There has never been a more difficult time to be a hospital executive in the United States.  Regulations, billing systems, technology, politics, and customer demands are all evolving at dizzying and unpredictable paces.  Hospital revenues are under increasing stress from labor unions, capital requirements, 3^rd party payers, and competition from ambulatory service centers (ASC).  Moreover, most of these forces are completely out of a hospital’s control.

Many hospitals have had a hard time adjusting to new demands and competition, and are now seeing their bottom lines erode and their service levels decrease:

• Average Total Hospital Margins in 2008 were 2.6% vs. 5.8% in 1998.
• 32.4% of hospitals reported negative margins in 2008 vs. 26.6% of hospitals in 1998.
• 43% of hospitals expect to report negative margins for YE2009.
• Chance of receiving care that meets generally accepted standards is only 55% in US.

The most common reasons hospitals are having trouble adjusting to change are listed below:

• Physicians are often incentivized or driven to optimize their short-term revenues at the expense of the hospital’s (and their own) long-term health.
• Administration and oversight boards often have limited understanding of clinical processes.
• RNs/Techs are often forced to manage critical OR processes without support or training.
• Hospitals are often thought of as so complex that the “Band-Aid” approach to problem solving is the only viable solution.
• Physicians, nurses, administrators, and 3^rd party payers are territorial and function in silos.

Fortunately, these problems have already occurred in other industries and there are many practical (sometimes revolutionary) tools that hospitals can employ to increase their efficiency, service levels, and bottom lines.

Over the next few weeks, we will be doing a series on the evolution of process improvement in manufacturing and the application of Lean Six Sigma in the management of hospitals.  From W. Edwards Deming and the Toyota Production System, to Six Sigma, Lean manufacturing, and process improvement in service industries, we want to demonstrate the practicality and effectiveness of applying these systems in the U.S. health care system.

Next week we begin with W. Edwards Deming and the history of process management.  See you then…