to deliver cost-effective, customersensitive, high-quality care. The healthcare delivery system of the future will support and empower active, informed consumers. A Systems Look at Healthcare The Clinical System To improve healthcare operations, it is important to understand the systems that influence the delivery of care. Clinical care delivery is embedded in a series of interconnected systems (Figure 1.1). The patient care microsystem is where the healthcare professional provides hands-on care. Elements of the clinical microsystem include: Environment Level D Organization Level C Microsystem Level B Patient Level A SOURCE: Ransom, Maulik, and Nash (2005). Based on Ferlie, E., and S. M. Shortell. 2001. “Improving the Quality of Healthcare in the United Kingdom and the United States: A Framework for Change.” The Milbank Quarterly 79(2): 281–316. FIGURE 1.1 A Systems View of Healthcare 10 Introduction to Healthcare Operations • The team of health professionals who provide clinical care to the patient; • The tools the team has to diagnose and treat the patient (e.g., imaging capabilities, lab tests, drugs); and • The logic for determining the appropriate treatments and the processes to deliver this care. Because common conditions (e.g., hypertension) affect a large number of patients, clinical research has determined the most effective way to treat these patients. Therefore, in many cases, the organization and functioning of the microsystem can be optimized. Process improvements can be made at this level to ensure that the most effective, least costly care is delivered. In addition, the use of EBM guidelines can also help ensure that the patient receives the correct treatment at the correct time. The organizational infrastructure also influences the effective delivery of care to the patient. Ensuring that providers have the correct tools and skills is an important element of infrastructure. The use of KBM provides a mechanism to optimize the use of clinical tools. The electronic health record is one of the most important advances in the clinical microsystem for both process improvement and the wider use of EBM. Another key component of infrastructure is the leadership displayed by senior staff. Without leadership, effective progress or change will not occur. Finally, the environment strongly influences the delivery of care. Key environmental factors include competition, government regulation, demographics, and payer policies. An organization’s strategy is frequently influenced by such factors (e.g., a new regulation from Medicare, a new competitor). Many of the systems concepts regarding healthcare delivery were initially developed by Avedis Donabedian. These fundamental contributions are discussed in depth in Chapter 2. System Stability and Change Elements in each layer of this system interact. Peter Senge (1990) provides a useful theory to understand the interaction of elements in a complex system such as healthcare. In his model, the structure of a system is the primary mechanism for producing an outcome. For example, an organized structure of facilities, trained professionals, supplies, equipment, and EBM care guidelines has a high probability of producing an expected clinical outcome. No system is ever completely stable. Each system’s performance is modified and controlled by feedback (Figure 1.2). Senge (1990, 75) defines feedback as “any reciprocal flow of influence. In systems thinking it is an axiom that every influence is both cause and effect.” As shown in Figure 1.2, Chapter 1: The Challenge and the Opportunity Employee motivation + + Financial performance, profit Salaries + – Actual staffing level Add or reduce staff – Compare actual to needed staff based on patient demand higher salaries provide an incentive for higher performance levels by employees. This, in turn, leads to better financial performance and profitability; increased profits provide additional funds for higher salaries, and the cycle continues. Another frequent example in healthcare delivery is patient lab results that directly influence the medication ordered by a physician. A third example is a financial report that shows an overexpenditure in one category that will prompt a manager to reduce spending to meet budget goals. A more formal systems definition with feedback includes a process, a sensor that monitors process output, a feedback loop, and a control that modifies how the process operates. Feedback can be either reinforcing or balancing. Reinforcing feedback prompts change that builds on itself and amplifies the outcome of a process, taking the process further and further from its starting point. The effect of reinforcing feedback can be either positive or negative. For example, a reinforcing change of positive financial results for an organization could lead to higher salaries, which would then lead to even better financial performance because the employees were highly motivated. In contrast, a poor supervisor could lead to employee turnover, short staffing, and even more turnover. 