Organizations worldwide have
achieved major improvements in efficiency, quality and cost
reduction through breakthrough improvement processes, quality
improvement standards and evolutionary Six Sigma initiatives.
Within the health care supply chain, however, those methods
haven’t achieved similar results--or at least not
at the same pace.
Although some successful exceptions do exist, many health
care providers find themselves in quality and cost-performance
crises. They must increase their rate of improvement just
to remain profitable enough to drive health outcomes in
the right direction and meet societal requirements.
The eye-opening numbers from a recent study sponsored
by Juran Institute and Midwest Business Group on Health,
a nonprofit coalition of major public and private employers,
say much about the cost of health care. The report, titled
“Reducing the Costs of Poor Quality Health Care Through
Responsible Purchasing Leadership,” cited the following
Costs of poor-quality care for employers are at least $1,800
per employee per year for health care coverage.
Direct costs of health benefits for poor-quality care are
at least $1,300 per employee per year per employer.
Indirect costs of lost productivity from poor care could
add another $500 per employee per year.
Based on national health expenditures of $1.149 trillion,
the estimated direct cost of poor-quality care in 1998 averaged
between $344 billion and $698 billion.
Private purchasers paid between $112 billion and $224 billion,
whereas public purchasers paid between $157 billion and
How should the needed changes be implemented? This question
is best answered in a new book, Juran Institute’s
Six Sigma: Breakthrough and Beyond (McGraw-Hill, 2003),
by Joseph A. De Feo, president and CEO, and William W. Barnard,
Ph.D., the Institute’s senior vice president. Among
other interesting challenges, the authors contend that,
“Major organizationwide improvement can be achieved
and sustained by pursuing a performance breakthrough road
map that provides the structure to systematically identify
and incorporate long-term business goals with the resources
needed for efficiency, quality and remaining competitive.”
The essential first step for health care providers, then,
is the same as in other environments. First, they must identify
the specific areas in which the cost of poor quality is
the highest. One of the basic tools to help determine this
is a “cost of poor quality” analysis. This will
help identify costs that would disappear if each task in
a process was always performed without deficiency--meaning
Sources of poor quality in the health care supply chain
fall into four categories:
Overuse--Tests such as X-rays and EKGs; lab work;
prescribed medications, including sedatives, noninflammatory
steroids and antibiotics; and procedures such as endoscopies,
coronary artery bypass grafts, tympanoscopies and knee surgeries
Commenting on overuse, Lee Newcomer, M.D., a clinical
participant in the study, suggests, “Assume overuse
for about everything done in American medicine today; so
start your list with those things that are most frequently
Underuse--Diagnostic tests and screenings to prevent
or detect conditions (e.g., mammograms, PAP smears, cholesterol
screening, sigmoidoscopies and depression screening); medications
and/or treatments (e.g., beta-blockers, aspirin and thrombolytics
for heart attack patients; flu shots and inhalers for asthmatics);
and exams (e.g., foot and eye exams and regular blood checks
Misuse--Errors in medication, diagnoses and surgery;
misuse of medical equipment; and complications such as post-surgical
Other--Time lost tracking down or correcting paperwork
and medical records, transporting patients, complexity,
work-arounds, idle resources, inspections, wait times and
Mark Chassin, M.D., another clinical member of the study
group, adds: “The majority of these problems are not
rare, unpredictable or inevitable concomitants of the delivery
of complex modern health care. Rather they are frighteningly
common, often predictable and frequently preventable.”
To sustain systemwide breakthrough improvements, a health
care provider must establish two basic cultural conditions
with employees throughout the organization:
An understanding of the organization’s critical needs
and the potential results from breakthrough improvement
tools such as Six Sigma to achieve and maintain a truly
successful health care system
A program led by top management and supported by a growing
cadre of internal experts to exponentially improve the hospital’s
performance by providing ongoing quality training, facilitation,
analytical support and self-generating knowledge
Some ideas put forth in the Midwest study included:
Changing the current system to one of payment for evidence-based
care as medically necessary
Sharing savings from quality improvement and waste reduction
with providers, plans, purchasers and consumers
Requiring quality measures in health care contracts
Providing continuous feedback to health care suppliers
Juran Institute recommends that providers identify areas
in which chronic deficiencies already exist, and then specify
and provide the resources for specific projects to address
As Joseph M. Juran noted, “All improvement takes
place project by project and in no other way.”
Health care providers’ options for reducing their
cost of poor quality include two proven methods. Both enable
providers to make breakthrough improvements in transactional,
clinical and administrative processes.
