Cost Control and Six Sigma: Using Lean Six Sigma to Reduce Operating Costs

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Cost Control and Six SigmaUsing Lean Six Sigma
to Reduce Operating Costs

• Rose Baczewski, RN, BSN, MA

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Introduction
Who am I and why am I here?
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Session Objectives

• Define
• Six Sigma
• Lean
• Discuss the use Lean Six Sigma for cost
  containment
• Review successful cases of cost containment

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Cost Reduction Back by Popular Demand..
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One States Story- New Jersey

• 74 acute care hospitals 1
• 18 billion in total expenditures1
• 2.2 billion in purchased services1
• More than 113,000 full-time jobs and total
  employment of nearly1
• 145,000 full-time and part-time positions1
• More than 7 billion in total employee salaries1
• Nearly 400 million in state income taxes paid by
  hospital employees1
• 1.3 billion in charity care services 1
• 1.3 million uninsured
• In 2007, uninsured patients presented at New
  Jersey hospitals on 2.5 million occasions
• 47 percent posted overall losses at the end of
  2007 2
• The statewide average total margin dropped from
  3.1 percent in 2006 to 0.9 percent for 2007 the
  lowest it has been since 2002 and the 11th
  consecutive year that operating margins have been
  less than 2 percent 2
• New Jerseys hospital facilities are on average
  30 percent older than the national average3

• NJ Hospital Association 2008 Hospitals Economic
  Impact Report
• 2008 edition of the New Jersey Hospital
  Associations Financial Status of New Jersey
  Hospitals report
• Commission on Rationalizing Health Care Resources

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And Your Story?...
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First Concept All Work is Process Work
S
C
U
U
P
S
P
T
Outputs
Inputs
Process
L
O
I
M
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E
R
R
S
S
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And so.Our Work is full of opportunities for
Variation and Defects

• Manual processes
• Technology infrastructure-legacy systems
• Regulation
• Complex relationships
• Physicians
• Health plans
• Institutions
• Data integrity and reliability

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And as a result.
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So what?.

• We need to manage the relationship between
  quality, processes,
• and cost
• Many defects arise because something in a
  process is done incorrectly or inefficiently
• To improve the process you need to be able to
  pinpoint process problems and find better, more
  effective ways to accomplish the same work

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By.
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First Approach - Six Sigma .
A Little History
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Six Sigma.. A Definition

• A comprehensive and flexible system for
  achieving, sustaining and maximizing business
  success. Six Sigma is uniquely driven by close
  understanding of customer needs, disciplined use
  of facts, data, and statistical analysis, and
  diligent attention to managing, and reinventing
  business processes.

Pande, Neuman, Cavanagh The Six Sigma Way
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Why Sigma?

• The symbol is often used to symbolize the
  standard deviation of the population.

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Six Sigma-Its All About Deviation!
3-sigma process
6-sigma process
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Sigma Levels and Defects
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Six Sigma- The DMAI2C Model
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If it is so good, why is it hard to do?
Comfort and Experience Zone
Where we need to be!
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Second Approach -- Lean
A Little History
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Lean/The Toyota Way The 4 P Model
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Lean Fundamentals

• Focus on the Value Stream - All the activities
  required to provide a specific product or service
  
• Creativity before capital
• A not-so-perfect solution implemented today is
  better than a perfect solution that is late-just
  do it!!
• Involve the people that do the work

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How? Elimination of the Muda

• MUDA ANYTHING that does not
• add value!!
• Waiting for the next step
• Excess
• Paperwork
• Excess auditing and checking
• Excessive ineffective supervision
• Over-production
• Unnecessary transport of supplies or product
• Unnecessary movement of employees during the
  course of their work

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If it is so good, why is it hard to do?
We have to learn to See
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The Case for Lean Six SigmaPatient Accounting
and Registration
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Six Sigma Using Data a Funnel

• Where (in the process) do 80 of the problems
  originate?
• When do 80 of problems in the process occur?
• Who (m) are responsible for 80 of the problems?

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Registration Errors and Defects
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Registration Errors and Defects
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Registration Errors and Defects
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Lean Looking for the waste
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Billing Cycle Time and NVA ER Charges and
Billing
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Results
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Sounds great.. BUT.?

• Most departments in hospitals are service
  departments, not manufacturing departments
• Processes are not clearly defined and their
  limits are murky at best
• Patient Care
• Admission Process

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Sounds great.. BUT.?

• Most processes are executed by people not
  machines
• Data is often difficult to obtain, and the
  sources of data often provide conflicting
  information
• Long runway time and high start-up costs
• The belting
• The tyranny of the or

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Do we need to establish a program?
Typical Question.
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Are these the only methods for reducing costs?
Typical Question.
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No! Sometimes you just need to keep it simple!
We want this!
Not that!
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Are you smarter than a Master Black Belt??.
What do the following items have in common???
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And now your questions.