Hospitals Under Pressure, Resorting to Layoffs and Slash and Burn, Not Lean
Generally, with the term “lean,” it’s easy for people to leap to a conclusion that Lean equals layoffs. This is often the fear in healthcare when Lean consultants are involved, especially since consultants usually equals cost cutting in healthcare, which typically means layoffs, unfortunately.
However, Toyota-based Lean principles are different. Hospitals like ThedaCare have a “no layoffs due to Lean” philosophy, yet the anxiety and criticism often remain when people hear the word “lean.”
The argument that “Lean isn’t about layoffs” isn’t helped when Lean is mentioned in news stories about hospital layoffs, even in an indirect way, as happened in this recent article: “UMass to cut 70-80 jobs; Memorial to ax 28-bed unit.”
The article describes what is arguably traditional slash-and-burn hospital cost cutting:
The system, which was running a $48 million surplus as of July 31, is making the cuts and taking other actions in an effort to slash $80 million from the budget for the fiscal year that will start Oct. 1, according to UMass Memorial President and Chief Executive Officer John G. O’Brien. Higher costs and lower payments from some insurers are driving the moves, he said.
“We’re having a halfway decent year, but we, like probably every hospital in the country, are looking at environmental factors for the coming year, and it is informing us that we have to do business differently,” Mr. O’Brien said.
You might ask why they would layoff people when they have a surplus (a profit)? Well, most hospitals are expecting to have their Medicare and Medicaid payments slashed, which will be particularly hard on hospitals that have a high percentage of patients who don’t have private insurance. So UMass Memorial isn’t losing money… yet.
UMass Memorial expects payments from Medicare, the federal health program for seniors, to fall by $304 million from 2010 to 2020, he said. Private insurers are facing rate caps from the state government, and the business community is asking health care providers to bring costs under control, he said.
At the same time, more patients at UMass Memorial have health insurance with high deductibles or co-payments that they cannot pay, Mr. O’Brien said.
Uncompensated care in the current fiscal year is expected to cost $75 million, or about $5 million more than anticipated, he said.
Unfortunately, they’ve turned to the old slash-and-burn. Unlike most manufacturing, labor actually is the highest component of hospital cost (typically 60 to 70% of costs). Unfortunately, cutting people means slashing services and providing LESS care to patients – unless there’s waste reduction, which means you could provide more care with fewer people… but again, we’re not supposed to layoff people due to Lean. And there’s no evidence so far in the article that Lean has anything to do with the layoffs.
The union, of course, is unhappy:
David J. Schildmeier, director of public communications for the Massachusetts Nurses Association, which represents UMass Memorial nurses, called reductions “insane” for a system that always makes “tons of money.”
The article ends with this:
In addition to the cuts, UMass Memorial is using “lean” and Six Sigma management practices with groups of doctors to try to find ways to practice medicine more efficiently, said Dr. Walter H. Ettinger Jr., president of UMass Memorial Medical Center. Six Sigma management is a process for anticipating and solving problems.
“If we can have them be more efficient with the way they deliver care, that’s important,” Dr. Ettinger said.
More evidence that Lean isn’t the cause of the layoffs is the phrase “in addition to the cuts.” It would have been better if the hospital and the newspaper had just left Lean out of it.
It’s just a shame that Lean couldn’t have helped AVOID the layoffs, to eliminate waste and become more efficient instead of just doing less. Has the hospital really eliminated all possible waste before resorting to layoffs? I doubt it.
As often happens, the reader comments have somebody attacking improvement approaches that originated in manufacturing (this time directed at Six Sigma):
Six Sigma is not the answer to the healthcare cost crisis. That may have worked in manufacturing lightbulbs for GE (where Six Sigma started), but it doesn’t work in this environment. Patients require individualized care plans. Not every patient can be treated with this cookie cutter approach.
Lean isn’t about a “cookie cutter” approach. That’s becoming a really tired argument, at this point…
Another instance of the slash-and-burn can be found at Boston Medical Center (“Boston Medical Center announces layoffs, losses“).
Boston Medical Center, a 639-bed teaching hospital in Boston’s South End, announced a layoff of 119 employees on Monday and said it would likely lose approximately $175 million this year.
The move was not unexpected, said Tom Traylor, BMC’s vice president of federal, state and local programs. He said the medical center would lose the income due to dramatic changes in federal Medicaid reimbursements, and that hospital staff expected the force reduction.
The hospital claims it is “necessary”:
We have been talking to the staff about this new reality for well over a year, and have been working to assess and increase efficiency in every corner of the hospital,” Traylor said. “We have been consulting with outside experts to study the efficiency of delivery of patient care, and they found very little excess capacity, particularly in terms of hospital staffing levels. This layoff is one necessary element of addressing the hospital’s financial situation.”
That doesn’t make sense… they don’t have extra people, yet they are laying off nurses? I wonder what kind of consultants they brought in, as there’s always very obvious waste in hospital settings with opportunities to make improvements without going to the easy solution of layoffs.
The Boston Globe version of the story (which insensitively ran a picture of a smiling Boston Medical Center CEO) said this:
In the meantime, Walsh did not rule out further belt-tightening. She is scheduled to address staff members today in a series of meetings to outline six task forces that will be charged with finding ways to further streamline operations.
“We will be redeploying people and staffing more directly to demand,” Walsh said. “If we have people on days and there is more clinical need in the evenings, we will be matching our workforce to where our patients need us.”
Oh boy, “task forces.” Call me a cynic, but that’s bound to be as effective as the usual hospital committees. Lean provides such a clear alternative (kaizen and kaizen events) to the committees that get together and talk monthly, accomplishing little.
“Staffing more directly to demand” probably seems so obvious to those in other industries, but that doesn’t happen in many hospitals. That’s often one outcome of Lean analysis — to shift the hours that doctors, nurses, and staff work to be more closely aligned to, for example, when more patients are coming to the emergency room.
Boston Medical Center has a very high Medicare/Medicaid patient percentage, so they get paid less for providing care:
[The CEO] said the hospital is reimbursed for about 60 cents for every dollar it spends on Medicaid patients.
Is the government paying too little or are costs too high? It could be a little of both…. again, from the article:
In earlier interviews, state officials have said that Boston Medical Center’s costs are 20 percent to 30 percent higher than those at similar hospitals, suggesting that cost savings are possible.
There’s still a lot of work to be done. This is a very troubled industry. I’m afraid not enough hospitals have gotten far enough with Lean to avoid massive layoffs in the industry… we need to reduce waste, not slash labor costs.
Again, there’s not a single piece of evidence that Boston Medical Center is using Lean, yet layoffs are their main cost-cutting strategy. When people are afraid that Lean is about layoffs, they miss the point that Lean is actually their best alternative for preserving jobs and providing better patient care.
I’ll blog soon about my visit to the Toyota San Antonio plant today… an example of a company that does not rely on layoffs when times are tough…