David K. Coombs
Leonardo Group Americas, LLC
December 5, 2009

The current edition of Newsweek contains an excellent article featuring the Lean achievements of the Cleveland Clinic, some controversial comments from its president and CEO Dr. Delos M. Cosgrove, and a disheartening look at the administrative burdens on health care providers.

Using a broad array of Lean management techniques throughout the Clinic’s ten hospitals and numerous satellite facilities, Dr. Cosgrove’s staff delivers remarkably cost-effective care – nearly 50% below high-cost providers as reported by the 2008 Dartmouth Atlas of Health Care.

A prime contributor to this noteworthy performance is the Clinic’s relationship with its physicians; in contrast to most American hospitals, the Cleveland Clinic’s physicians are salaried and on annual contracts.  This allows substantial savings by coordinating patient care, purchasing and technology:  “Because we’re all on a team”, in the words of Dr. Joseph Sabik.  Even bigger savings come from eliminating the fee-for-service system’s tendency to drive unneeded tests and procedures, estimated by PriceWaterhouseCoopers to cost over $200 billion nationwide.

Looking beyond his own institution, Dr. Cosgrove has addressed what he considers the greatest driver of health-care spending – Americans themselves.  The Cleveland Clinic does not hire smokers, and Dr. Cosgrove has stated publicly, and controversially, that he would also turn down obese  job applicants if the law allowed.  All this to make the point that individuals must take the lead responsibility for their own health, and, indirectly, for the health of the overall system.  

Dr. Cosgrove admits that one large function continues to resist his aggressive improvement drives:  the billing process.  With thousands of insurance plans offered by hundred of companies, the complexities seem intractable.  The Clinic employs 1,400 billing clerks to support 2,000 physicians, and Dr. Cosgrove is quick to point out that “the other side” has at least as many claims workers.  He asks the insurers:  “Can’t we work something out?  We’ll figure out what the average cost is [for a procedure], and instead of having a tug of war over $50, the differences will cancel each other out.  We’re spending our time checking up on each other.  It seems crazy.”

From the Lean point of view, transactions – billing, claims and payments – are necessary but non-value-adding activities.  No billing or claims worker delivers medical care to a patient.  But these administrative functions now drive a great deal of new hiring:  between 1997 and 2007, the number of doctors, nurses and support staffs grew 26% nationwide, while jobs in health insurance increased by 52%, according to Ross Eisenbrey of the Economic Policy Institute.  

All of us know how hard it is to implement Lean principles at the enterprise level, even when a key leader – owner, CEO, or president – serves as Lean Champion.  Readers will recall that President Obama made a personal visit to the Cleveland Clinic in July to observe first-hand how high-quality, cost-efficient medicine can be delivered on a large scale.  But why are these clear and obvious lessons from Cleveland receiving so little attention from the media and Congress?  And how do we, as a nation, take on the daunting challenge of Leaning out a Value Stream which extends across numerous industries and a fifth of our economy?

References:

“The Hospital That Could Cure Health Care”, Jerry Adler and Jeneen Interlandi, Newsweek, December 7, 2009.
http://www.newsweek.com/id/224585

“Health Insurance Industry Employment Outpacing Providers and All-Industry Growth Rates”, Ross Eisenbrey, Economic Policy Institute, September 19, 2007.
http://www.epi.org/economic_snapshots/entry/webfeatures_snapshots_20070919/