The first option is design for Six Sigma. This involves
creating a detailed description of a product or service
and the processes to produce them. The other is the classic
Six Sigma model of quality performance improvement--define,
measure, analyze, improve and control.
What follows is a set of outstanding examples of hospitals
that are leading the way in using these and other breakthrough
performance methodologies to achieve higher-quality patient
care while reducing costs.
The management culture throughout 47 facilities in nine
states of Bon Secours Health System organizes thinking around
four principles that focus on:
Analyzing projects based solely on facts
Empowering the right people to make better decisions through
The basic mission in achieving the best quality possible
is to change leadership behavior, says Douglas Sears, director
of performance improvement at Bon Secours. “We do
this project by project so that our staff learns and achieves
results by proactively participating in the Six Sigma process
of defining, measuring, analyzing, improving and controlling
events to reach the best solution possible,” he explains.
“At one of our hospital units the challenge was
to redesign the process of patient placement to improve
timeliness, reduce unnecessary delays, and achieve a more
efficient and safe flow of patients throughout the acute
care setting,” Sears continues. “The result
[i.e., decline] in registered nurse overtime alone was 65
percent over one year. This is just one of many examples
demonstrating how the accumulative effect can not only improve
patient care but also reduce costs significantly for everyone
in the health care supply chain.”
Sentara Healthcare uses Six Sigma as one performance tool
to improve quality, increase patient satisfaction and reduce
costs. “The goal of our clinical project was to reduce
the length of time a patient is on a ventilator, thereby
avoiding potential complications associated with prolonged
mechanical ventilation,” says Sarah Darwin, director
of nursing and leader of the General Intensive Care Unit
Six Sigma team. “The results were a reduced average
ventilator length of stay of 25 percent and reduction of
defects per million opportunities by
12 percent for annualized savings of $450,000. To hold
the improved gains, we continue to use Six Sigma methodologies
to ensure that patients on a ventilator receive care that
is considered best-practice.”
Sentara has 21 Black Belt performance improvement professionals
and another 20 Green Belt operational leaders. As one of
Modern Healthcare’s top 10 integrated delivery systems
for each of the last five years, Sentara continually works
to improve quality, increase patient satisfaction and reduce
A large teaching hospital on the U.S. West Coast experienced
serious problems in some of its treatment support services.
The root causes remained mysterious and elusive. Management
decided the curiously poor-performing processes must be
Here are two problems the hospital faced along with preliminary
results of the actions taken:
Problem 1: The time it takes for a physician to receive
report results of inpatient tests is too long.
Mission: Reduce turnaround time for laboratory tests.
Symptoms: Only 50 percent of medical laboratory tests were
available at the 8:30 a.m. goal.
Results of improvement: The goal of 8:30 a.m. was met, on
a sustained basis, 96 percent of the time (up from 50 percent).
This represented only the first pass.
Problem 2: Turnaround time for testing gynecologic cytology
specimens takes 25 to 30 working days.
Mission: Reduce turnaround time for testing of gynecologic
Symptoms: Turnaround time fluctuated between 25 and 30 days.
Results of improvement: Turnaround time decreased from 25
to 30 days to a new sustainable standard of three to five
What made such dramatic--and potentially life-saving--improvements
Executive management assumed the role of a quality council
whose mission was to direct and support a cross-functional
organizational attack on serious quality problems, problem
by problem, project by project.
Management identified prospective project team leaders
and facilitators and trained them in quality improvement
methodology to diagnose and cure ailing products or processes.
The approach involved two major steps: (a) diagnosis (i.e.,
searching for root causes) and (b) remedy (i.e., removing
or going around the causes and putting in place new controls
to prevent the causes from returning). This approach closely
resembles the medical procedure for diagnosing and treating
The hospital formed improvement project teams consisting
of staff from the area where the problem showed up and employees
from departments upstream. All teams could call on a standby
group of trained diagnosticians.
The project teams identified causes of the problems and
changed the processes to solve the problems permanently.
It’s clear the health care industry must adopt or
renew a quality improvement initiative designed to help
make breakthrough improvements. Organizations in other industries
recognize that when existing processes fail to meet their
constituents’ needs, management has no alternative
but to challenge existing processes. The health care supply
chain must do the same.
Hospitals can learn some key lessons from successful businesses
in a wide variety of industries in which business environments
are increasingly restrictive and competitive. The health
care supply chain is obviously complex; payers, patients,
hospital staff and management often have contradictory needs.