11 FIGURE 1.2 Systems with Reinforcing and Balancing Feedback 12 Introduction to Healthcare Operations Balancing feedback prompts change that seeks stability. A balancing feedback loop attempts to return the system to its starting point. The human body provides a good example of a complex system that has many balancing feedback mechanisms. For example, an overheated body prompts perspiration until the body is cooled through evaporation. The clinical term for this type of balance is homeostasis. A clinical treatment process that controls drug dosing via real-time monitoring of the patient’s physiological responses is an example of balancing feedback. Inpatient unit staffing levels that drive where in a hospital patients are admitted is another. All of these feedback mechanisms are designed to maintain balance in the system. A confounding problem with feedback is delay. Delays occur when there are interruptions between actions and consequences. When this happens, systems tend to overshoot and perform poorly. For example, an emergency department might experience a surge in patients and call in additional staff. If the surge subsides, the added staff may not be needed and unnecessary expense will have been incurred. As healthcare leaders focus on improving their operations, it is important to understand the systems in which change resides. Every change will be resisted and reinforced by feedback mechanisms, many of which are not clearly visible. Taking a broad systems view can improve the effectiveness of change. Many subsystems in the total healthcare system are interconnected. These connections have feedback mechanisms that either reinforce or balance the subsystem’s performance. Figure 1.3 shows a simple connection that originates in the environmental segment of the total health system. Each process has both reinforcing and balancing feedback. An Integrating Framework for Operations Management in Healthcare This book is divided into five major sections: • Introduction to healthcare operations; • Setting goals and executing strategy; FIGURE 1.3 Linkages Within the Healthcare System: Chemotherapy Payers want to reduce costs for chemotherapy New payment method for chemotherapy is created Chemotherapy treatment needs to be more efficient to meet payment levels Changes are made in care processes and support systems to maintain quality while reducing costs Environment Organization Clinical microsystem Patient Chapter 1: The Challenge and the Opportunity 13 • Performance improvement tools, techniques, and programs; • Applications to contemporary healthcare operations issues; and • Putting it all together for operational excellence. This schema reflects the authors’ view that effective operations management in healthcare consists of highly focused strategy execution and organizational change accompanied by the disciplined use of analytical tools, techniques, and programs. The book includes examples of applications of this approach to common healthcare challenges. Figure 1.4 illustrates this framework. An organization needs to understand the environment, develop a strategy, and implement a system to effectively deploy this strategy. At the same time, the organization must become adept at using all the tools of operations improvement contained in this book. These improvement tools can then be combined to attack the fundamental challenges of operating a complex healthcare delivery organization. Introduction to Healthcare Operations The introductory chapters provide an overview of the significant environmental trends healthcare delivery organizations face. Annual updates to industry-wide trends can be found in Futurescan: Healthcare Trends and Implications 2008–2013 (Society for Healthcare Strategy and Market Development and American College of Healthcare Executives 2008). Progressive organizations will review these publications carefully. Then, using this information, they can respond to external forces by identifying either new strategies or current operating problems that must be addressed. Business has been aggressively using operations improvement tools for the past 30 years, but the field of operations science actually began many centuries in the past. Chapter 2 provides a brief history. Healthcare operations are being strongly driven by the effects of EBM and pay-for-performance. Chapter 3 provides an overview of these trends and how organizations can effect change to meet current challenges and opportunities. Setting goals and executing strategy Performance improvement tools, techniques, and programs Fundamental healthcare operations issues High performance FIGURE 1.4 Framework for Effective Operations Management in Healthcare 14 Introduction to Healthcare Operations Setting Goals and Executing Strategy A key component of effective operations is the ability to move strategy to action. Chapter 4 shows how the use of the balanced scorecard can accomplish this aim. Change in all organizations is challenging, and formal methods of project management (Chapter 5) can be used to make effective, lasting improvements in an organization’s operations. Performance Improvement Tools, Techniques, and Programs Once an organization has in place strategy implementation and change management processes, it needs to select the correct tools, techniques, and programs to analyze current operations and implement effective changes. Chapter 6—Tools for Problem Solving and Decision Making—outlines the basic steps of problem solving, beginning with framing the question or problem and continuing through data collection and analyses to enable effective decision making. Chapter 7—Using Data and Statistical Tools for Operations Improvement—provides a review of the building blocks for many of the more advanced tools used later in the book. (This chapter may serve as a review or reference for readers who already have good statistical skills.) Some projects will require a focus on process improvement. Six Sigma tools (Chapter 8) can be used to reduce the variability in the outcome of a process. Lean tools (Chapter 9) can be used to eliminate waste and increase speed. Many healthcare processes, such as patient flow, can be modeled and improved by using computer simulation (Chapter 10), which may also be used to evaluate project risks. Applications to Contemporary Healthcare Operations Issues This part of the book demonstrates how these concepts can be applied to some of today’s fundamental healthcare challenges. Process improvement techniques are widely deployed in many organizations to significantly improve performance; Chapter 11 reviews the tools of process improvement and demonstrates their use in improving patient flow. Scheduling and capacity management continue to be major concerns for many healthcare delivery organizations, particularly with