Save $1 Trillion in Healthcare Costs with Lean and the Toyota Production System
I blogged earlier about the Obama administration's announcement that the healthcare industry is promising $2 Trillion in savings (reduced cost increases) over the next 10 years. Hooray, we set a goal.
The announcements were light on how to do this… generalities such as “increase hospital efficiency.” Again, sounds great, but how? It's not going to come from traditional means like asking people to work faster or by laying off scores of people (since we're trying to save jobs in this economy, as well).
The $2 Trillion number is pulled out of thin air, it seems, so grant me the same latitude for a moment.
Hospitals in the U.S. (and around the world) are proving that you can improve quality, safety, and service with “Lean” or Toyota Production System improvement methods and management systems. Oh yeah, and we're reducing costs too. This isn't speculation, this is already happening.
For example, ThedaCare sometimes gets credit for reducing costs $10M a year (source). ThedaCare, at about 5000 employees, is a large-ish sized hospital.
Let's do the math…
There are about 6000 hospitals in the United States.
$10 Million x 6000 = $60 Billion a Year savings x 10 years
= $0.6 Trillion
Even with all of their success, it is likely that ThedaCare has not reached their full Lean improvement and cost savings potential, so they, and other hospitals, could do better. They aren't perfect yet.
I promised $1 Trillion in my headline. How would I get to that number?
Norman Bodek often cites a Japanese benchmark (Toyota and Canon) that leading companies generate $4,000 a year in cost savings PER EMPLOYEE thanks to employee suggestion and “kaizen” systems (source).
So back to the math….
At a hospital of 5000 employees:
$4,000/employee x 5000 employees = $20 Million a year in savings
$20 Million x 6000 hospitals x 10 Years =
That's ONE TRILLION dollars that I just saved. Ahem, or promised (or really just speculated about). Now the industry can come up with the other have through other “improvements,” such as paying doctors less and squeezing suppliers (not real improvements, by the way, just passing the buck). Lean savings are real savings.
That's the real potential of Lean methods, principles, philosophies, and management systems. It takes time to get there. ThedaCare has been at it for six years. So the rest of our hospitals need to get started…. say, now!
Before you attack me, I admit my numbers here are just speculation — but grounded in some reality with some liberties taken with my estimation and extrapolation (but, hey, like the government, I mean well, so cut me some slack). But as we have the “how” discussion, I hope Lean is a big part of that picture.