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…

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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. This type of reporting, unfavorable to Lean, has long been part of the progressive management territory, as has the negative worker perceptions of Lean as synonymous with indiscriminate cost cutting and layoffs. From my perspective, the more significant problem is the Lean community has not devised and deployed effective strategies to reverse erroneous perceptions of Lean.

  2. This is a very important message Mark, thanks for the post. In my previous hospital work there was much effort to measure and improve the productivity of the parts (departments) rather than look at the productivity of the whole hospital as a system. Task forces were typical and produced temporary reductions in cost, but not the on-going removal of waste. Real lean is the way to improvement (and survival) for healthcare.

    A good point made by Bob Emiliani in his comment above – how to do a better job to understand and distinguish real lean from fake lean (or as you describe it L.A.M.E) so that real lean does not get misrepresented to the public?

  3. Bob’s comment above, “…the more significant problem is the Lean community has not devised and deployed effective strategies to reverse erroneous perceptions of Lean” is dead on, in my opinion. Perhaps there are other root causes.

    Just a thought, but I believe if the top lean thought leaders, many of whom are active in the social media, combined their talents to PDCA this, it would go a long ways toward improving it.

  4. It amazes me that critics of lean think that layoffs were invented by lean consultants. Layoffs are the standard bearer method of traditional management, including hospitals.

    The lean literature clearly and repeatedly says that lean shouldn’t be used to drive layoffs (it defeats kaizen from staff engagement and it doesn’t show “Respect for People” as Toyota calls it). Traditional leaders who are already hell bent on doing layoffs may want to use lean as their latest method for doing that.

    Many lean consultants are willing to walk away from clients who want to use lean to directly drive headcount reduction, but not everybody has that level of integrity.

  5. Layoffs usually happen due to poor managment not Lean.

    “Some of our most prestigious firms, anticipating expanding business, hired heavily in recent years. When their projections proved inaccurate, they retrenched and fired heavily. In other words, the workers are paying for the errors of management” – Rafael Aguayo’s “Dr. Deming The American Who Taught The Japanese About Quality” (page 18)

    I am surprised these hospitals are taking action on the “suspected problem” of reduced reimbursement without looking to see if they really will have a shortfall. Maybe they have more info than I do. I usually like to work on existing problems and not suspected ones.

  6. While I respect the LEAN concept’s focus on process, it is important to recognize that labor can be part of the equation. It is distinctly possible that a part of “waste” in a system can be too many people, particularly if an organization has been adding staff to create “work arounds” to inefficiencies. I believe one of the dangers to the receptivity of LEAN is the perceived lack of understanding of how organizations really work on the part of some consultants in the field.

  7. @mh – thanks for the comment. You’re right that hospitals are often overstaffed due to throwing people at problems or due to just not having a good labor planning process (for example, relying on inappropriate benchmarks).

    But Lean is about both process and “respect for people.” RFP is a complex topic, but part of it is having an obligation toward the people working for you, to not treat them like disposable labor when they are skilled professionals.

    Hospitals that find labor productivity improvements have a lot of alternatives other than layoffs (these are real examples, not theory):

    – Redeploying people to other areas (for growth or filling needs being unmet elsewhere)
    – Redeploying some people to an internal Lean improvement team
    – Taking the headcount reduction through natural attrition and retirements

    Can you elaborate on “the perceived lack of understanding of how organizations really work on the part of some consultants in the field”?

  8. Thank you for your response Mark. With regard to my comment on the lack of understanding, I was really referring to the general feeling that theory can often be discussed without recognition of nuance. Commentary that was left regarding layoffs as quick and easy fixes really undercuts the acutal reality that layoffs are neither quick or easy. While evidence exists that there may be alternatives to layoffs or reductions, I’m not sure if it is accurate to state that under no circumstances can a LEAN process also result in a reduction in force. I think it is not only possible, but it may indeed be a prudent approach to the long term sustainability of the organization when such efficiencies are created. The key is to have the layoff process done in a manner that is respectful and tries to leave the impacted employee as whole as possible.

    • @ mh – here is a recent article about ThedaCare and their “no layoffs’ practice:

      I agree with the person in the article who said layoffs should be a last resort, not a first option.

      Further, I’d argue that layoffs (or the threat thereof) erode trust between employees and management – that’s not good for quality or morale. When employees feel safe in the workplace, they can truly commit themselves to improvements that will reduce cost and improve quality, as opposed to being in a fear-based death spiral.

      Toyota didn’t lay off permanent workers at their U.S. factories during the financial crisis. They invested in them with training and education, ready to come back stronger when production started back up.

      I’d argue that it’s not altruistic to have a “no layoffs due to lean” policy – it’s good for the business – unless you’re in absolutely dire “we won’t survive unless we reduce headcount” position.

  9. Traditional command and control (TCC), Theory X, managers have not learned the most important Pillar of Management, Respect for Employees. Employees are thought to be a commodity to use and remove at will. What I found is most respectful of employees is to first train them how to, then delegate them the authority for, continuously improving their workplace using the tools of Lean. Then turn them loose. Since TCC’s spend considerable sums on consultants, then with their advice attempt to buy solutions to problems by adding “crutch” employees to perform the excess work required by failing to improve poor processes, they are typically overstaffed in contrast to a Lean workplace. By eliminating the consultants with packaged solutions, hiring a Lean Sensei, and teaching the crutch employees to become Lean Champions, they can use their excess capacity to spread the culture of Lean. If they do find a need to reduce their workforce, what I found is that there are many employees who don’t care for change, especially Lean conversions, that attrition will take care any excess capacity.

  10. Hospitals are laying off staff to cope with reduced payments from Medicare or insurance companies. Yet, doctors (or whomever are the real decision makers) order very expensive CT Scans instead of inexpensive x-rays to aid in diagnosis of straightforward conditions such as kidney stones. Just because equipment is available shouldn’t mean that it is indiscriminately utilized. Review of treatment protocols to ensure the use of “right-sized” equipment could help save millions of dollars over a year’s time.

  11. I’d like to see lean in hospitals more. It seems like a more beneficial approach to high overhead, long waits, and lots of waste.

    Getting rid of people doesn’t address any of the actual problems.

    I do agree with some of the commentators as well. If high cost procedures vs. low payments from insurance carriers are the issue perhaps we should focus on cutting those costs and more preventative measures.

    • If we made 2 cents an hour, without any benefits, we would still get laid off. It would show up on the spreadsheet as a decrease % and that is considered a positive.


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