the advent of advanced access. Chapter 12 demonstrates how simulation can be used to optimize scheduling. Chapter 13—Supply Chain Management—explores the optimal methods of acquiring supplies and maintaining appropriate inventory levels. In the end, any operations improvement will fail unless steps are taken to maintain the gains; Chapter 14—Putting it All Together for Operational Excellence—contains the necessary tools. The chapter also provides a more detailed algorithm that can help practitioners select the appropriate tools, Chapter 1: The Challenge and the Opportunity methods, and techniques to make significant operational improvements. It includes an example of how Vincent Valley Hospital and Health System (VVH) uses all the tools in the book to achieve operational excellence. Vincent Valley Hospital and Health System Woven throughout the sections described below are examples designed to consistently illustrate the tools discussed. A fictitious but realistic health system, VVH, is featured in these examples. (The companion website, ache.org/books/OpsManagement, contains a more expansive description of VVH.) VVH is located in a Midwestern city of 1.5 million. It has 3,000 employees, operates 350 inpatient beds, and has a medical staff of 450 physicians. In addition, VVH operates nine clinics staffed by physicians who are employees of the system. VVH has two major competitor hospitals, and a number of surgeons from all three hospitals recently joined together to set up an independent ambulatory surgery center. Three major health plans provide most of the private payment to VVH and, along with the state Medicaid system, have recently begun a pay-forperformance initiative. VVH has a strong balance sheet and a profit margin of approximately 2 percent, but feels financially challenged. The board of VVH includes many local industry leaders, who have asked the chief executive officer to focus on using the operational techniques that have led them to succeed in their businesses. Conclusion This book is an overview of operations management approaches and tools. It is expected that the successful reader will understand all the concepts in the book (and in current use in the field) and should be able to apply at the basic level some of the tools, techniques, and programs presented. It is not expected that the reader will be able to execute at the more advanced level (e.g., Six Sigma black belt, Project Management Professional). However, this book will prepare readers to work effectively with knowledgeable professionals and, most important, enable them to direct their work. Discussion Questions 1. Review the ten action steps recommended by IOM to close the quality chasm. Rank them from easiest to most difficult to achieve, and give a rationale for your rankings. 15 16 Introduction to Healthcare Operations 2. Give three examples of possibilities for system improvement at the boundaries of the healthcare subsystems (patient, microsystem, organization, and environment). 3. Identify three systems in a healthcare organization (at any level) that have reinforcing feedback. 4. Identify three systems in a healthcare organization (at any level) that have balancing feedback. 5. Identify three systems in a healthcare organization (at any level) where feedback delays affect the performance of the system. References DoBias, M., and M. Evans. 2006. “Mixed Signals—The CMS 10-Year Spending Projections Inspire Both Hope and Skepticism, and Leave Plenty of Room for Lobbyists.” Modern Healthcare 36 (9): 6–8. Gabow, P., S. Eisert, A. Karkhanis, A. Knight, and P. Dickson. 2003. A Toolkit for Redesign in Healthcare. Washington, D.C.: Agency for Healthcare Research and Quality. Hammer, M. 2005. “Making Operational Innovation Work.” Harvard Management Update 10 (4): 3–4. Henry J. Kaiser Foundation, Agency for Healthcare Research and Quality, and Harvard School of Public Health. 2004. National Survey on Consumers’ Experiences with Patient Safety and Quality Information. Menlo Park, CA: Kaiser Family Foundation. [Online information; retrieved 8/28/06.] www.kff.org/kaiserpolls/ upload/National-Survey-on-Consumers-Experiences-With-Patient-Safety-andQuality-Information-Survey-Summary-and-Chartpack.pdf. Hillestad, R., J. Bigelow, A. Bower, F. Girosi, R. Meili, R. Scoville, and R. Taylor. 2005. “Can Electronic Medical Record Systems Transform Health Care? Potential Health Benefits, Savings, and Costs.” Health Affairs 24 (5): 1103–17. Institute of Medicine. 2001. Crossing the Quality Chasm—A New Health System for the 21st Century. Washington, D.C.: National Academies Press. ———. 1999. To Err Is Human: Building a Safer Health System. Washington, D.C.: National Academies Press. National Guideline Clearinghouse (NGC). 2006. [Online information; retrieved 8/28/06.] www.guideline.gov/. Proctor, P., W. Reid, D. Compton, J. H. Grossman, and G. Fanjiang. 2005. Building a Better Delivery System: A New Engineering/Health Care Partnership. Washington, D.C.: Institute of Medicine. Ransom, S. B., J. S. Maulik, and D. B. Nash, (eds.), 2005. The Healthcare Quality Book: Vision, Strategy, and Tools. Chicago: Health Administration Press. Senge, P. M. 1990. The Fifth Discipline—The Art and Practice of the Learning Organization. New York: Doubleday. Chapter 1: The Challenge and the Opportunity Society for Healthcare Strategy and Market Development and American College of Healthcare Executives. 2008. Futurescan: Healthcare Trends and Implications 2008–2013. Chicago: Health Administration Press. Wennberg, J. E., E. S. Fisher, and J. S. Skinner. 2004. “Geography and the Debate over Medicare Reform.” Health Affairs 23 (Sept. 2004 Variations Supplement): W96–W114. 