Heathcare Blog
Managing "A" Items in the OR
As ridiculous as this seems, this is exactly the way that many (most) hospital OR's handle their supplies and materials. Much of the material in the OR falls under the inventory classification of A items, items with a high dollar value. Examples of A items include implants, stents, and grafts. The dollar value of this material in the OR can easily total several million dollars or more, and represent 70% of your total inventory investment.
How do we keep track of all of these dollars, in the form of supplies? Very few OR departments actually maintain a perpetual inventory system, that keeps track of material like a bank keeps track of cash. In other words, at any given point in time the OR doesn't really know what is in stock without physically looking. Complete physical inventories are done periodically, sometimes as infrequently as every six months, and there are significant accounting write-ups or write-downs whenever this is done. Needless to say, this is a source of heartburn for the hospital financial department as well.
So why is this apparently common state of affairs, something that would be unacceptable in a bank or even a manufacturing company, allowed to continue in hospitals? Here are some of the reasons we hear:
1. Our focus is on the patient. We can't expect nurses and doctors to become "bean-counters". They're too busy.
2. Supplies and materials are often needed urgently. We can't slow down to fill out paperwork or transact what we need, because it's too time consuming.
3. We can't afford to hire any new FTEs to track materials, because that's just another overhead expense, and we need to control costs.
4. That's not the way things are done in a hospital.
Before we offer some suggestions for improvement, let's take a look at the hard costs related to lax inventory management. In that way we can make a more informed decision about what we can afford, or what level of attention to supplies might be needed. Here are some of the symptoms:
1. Shortages. If we don't know with precision what we have, then an inevitable results will be a higher level of shortages. The results can be serious for our patients, and also drive high expediting and overnight freight costs.
2. Inaccuracies in billing. Not everything gets billed out correctly if we don't have tight reins on inventory management.
3. Excessive supplies handling. The "par level" method used to assess inventory needs is horribly inefficient. It should be replaced with the system used by most world-class organizations, kanban. See my ezinearticle on Par and Kanban.
4. Inaccurate financial statements. The accounting rules tell us that if we don't really know what we have, we also don't really know what our costs are for any given financial reporting period.
5. Excess inventory. If inventory records are not accurate, we tend to compensate by overstocking. In a recent improvement project, we removed over $500,000 in excess inventory from an OR, without breathing hard.
What should you do about managing A items? There are several possibilities, ranging from the very manual to the high tech. The simplest suggestion is to do what most high performing organizations do: have a quick-response stockroom in the OR, with individuals assigned to inventory control, inventory transactions and patient service for materials. Set a goal of being able to put your hands on any item within 10 seconds, and set up the storage area to be able to accomplish this. Plan to staff the area for hours that match the schedule of OR need.
An intermediate-level solution would involve the use of bar-codes to speed up transactions and reduce errors. Nurses and techs can be trained to use the bar-code system, and reduce the workload on the materials staff. Barcoding is not a new technology, and virtually every inventory system supports it.
On the high-tech side, install RFID-based cabinets. An RFID cabinet is a locked storage container that is able to track what is inside via a Radio Frequency Identification tag attached to each high-dollar item. In order to unlock the cabinet an employee badge and a patient case number are needed. The RFID cabinet has the advantage of being able to capture billing information in addition to inventory information, and greatly reducing human error.
Regardless of the path you choose to follow, it is important to make a commitment to a high level of inventory control for A items in the OR. This effort will pay for itself many times over.
Par Level vs Kanban Methods: Which One for Hospital Material Management?
Richard Rahn, Principal
Leonardo Group Americas
March 17, 2010
We think we've uncovered an opportunity that could mean millions of dollars in savings to individual hospitals, and billions of dollars to the healthcare system nationally. It has to do with how most hospitals manage supplies, medications and other materials.
Many, maybe most, hospitals manage their inventory of supplies and medications using what’s called a “par-level” method. It works like this: a stocking quantity is established for each item, the par level, based on average usage and a target number of days supply. We might, for example, set a goal of maintaining a two-day quantity of material for each supply item. As the material is actually used, we would bring the quantities “up to par” daily, by conducting a physical inventory and restocking the quantity that was consumed. The goal, sensibly, is to not run out of supplies while maintaining a tight control of storage space and inventory quantities. So far so good.
It is interesting to note that this par method of inventory control is rarely used in a world-class manufacturing environment, although a manufacturer certainly has the same needs and goals for inventory control as a hospital. The suggestion that we do a daily physical inventory would be greeted with astonishment and disbelief. Many world-class manufacturing companies don’t even conduct an annual inventory, having sustained a high level of inventory accuracy through tight controls and cycle counting. The method of choice in manufacturing for “C” items is called Kanban. In a Kanban system, as with the par level method, we set a target quantity that we want to maintain. The principal difference is that instead of attempting to bring quantities “up to par” daily, in a Kanban system we set a fixed quantity that we will use to trigger the replenishment of inventory. In a “two-bin” kanban system, for example, we set up two quantities or bins of the same supply, and only refill a bin when it is empty. While the bin is being refilled, we have a second bin to cover usage during the replenishment cycle.
The Kanban method has seven main advantages over a Par-level system:
1. No daily counting is needed. We wait for a bin to be emptied and always replenish the same quantity. Not having to count can save hundreds or thousands of hours per year in most hospitals.
2. Reduces the number of resupply trips. Since we do not refill a Kanban bin daily, but instead wait for it to be empty, the number of replenishment trips can be reduced significantly. The number of replenishment cycles can be cut by 50% or more.