But hospitals are similar to these other organizations in
As with other businesses, health care providers must improve
their performance by making continuing breakthrough improvements
within a single, holistic process that’s integrated
in the organization’s strategic plan. Despite what
many hospital management leaders might believe, higher quality
and lower costs aren’t contradictory; they’re
synergistic. Breakthroughs are possible if health care organizations
adopt quality initiatives to improve patient care, reinforce
financial viability and better serve their communities.
As most citizens, employers, insurance and financial institutions,
hospitals, government agencies and political leaders know,
the U.S. health care system is in a crisis. The industry
must decide whether to adopt processes that will solve existing
problems or be challenged to do so through legislative or
Hospital management must assess organizational strengths
and weaknesses before proceeding to a methodology such as
Six Sigma. Too few hospitals fully leverage their resources
Integrating them to maximum advantage
Eliminating steps in a process and accelerating the pace
of each step
Training employees with the right skills
Transferring knowledge seamlessly from one unit to another
Prioritizing projects by giving less attention to low-yield
tactics and more to critically strategic goals
Improving financial processes such as billing and collections,
reducing denials and improving coding accuracy
Many hospitals continue to waste precious resources by
maintaining processes that no longer provide a benefit to
patients, by duplicating efforts or by keeping productive
employees working at tasks that require lower-level skills.
Clinical costs outweigh administrative costs, so they offer
the most promising opportunities for performance improvement.
Of course, goals and projects must be aligned with a deployment
strategy. Success requires a commitment by decision-makers
to provide the focused and disciplined leadership that holds
every participant accountable in meeting goals. Management
must own the deployment process and make certain incentives
are aligned with it. Management must also understand that
quality and operational efficiency can’t be improved
without pain. Side-stepping challenges by creating yet another
committee, which delivers reports rather than value or improvements
in performing key processes, is a bureaucratic route doomed
to disappointment and failure.
In any improvement process, it’s vital that commitment
comes in the strongest terms with direct and well-publicized
involvement from the chief executive officer down through
an entire organization. He or she must articulate what it
means to achieve clinical, treatment and operational successes
as well as understand performance improvement’s benefit
to the organization’s bottom line. Top management
will act effectively only if the savings are real.
Health care organizations must avoid cannibalizing revenue
streams when preventive care measures are implemented. For
example, a smoking cessation program can cut revenue from
thoracic surgery. Obviously, little incentive exists to
make quality improvements when an improvement carries penalties.
Communities that share the direct and indirect benefits
among its hospitals also share the costs.
Choosing the right projects when pursuing breakthrough
improvements is equally critical. Once the projects are
identified, the right people must be chosen to initiate
and follow through with the process. With up-front planning
based on strategic deployment, breakthrough improvements
in quality and cost savings can then become realities.
The possibilities in breakthrough improvements, cost savings,
patient satisfaction and loyalty, and employee development
are enormous. The return on investment from a disciplined
process like Six Sigma can be truly significant.
Out-of-pocket health care benefits represent one of the
largest cost items for employers. Many of these purchasers
have used performance-based improvement systems to improve
their productivity and have concluded that these systems
can be applied to health care.
These purchasers are viewing their health care providers
in the same way they do other suppliers: They want to get
more value at lower cost. They also know their employees
have become more informed about the failures of poor health
care processes. There’s no question that employers
are moving aggressively to seek change.
The U.S. Congress might not appropriate more money for
Medicare, and the state-level picture is even gloomier.
“Looking ahead, the picture gets worse,” states
the Juran-MBGH report. “Unless action is taken, the
direct and indirect costs of poor-quality health care could
run over $1 trillion by 2011, equivalent to more than 6
percent of our nation’s projected gross domestic product
for that year.”
Before investing in new processes and technologies, health
care organizations must work on current procedures to make
them efficient and cost-effective. In quality jargon, this
is called reaching process entitlement. Then, after upgrades,
organizations must continue to improve all their processes
to ensure that these providers leverage the most they can
from their efforts and investments.
That’s the measure of Six Sigma. Its true value
is three-fold: a financial focus on how projects are selected,
how controls are put in place to ensure savings are achieved
and held, and in improving patient safety.
Brian J. Swayne is vice president, Transactional Business
Development Team Leader and Six Sigma Master Black Belt
for Juran Institute Inc. He leads trainers and consultants
in guiding financial and service-industry clients to Six
Sigma levels of performance. Swayne’s areas of expertise
include breakthrough improvement, strategic deployment,
transactional processes, benchmarking and lean manufacturing.
Juran Institute was founded in 1979 by Joseph M. Juran,
a pioneer in the quality revolution, who developed many
of the techniques and tools on which the Six Sigma methodology
is based. Its clients include organizations throughout the
health care supply chain.