17 CHAPTER 2 HISTORY OF PERFORMANCE IMPROVEMENT CHAPTER OUTLINE Operations Management in Action Overview Background Knowledge-Based Management History of Scientific Management Mass Production Frederick Taylor Frank and Lillian Gilbreth Scientific Management Today Project Management Quality Walter Shewhart W. Edwards Deming 18 Joseph M. Juran Avedis Donabedian TQM and CQI, Leading to Six Sigma ISO 9000 Baldrige Award JIT, Leading to Lean and Agile Baldrige, Six Sigma, Lean, and ISO 9000 Service Typologies Supply Chain Management Conclusion Discussion Questions References KEY TERMS AND ACRONYMS agile Agency for Healthcare Research and Quality (AHRQ) Centers for Medicare & Medicaid Services (CMS) continuous quality improvement (CQI) critical path method (CPM) Deming’s 14 points for healthcare enterprise resource planning (ERP) Institute for Healthcare Improvement (IHI) ISO 9000 Juran’s quality trilogy just-in-time (JIT) knowledge-based management (KBM) knowledge hierarchy Lean Malcolm Baldrige National Quality Award materials requirements planning (MRP) plan-do-check-act (PDCA) plan-do-study-act, a variation of plan-do-check-act program evaluation and review technique (PERT) service process matrix service typologies single-minute exchange of die (SMED) Six Sigma statistical process control (SPC) supply chain management (SCM) systems thinking total quality management (TQM) Toyota Production System (TPS) 19 Introduction to Healthcare Operations Operations Management in Action During the Crimean War, reports of terrible conditions in military hospitals alarmed British citizens. In response to the outcry, Florence Nightingale was commissioned to oversee the introduction of nurses to military hospitals and to improve conditions in the hospitals. When Nightingale arrived in Scutari, Turkey, she found the hospital overcrowded and filthy. Nightingale instituted many changes to improve the sanitary conditions in the hospital, and many lives were saved as a result of these reforms. Nightingale was one of the first people in healthcare to collect, tabulate, interpret, and graphically display data related to the effect of process changes on care outcomes. Today, this is called “evidence-based medicine.” To quantify the overcrowding problem, she compared the amount of space per patient in London hospitals, 1,600 square feet, to the space in Scutari, about 400 square feet. She developed a standard Model Hospital Statistical Form to enable the collection of consistent data for analysis and comparison. In February 1855, the mortality rate of patients in Scutari was 42 percent. As a result of Nightingale’s changes, the mortality rate decreased to 2.2 percent by June 1855. To present these data in a persuasive manner, she developed a new type of graphic display, the polar area diagram. After the war, Nightingale used the data she had collected to demonstrate that the mortality rate in Scutari, after her reforms, was significantly lower than in other British military hospitals. Although the British military hierarchy was resistant to her changes, the data were convincing and resulted in reforms to military hospitals and the establishment of the Royal Commission on the Health of the Army. Florence Nightingale would recognize many of the philosophies, tools, and techniques outlined in this text as being essentially the same as those she effectively employed to achieve lasting reform in hospitals throughout the world. SOURCES: Cohen 1984; Neuhauser 2003; and Nightingale 1858, 1999. Overview This chapter provides the background and historical context of performance improvement, which is not a new concept—many of the tools, techniques, and philosophies outlined in this text are based in the past. Although the terminology has changed, many of the core concepts remain the same. The major topics in this chapter include: • Systems thinking and knowledge-based management; • Scientific management and project management; 20 C h a p t e r 2 : H i s t o r y o f Pe r f o r m a n c e I m p rove m e n t • Quality experts; • Service typologies; and • Philosophies of performance improvement, including Six Sigma, Lean, and supply chain management. Background Operations management is the design, operation, and improvement of the processes and systems that create and deliver the organization’s products and services. Operations managers plan and control delivery processes and systems within the organization. The goal of operations management is to more effectively and efficiently produce and deliver the organization’s products and services. Healthcare professionals have realized that the theories, tools, and techniques of operations management, if properly applied, can enable their own organizations to become more efficient and effective. The operations management information presented in this book should enable healthcare professionals to design systems, processes, products, and services that meet the needs of their organizations’ stakeholders. It should also enable the continuous improvement of these systems and services to meet the needs of a quickly changing environment.The healthcare industry is facing many challenges. The costs of care and level of services delivered are increasing; more and more we are able to prolong lives as technology advances and the population ages. In 2004, 15 percent of the U.S. economy was devoted to medical care, up from 11 percent in 1987 (CMS 2005). The need for quality care with zero defects, or failures in care, is being driven by government and other stakeholders. The need to produce more of a higher quality product or service at a reduced cost can only be met through better utilization of resources. The healthcare environment has recognized the need to control costs while increasing both the level and quality of service. These seemingly contradictory goals can only be reached if healthcare providers can offer their services more effectively and efficiently, better utilizing limited resources that include financial assets, employees and staff, machines and facilities, and time. Healthcare providers have the need and opportunity to adopt many of the tools and techniques that have enabled other service industries and manufacturing to become both more efficient and effective. Six Sigma and Lean are two of the philosophies that have been successfully implemented in the manufacturing sector to decrease costs, increase product quality, and improve timeliness of delivery. As Donald Berwick, M.D., president and chief executive officer (CEO) of the Institute for Healthcare Improvement (IHI), says, “We have to bring the science of management back into healthcare in a way that we haven’t in a very long time” (Allen 2004). 