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7 ways lean healthcare management reduces cost

With the financial pressures that healthcare organizations are facing, many hospitals are using traditional cost cutting methods to save money by looking at layoffs and staff reductions. Many more hospitals, however, are finding ways to reduce costs through lean management methods that don't require layoffs and can improve quality for patients.

"Lean is actually the best alternative to layoffs. It's all about encouraging everyone to participate in process improvement, as well as finding creative and interesting ways to save money for a healthcare organization to avoid those unwanted traditional cost slashing endeavors like layoffs," explains Mark Graban, a lean expert and author of the book Hospital Kaizen. "Layoffs don't lead to long-term cost reduction. And if you lay off people and don't fix any processes, you're risking patient safety and quality. As a result, more and more healthcare providers are looking at lean to break that cycle."

Graban has outlined seven different ways that lean management can help reduce system cost.

1. Reduce "never events." A "never event" includes falls, infections, erroneous amputations and other small-to-large-scale disasters. Reducing these events is, of course, best for patients, but there's also financial pressure to reduce never events. In 2009, Medicare stopped paying for care from events they consider preventable, and now private insurers are following suit. Pressure ulcers and bedsores, for example, are viewed as preventable. They shouldn't happen if a good process is followed – like patients being repositioned. Improving quality in general saves hospitals more than layoffs since "never events" occur when an understaffed hospital can't be attentive enough to a patient needs.

2. Supply chain improvements. It's important to consider looking at a more effective material restocking process. For example, more frequent smaller batch deliveries or rotating supplies more quickly reduces  both the amount of space used in internal warehouse and cash tied-up in inventory.

[See also: Reducing cost through clinical redesign]

3. Delay or cancel construction and expansion. A trend in the last few years has shown that hospitals use lean to increase capacity by using current equipment and available space. Lean makes better use of existing resources as an alternative to increasing capital spending. "I worked with one hospital that through process improvement to patient flow – preventing delays from registration through to discharge – they increased the utilization rates of their MRI machines from 40 percent to 60 percent. And they didn't need buy more equipment," said Graban.

4.  Reduce overtime. Reducing overtime is a great opportunity to help make improvements with lean that doesn't alienate people the way layoffs do. Essentially, people want to get home to have dinner with their families in a predictable/consistent way. If you can improve charting during the process, for example, instead of having nurses do it after, you can improve staff satisfaction while trimming down overtime, which results in both morale and cost savings. It's a win-win opportunity.

5. Reduce length of stay. This certainly isn't about pushing patients home before they're ready, Graban notes. Reducing length of stay is done through preventing errors that would extend a stay or delay a discharge when patients are medically ready to go home. Because of miscommunication, poor planning, or when families or nursing homes aren't yet ready to take on the person being discharged, a four-day stay can suddenly turn into a five- or six-day stay. These process related things aren't medical issues, but they often extend length of stay which can cost millions.

6. Reduce unnecessary testing and diagnostics. A number of hospitals are trying to be responsible stewards of healthcare dollars by reducing inappropriate usage of lab testing and diagnostic imaging. For example, through medical evidence it's been shown that when a patient comes in with back pain more often than not what they need is physical therapy – not a fast pass to a CT scan, says Graban. ACOs help organizations benefit from their own cost reduction efforts and will do so in a way that doesn't shortchange what the patient needs.

[See also: Cost structure for hospital tracking systems must be 'no-brainer']

7. Reduce delays and errors in billing. There are a tremendous amount of delays in billing, including too many people involved during different parts of the process. If there's a better flow, if people are handing off the work to the next person in the chain immediately, bills go out in a couple of days instead of a couple weeks. It's also incredibly important to make sure billing is being done properly. If mistakes are made and proper preauthorizations aren't followed, but procedures are done anyway, hospitals might be voluntarily giving away revenue.