3. Replenishment quantities are fixed. The refilling process is greatly simplified by eliminating the need for counting required by the par system. If we know ahead of time what the refill quantity will be, the item can be stocked in that quantity.
4. Easier to manage and improve. By tracking the time between replenishments, the stocking quantities can more easily be refined and adjusted over time. This continuous improvement is more difficult to accomplish if all quantities are refilled daily, in varying quantities.
5. Kanban reduces inventory. Experience proves that, with the same target coverage of supplies, a Kanban system will run with up to 50% less inventory than a par system.
6. Easier to maintain replenishment discipline. Since they do not have to count all inventory locations, or eye-ball the empty bins, Supplies handlers find it easier to identify and refill the empty bins, thereby substantially reducing the opportunities for shortages.
7. Kanban promotes good inventory management practices, while the par level does not. In fact, counting everything is essentially impossible and very labor intensive, and most par-level users simply “eye-ball” the bins without counting. Organization and housekeeping, “5S” in lean terms, is much easier to maintain.
For all of these reasons, Kanban is the method of choice for hospital material management, for much of the material that is procured and managed. The gains in productivity, reduced shortages and reduced inventory represent a multi-billion dollar opportunity for the industry.
Lessons from Cleveland
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/
Wake-Up Call
Lean Hospital Group & Leonardo Group Americas, LLC
November 23, 2009
American health care providers and administrators should take a careful look at Geeta Anand’s article in the November 21, 2009 Wall Street Journal: “The Henry Ford of Heart Surgery.” Dr. Devi Sheeti of India, who was personal physician to Mother Teresa, has built a surgical practice which provides open-heart surgical care to many thousands of patients yearly, at an average cost of $2,000 per case, compared to American rates ranging from $20,000 to $100,000.
How can this be? Think Henry Ford, particularly early in his career, who focused on standardization, volume, and continuous process improvements. By driving down the cost curve, Ford dramatically increased the accessibility of his product while improving its reliability. Dr. Sheeti’s surgical team perform enough specialized procedures that they get very, very good at them, according to Jack Lewin, chief executive of the American College of Cardiology, who has visited Dr. Sheeti’s hospital. Dr. Sheeti’s medical outcomes are well within comparative ranges, and may be understated, given that many of his patients come from high-risk backgrounds.
Dr. Sheeti makes a further comment relating medicine and the auto industry. As Detroit’s Big Three, protected from meaningful competition for several decades following World War II, grew bloated and complacent, “Japanese companies reinvented the process of making cars. That’s what we’re doing in health care.”
He summarizes perfectly the misdirection of so much effort, and money, in American health care: “What health care needs is process innovation, not product innovation.” Peter Pronovost, M.D., the Johns Hopkins physician who has used medical checklists to standardize procedures, eliminate errors and reduce infections, agrees: “The fundamental problem with the quality of American medicine is that we’ve failed to view the delivery of health care as a science.”
So, what’s the next step for Dr. Sheeti and his burgeoning practice? Plans are underway to build a 1,000-bed hospital in the Cayman Islands – just an hour away from Miami by air. That’s right – a powerful new competitor for American cardiac care, right on our doorstep.
So, there’s the wake-up call. America prides itself on innovation, creativity and technology. It’s time now to apply those competitive strengths where they’re needed most – in process innovation. That, of course, is what Lean is all about.
Reference:
Geeta Anand, “The Henry Ford of Heart Surgery”, The Wall Street Journal, November 21-22, 2009.
http://online.wsj.com/article/SB125875892887958111.html
Lean Scheduling Process
David K. Coombs
Lean Hospital Group
October 15, 2009
Here at the Lean Hospital Group we’re encouraged to see more Lean success stories turning up in the health care literature. Have you ever been referred by your primary-care physician to see a specialist, only to wait weeks for that follow-up appointment? Sure, the specialist is busy, but how can such long scheduling delays make sense?
Frequently, of course, those delays don’t make sense. That’s what the Lean team at the University of Michigan’s MedSport clinic found out when they set to work on their patient scheduling process. Pre-project surveys indicated that patients were terribly frustrated by the delays, whereas “providers felt that the system suited their needs and functioned quite well; they did not realize how inefficient it was.”
The Current State Value Stream Map was an eye-opener, allowing everyone to see the big picture. Processing time for a patient appointment was a reasonable 11 to 31 minutes, but the total lead time ranged from 1 to 36 days! Why 36 days? And why such huge variability?
The usual culprits: call-backs for missing information, interactions with referring and consulting physicians, searching for records – you get the picture. Undaunted, the team set an audacious goal: to schedule 90% of all patients in the first phone contact. Using the standard work approach, they decided to accept only telephone inquiries with complete information, eliminating e-mail, snail mail, and faxes with their inevitable call-backs. Analysis showed that pre-review of the incoming patient’s record prior to scheduling added value just 10% of the time, so that was eliminated in most cases. Clinical algorithms were designed to help newly-empowered staffers to direct patients towards the appropriate specialist, on an urgent or routine basis. Following training, the Lean process was implemented just two weeks later!
Results: with the new system in place and stabilized, 85% of patients are now scheduled on the first phone call. The clinic’s case mix includes certain complex cases which simply require different handling, on a “slow track”, and even these are scheduled in just several days. Patients are delighted, as are the referring and in-house providers, all of whom have been freed up from the phone and e-mail tag that had been devouring so much of their time.
Another Lean success – and as always, it’s about eliminating the waste so providers’ time, skill and compassion can go where they belong – with the patient.
Reference:
Edward M. Wojtys, MD, et. al., “Applying Lean Techniques to Improve the Patient Scheduling Process”, Journal for Healthcare Quality, May/June 2009.
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