21 22 Introduction to Healthcare Operations To improve systems and processes, one must first know the system or process and its desired inputs and outputs. This book takes a systems view of service provision and delivery, as illustrated in Figure 2.1. Knowledge-Based Management To design effective and efficient systems and processes or improve existing processes, knowledge of the systems and processes is needed. This book focuses on knowledge-based management (KBM)—using data and information to base management decisions on facts rather than feelings or intuition. The “knowledge hierarchy,” as it is sometimes called in the literature, is generally attributed to Harlan Cleveland (1982) or Russell Ackoff (1989), an operations researcher and leading systems theorist. The knowledge hierarchy relates to the learning that ultimately underpins KBM and consists of five categories, summarized below (Zeleny 1987) and illustrated in Figure 2.2. • Data: symbols or raw numbers that simply exist; they have no structure or organization. Organizations collect data with their computer systems; individuals collect data through their experiences. In short, “know nothing.” • Information: data that are organized or processed to have meaning. Information can be useful, but it is not necessarily useful. It can answer such questions as who, what, where, and when. Know what. • Knowledge: information that is deliberately useful. Knowledge enables decision making. Know how. • Understanding: allows use of what is known and enables the development of new knowledge. Understanding represents the difference between learning and memorizing. Know why. • Wisdom: adds moral and ethical views to understanding. Wisdom answers questions to which there is no known correct answer and, in some cases, where there will never be a known correct answer. Know right. FIGURE 2.1 Systems View INPUT Transformation process OUTPUT Feedback Labor Material Machines Management Capital Goods or services C h a p t e r 2 : H i s t o r y o f Pe r f o r m a n c e I m p rove m e n t Wisdom morals Importance Understanding principles Knowledge patterns Information Data relationships Learning A simple example may help to explain this hierarchy. Your height is 67 inches, and your weight is 175 pounds (data). You have a body mass index (BMI) of 26.7 (information). A healthy BMI is 18.5 to 25.5 (knowledge). Your BMI is high, and to be healthy you should lower it (understanding). You begin a diet and exercise program and lower your BMI (wisdom). Finnie (1997, 24) summarizes the relationships within the hierarchy, and our focus on its less important levels: There is another aspect to learning that relates to the five types of the content in the mind. We talk about the accumulation of information, but we fail to distinguish between data, information, knowledge, understanding, and wisdom. An ounce of information is worth a pound of data, an ounce of knowledge is worth a pound of information, an ounce of understanding is worth a pound of knowledge, an ounce of wisdom is worth a pound of understanding. In the past, our focus has been inversely related to importance. We have focused mainly on data and information, a little bit on knowledge, nothing on understanding, and virtually less than nothing on wisdom. The roots of the knowledge hierarchy can be traced even further back to eighteenth century philosopher Immanuel Kant, much of whose work attempted to address the questions of what and how we can know. The two major philosophical movements that significantly influenced Kant were empiricism and rationalism (McCormick 2006). The empiricists, most notably John Locke, argued that human knowledge originates in one’s experiences. According to Locke, the mind is a blank slate that fills with ideas through its interaction with the world; experience is where all knowledge FIGURE 2.2 Knowledge Hierarchy 23 24 Introduction to Healthcare Operations originates. The rationalists, including Descartes and Galileo, on the other hand, argued that the world is knowable through an analysis of ideas and logical reasoning. Both the empiricists and rationalists viewed the mind as passive, either because it received ideas onto a blank slate or because it possessed innate ideas that could be logically analyzed. Kant joined these philosophical ideologies and argued that experience leads to knowing only if the mind provides a structure for those experiences. Although the idea that the rational mind plays a role in defining reality is now common, in Kant’s time this was a major insight into what and how we know. Knowledge does not flow from our experiences alone, nor from only our ability to reason; rather, knowledge flows from our ability to apply reasoning to our experiences. Relating Kant to the knowledge hierarchy, data are our experiences, information is obtained through logical reasoning, and knowledge is obtained when we take data and apply structured reasoning to that data to acquire knowledge (Ressler and Ahrens 2006). The intent of this text is to enable readers to gain knowledge. We discuss tools and techniques that enable the application of logical reasoning to data in order to obtain knowledge and use it to make better decisions. This knowledge and understanding should enable the reader to provide healthcare in a more efficient and effective manner. History of Scientific Management Frederick