Updated: Cutting Health Care Costs? By What Method??


Health-Care Providers Pledge to Try to Curb Costs – WSJ.com

Industry reps offer $2 trillion in health savings

You've likely seen headlines today about a meeting at the White House (ah, more meetings!) where the health care industry has agreed to $2 TRILLION in cost reductions over time. Wow, who could complain about that? I agree that cost reductions are good — along with other goals:

Mr. Obama has said he wants his health-care overhaul to improve the quality of care and lower costs.

Lowering costs and improving quality – that's also always been the goal of “lean healthcare” process improvements. Systems like ThedaCare are making that dream a reality.

But when you look at the details, it's not a reduction in costs, but rather a reduction in the increase (this is a typical Washington game, they claim a “cut” when it's a cut in the rate of growth… refer to your Calculus textbook).

Monday's pledge doesn't aim at cutting health-care spending overall, but merely restraining its rate of growth.

Groups representing hospitals, health-insurance companies, doctors, drug makers, medical-device makers and labor are joining in Monday's announcement. According to a letter from the groups, reviewed by The Wall Street Journal, they will promise to help reduce the growth of national health-care spending by 1.5 percentage points in each of the next 10 years. “The times demand and the nation expects that we, as health care leaders, work with you to reform the health care system,” the letter says.

Setting goals… sounds like the old “management by objectives” system — what does setting a target have to do with the reality of making it happen? Dr. Deming would always say that if you could get results by just setting a goal, why didn't you do that earlier? Why not set a higher goal?

Let's say a contestant on the show “The Biggest Loser” pledged to lose weight… and by lose weight, they meant a reduction in the weight they are gaining each year. Would that fly? No, a trainer would yell and scream at them. They'd take different action (eating less and exercising more). Where's our different action in healthcare?

This Deming piece says:

But by what method? “If you don't have a method, you were goofing off,” he declared.

Meetings and press conferences don't cut costs and improve quality. One way to cut costs and improve quality is to have those really doing the work in healthcare (nurses, pharmacists, physicians, techs) do lean-based process improvement work in their own workplace. And we need leadership from hospital executives and leaders who can help cut the cost of delivering care (admittedly, just one piece of the healthcare cost puzzle).

So by what method? I'm not the only one asking that… from the WSJ story:

“The heavy lifting is still on how to write down how to make it happen,” said Len Nichols, director of the health-policy program for the New America Foundation, a Washington think tank.

How? The article does float a few proposals:

In their letter, the health providers said they would reduce costs by, among other things, simplifying administrative costs, making hospitals more efficient, reducing hospitalizations, managing chronic illnesses more effectively and improving health-care information technology.

So the devil is in the details… how does a high level goal of “making hospitals more efficient” translate into real detailed action?

If you read the literature on Lean in healthcare (including my book and Naida Grunden's book about the great work in Pittsburgh), you'll find plenty of answers. We need action, not just a bunch of meetings.

Healthcare — we're on the clock… let's start delivering that $2 Trillion. Let's work to actually reduce the cost of care without cutting corners and harming quality. Better quality, LOWER cost (not just a reduction in the increases). We can do it.

Update: Here's an article with ThedaCare's response (from CEO Dean Gruner):

Now, an executive with the Appleton-based health care provider and operator of Appleton Medical Center and Theda Clark Medical Center in Nee-nah, says the industry can do better.

“I think a goal to reduce the rate of spending by 1.5 percent is not sufficient,” said Dr. Dean Gruner, president and chief executive officer of ThedaCare. “The industry needs to do better.”

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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


  1. CNN discussion right now:

    Host: on the surface this all sounds great… but the promises are vague and not guaranteed… what have you really got here?

    Is this a discussion about reducing costs or providing coverage to everyone??

    The only way less cost = more coverage is if it’s a government system, which is really what these “leaders” are after, right?

    How about an effort to just cut costs and improve quality — or mainly improve quality?

    I could get behind that. Why does it have to be tied to “we have to provide coverage to everyone.” No we don’t. People can work and earn money and pay for coverage, that’s the American way. Health care is not a right.

    Yes, count me skeptical.

  2. This is an exciting time for anyone who has been hoping for healthcare reform, and I’d venture to guess that’s most of us. Even if we are discouraged by the fact that the Big News of yesterday’s meeting at the White House was not cost-cutting but reducing cost increases (and it’s hard to call that savings), just the fact that there was a meeting at all is a step in the right direction.

    I’m a student in the post-bac pre-med program at the University of Vermont, working my way toward a career in healthcare (likely as a PA or NP) and I look forward to being a part of a dynamic healthcare system that uses a collaborative partnership model rather than adversarial one. UVM also has a new graduate certificate program in healthcare management (http://learn.uvm.edu/hm/) which is aimed at students and mid-career professionals who are interested in taking a leadership role in re-visioning our healthcare system. It’s a hopeful time.

  3. More on this from Politico:

    But in a conference call Thursday, President Richard Umbdenstock told 230 member organizations that the agreement had been misrepresented. The groups, he said, had agreed to gradually ramp up to the 1.5 percentage-point target over 10 years – not to reduce spending by that much in each of the 10 years.

    “There has been a tremendous amount of confusion and frankly a lot of political spin,” Umbdenstock said on the call. “And I want to assure you that the American Hospital Association is at the table and a responsible part of this, but that we’ve been very clear on what we have committed to.”

    Read more: “President of the American Hospital Association says the White House misstated deal – Carrie Budoff Brown and Chris Frates – POLITICO.com” –



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