Taylor originated the term “scientific management” in The Principles of Scientific Management (Taylor 1911). Scientific management methods called for eliminating the old rule-of-thumb, individual way of performing work and, through study and optimization of the work, replacing the varied methods with the one “best” way of performing the work to improve productivity and efficiency. Today, the term scientific management has been replaced with operations management, but the intent is similar: study the process or system and determine ways to optimize it in order to make it more efficient and effective. Mass Production The Industrial Revolution and mass production set the stage for much of Taylor’s work. Prior to the Industrial Revolution, individual craftsmen performed all tasks necessary to produce a good using their own tools and procedures. In the eighteenth century, Adam Smith advocated the division of labor—making work more efficient through specialization. To support a division of labor, a large number of workers are brought together, and each performs a specific task related to the production of a good. Thus, the factory system of mass production was born, and Henry Ford’s assem- C h a p t e r 2 : H i s t o r y o f Pe r f o r m a n c e I m p rove m e n t bly line eventually came into being, setting the stage for Taylor’s scientific management. Mass production allows for significant economies of scale, as predicted by Smith. Before Ford set up his moving assembly line, each car chassis was assembled by a single worker and took about 1212⁄ hours to produce. After the introduction of the assembly line, this time was reduced to 93 minutes (Bellis 2006). The standardization of products and work allowed for a reduction in the time needed to produce cars and significantly reduced the costs of production. The selling price of the Model T fell from $1,000 to $360 between 1908 and 1916 (Simkin 2005), allowing Ford to capture a large portion of the market. Although Ford is commonly credited with introducing the moving assembly line and mass production in modern times, they existed several hundred years earlier. The Venetian Arsenal of the 1500s produced nearly one ship every day and employed 16,000 people (NationMaster.com 2004). Ships were mass produced using premanufactured, standardized parts on a floating assembly line (Schmenner 2001). One of the first examples of mass production in the healthcare industry is Shouldice Hospital (Heskett 2003). Much like Ford, who said people could have the Model T in any color, “so long as it’s black,” Shouldice performs just one type of surgery. The hospital performs only routine hernia operations, not more complicated hernia surgery or any other types of surgery. There exists in healthcare growing evidence that experience in treating specific illnesses and conditions affects the outcome of that care. Higher volumes of cases often result in better outcomes (Halm, Lee, and Chassin 2002). Although higher volume alone does not produce better outcomes, the additional practice associated with higher volume results in better outcomes. The idea of “practice makes perfect,” or learning curve effects, has led organizations such as the Leapfrog Group (made up of organizations that provide healthcare benefits) to make patient volume one of its criteria for quality. The Agency for Healthcare Research and Quality (AHRQ) report “Making Health Care Safer: A Critical Analysis of Patient Safety Practices” (Auerbach 2001) devotes an entire chapter to this issue and its effect on practice. Frederick Taylor Taylor began his work when mass production and the factory system were in their infancy. He believed that U.S. industry was “wasting” human effort and that, as a result, national efficiency (now called productivity) was significantly lower than it could be. The introduction to The Principles of Scientific Management (Taylor 1911) illustrates his intent: But our larger wastes of human effort, which go on every day through such of our acts as are blundering, ill-directed, or inefficient, and which Mr. Roosevelt 25 26 Introduction to Healthcare Operations refers to as a lack of “national efficiency,” are less visible, less tangible, and are but vaguely appreciated. . . . This paper has been written: First. To point out, through a series of simple illustrations, the great loss which the whole country is suffering through inefficiency in almost all of our daily acts. Second. To try to convince the reader that the remedy for this inefficiency lies in systematic management, rather than in searching for some unusual or extraordinary man. Third. To prove that the best management is a true science, resting upon clearly defined laws, rules, and principles, as a foundation. And further to show that the fundamental principles of scientific management are applicable to all kinds of human activities, from our simplest individual acts to the work of our great corporations, which call for the most elaborate cooperation. And, briefly, through a series of illustrations, to convince the reader that whenever these principles are correctly applied, results must follow which are truly astounding. Note that Taylor specifically mentions systems management as opposed to the individual; this is a common theme that we revisit throughout this book. Rather than focusing on individuals as the cause of problems and the source of solutions, the focus is on systems and their optimization. Taylor believed that much waste was the result of what he called “soldiering,” which today might be called “slacking.” He believed that the underlying causes of soldiering were as follows (Taylor 1911): First. The fallacy, which has from time immemorial been almost universal among workmen, that a material increase in the output of each man or each machine in the trade would result in the end in throwing a large number of men out of work. Second. The defective systems of management which are in common use, and which make it necessary for each workman to soldier, or work slowly, in order that he may protect his own best interests. Third. The inefficient rule-of-thumb methods, which are still almost universal in all trades, and in practicing which our workmen waste a large part of their effort. To eliminate soldiering, Taylor proposed instituting incentive schemes. While at Midvale Steel Company, he used time studies to set daily production quotas. Incentives were paid to those workers reaching their daily goals, and those not reaching their goals were paid significantly less. Productivity at Midvale doubled. Not surprisingly, Taylor’s ideas produced considerable backlash. The backlash against increasingly popular pay-for-performance programs in healthcare today is analogous to that experienced by Taylor. C h a p t e r 2 : H i s t o r y o f Pe r f o r m a n c e I m p rove m e n t Taylor believed there was “one best way” to perform a task and that careful study and analysis would lead to the discovery of that way. While at Bethlehem Steel Corporation, he studied the shoveling of coal. Using time studies and a careful analysis of how the work was done, he determined that the optimal amount per load was 21 pounds. Taylor then developed shovels that would hold exactly 21 pounds for each type of coal (workers had previously supplied their own shovels; NetMBA.com 2005). He also determined the “ideal” work rate and rest periods to ensure that workers could shovel all day without fatigue. As a result of Taylor’s improved methods, Bethlehem Steel was able to reduce the number of workers shoveling coal from 500 to 140 (Nelson 1980). Taylor’s four principles of scientific management are to: 1. Develop and standardize work methods based on scientific study and use these to replace individual rule-of-thumb methods; 2. Select, train, and develop workers rather than allowing them to choose their own tasks and train themselves; 3. Develop a spirit of cooperation between management and workers to ensure that the scientifically developed work methods are both sustainable and implemented on a continuing basis; and 4. Divide work between management and workers so that each does an equal share, where management plans the work and workers actually do the work. Although some of Taylor’s ideas would be problematic today—particularly the notion that workers are “machinelike” and motivated solely by money— many of his ideas can be seen in the foundations of “new” initiatives such as Six Sigma and Lean. Frank and Lillian Gilbreth The Gilbreths were contemporaries of Frederick Taylor. Frank, who worked in the construction industry, noticed that no two bricklayers performed their tasks the same way. He believed that bricklaying could be standardized and the one best way determined. He studied the work of bricklaying and analyzed the workers’ motions, finding much unnecessary stooping, walking, and reaching. He eliminated these motions by developing an adjustable scaffold designed to hold both bricks and mortar (Taylor 1911). As a result of this and other improvements, Frank Gilbreth reduced the number of motions in bricklaying from 18 to 5 (International Work Simplification Institute 1968) and raised output from 1,000 to 2,700 bricks a day (Perkins 1997). He applied what he had learned from his bricklaying experiments to other industries and work. In his study of surgical operations, Frank Gilbreth found that doctors spent more time searching for instruments than performing the surgery. In response, he developed a technique still seen in operating rooms today: When 27 28 Introduction to Healthcare Operations the doctor needs an instrument, he extends his hand, palm up, and asks for the instrument, which is then placed in his hand. Not only does this eliminate searching for the instrument, but it allows the doctor to stay focused on the surgical area and therefore reduces surgical time (Perkins 1997). Frank and Lillian Gilbreth may be more familiarly known as the parents in the book (Gilbreth and Carey 1948), movie (Lang 1950), and remake of the movie (Levy 2003) Cheaper by the Dozen. The Gilbreths incorporated many of their time-saving ideas in the family arena. For example, they only bought one type of sock for all 12 of their children, thus eliminating timeconsuming sorting. Scientific Management Today Scientific management fell out of favor during the Depression, partly because of the belief that it dehumanized employees, but mainly because it was believed that productivity improvements resulted in downsizing and greater unemployment. Not until World War II was there a resurgence of interest in scientific management, or “operations research,” as it came to be called. Despite this period of disfavor, modern operations management has its roots in the theories of scientific management. In healthcare today, standardized methods and procedures are used to reduce costs and increase the quality of outcomes. Specialized equipment has been developed to speed procedures and reduce labor costs. In some sense, we are still searching for the “one best way.” However, care must be taken to heed the lessons of the past. If the “new” tools of operations management are perceived to be dehumanizing or to result in downsizing by healthcare organizations, their implementation will meet significant resistance. Project Management The discipline of project management began with the development of the Gantt chart in the early twentieth century. Henry Gantt worked closely with Frederick Taylor at Midvale Steel and in Navy ship construction during World War I. From this work, he developed Gantt charts—bar graphs that illustrate the duration of project tasks and visually display scheduled and actual progress. Gantt charts were used to help manage such large projects as the construction of the Hoover Dam and proved to be such a powerful tool that they are still commonly used today. Although Gantt charts were used in large projects, they are not ideal for large, complicated projects because they do not explicitly show precedence relationships, that is, what tasks need to be completed before other tasks can start. In the 1950s, two mathematic project scheduling techniques were developed: the program evaluation and review technique (PERT) and the critical path method (CPM). Both techniques begin by developing a project network showing the precedence relationships among tasks and task duration. C h a p t e r 2 : H i s t o r y o f Pe r f o r m a n c e I m p rove m e n t PERT was developed by the U.S. Navy in response to the desire to accelerate the Polaris missile program. This “need for speed” was precipitated by the Soviet launch of Sputnik, the first space satellite. PERT uses a probability distribution (the Beta distribution), rather than a point estimate, for the duration of each project task. The probability of completing the entire project in a given amount of time can then be determined. This technique is most useful for estimating project completion time when task times are uncertain and for evaluating risks to project completion prior to the start of a project. The CPM technique was developed at the same time as PERT by the DuPont and Remington Rand corporations to manage plant maintenance projects. CPM uses the project network and point estimates of task duration times to determine the critical path through the network, or the sequence of activities that will take the longest to complete. If any one of the activities on the critical path is delayed, the entire project will be delayed. This technique is most useful when task times can be estimated with certainty and is typically used in project management and control. Although both of these techniques are powerful analytical tools for planning, implementing, controlling, and evaluating a project plan, performing the required calculations by hand is quite tedious, and their use was not widespread. With the advent of commercially available project management software for personal computers in the late 1960s, use of these techniques increased considerably. Today, numerous project management software packages are commercially available, and these techniques are used extensively in industry. Microsoft Project, for instance, can perform network analysis based on either PERT or CPM; however, the default is CPM, making this the more commonly used technique. Projects are an integral part of many of the process improvement initiatives found in the healthcare industry. Project management and its tools are needed to ensure that projects related to quality (Six Sigma), Lean, and supply chain management are completed in the most effective and timely manner possible. Quality Walter Shewhart Although W. Edwards Deming and Joseph Juran are sometimes referred to as the fathers of the quality movement, Walter Shewhart is its grandfather. Both Deming and Juran studied under Shewhart, and much of their work was influenced by his ideas. Shewhart believed that managers needed certain information to enable them to make scientific, efficient, and economical decisions. He developed statistical process control (SPC) charts to supply that information (Shewhart 1931). He also believed that management and production practices need to 29 30 Introduction to Healthcare Operations be continuously evaluated and adopted or rejected based on this evaluation if an organization hopes to evolve and survive. The Deming cycle of improvement, or Deming wheel (plan-do-check-act [PDCA] or plan-do-study-act), was adapted from Shewhart’s work (Shewhart and Deming 1939). W. Edwards Deming Deming was an employee of the U.S. Government Services in the 1930s and 1940s, working with statistical sampling techniques. He became a supporter and student of Shewhart, believing that his techniques could be useful in nonmanufacturing environments. Deming applied SPC methods to his work at the National Bureau of the Census to improve clerical operations in preparation for the 1940 population census. In some cases, productivity improved by a factor of six. Deming taught seminars to bring his and Shewhart’s work to U.S. and Canadian organizations, where major reductions in scrap and rework resulted. However, after the war Deming’s ideas lost popularity in the United States, mainly because demand for all products was so great that quality became unimportant; any product was snapped up by hungry consumers. After the war Deming went to Japan as an adviser for that country’s census. While he was there, the Union of Japanese Scientists and Engineers invited him to lecture on quality control techniques, and Deming brought his message to Japanese executives: Improving quality will reduce expenses while increasing productivity and market share. During the 1950s and 1960s, Deming’s ideas were widely known and implemented in Japan, but not in the United States. The energy crisis of the 1970s and resulting increase in popularity of Japanese automobiles and decline of the U.S. auto industry set the stage for the return of Deming’s ideas. The lower prices and higher quality of Japanese automobiles and electronic goods threatened U.S. industries and the economy. The 1980 television documentary If Japan Can, Why Can’t We (Mason 1980), investigating the increasing competition U.S. industry was facing from Japan, made Deming and his quality ideas known to an even broader audience. Much like the Institute of Medicine report To Err Is Human (1999) increased awareness of the need for quality in healthcare, this documentary increased awareness of the need for quality in manufacturing. Deming’s quality ideas reflected his statistical background, but experience in their implementation caused him to broaden his approach. He believed that managers must understand the two t…

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