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Harry Hertz

Health Care

Why Healthcare Performance Is Important to U.S. Competitiveness

Baldrige criteria can help reduce healthcare costs and improve quality

Published: Tuesday, February 5, 2013 - 11:48

According to a recent PBS report based on information from the Organization for Economic Co-operation and Development (OECD), the United States’ healtcare expenditures are 2.5 times greater than that of the most developed nations around the world. Depending on which report you read, our healthcare expenditures account for between 17.6 percent and 17.9 percent of our nation’s gross domestic product (GDP).

In contrast to our healthcare expenditures, the Commonwealth Fund’s 2011 comprehensive assessments of U.S. population health and healthcare quality, access, efficiency, and equity show the United States scoring 64, with benchmark performance at 100, across 42 performance indicators.

The following examples illuminate some of the challenges we face:
• In 2010, one-third of U.S. adults did not get medical care, did not fill a prescription, or skipped a needed test or treatment because of cost. In Great Britain, the comparison rate was 5 percent of adults.
• For sicker adults experiencing medical, medication, or lab test errors, the U.S. rate was twice as high as the benchmark of the eight best countries.
• For potential overuse or waste in the medical system, the U.S. score was 40, relative to a benchmark of 100.

Effects of healthcare cost

The cost of healthcare, access to healthcare, and the quality of healthcare affect every person in the United States, and the cumulative effects of healthcare cost and quality has a direct bearing on economic growth, jobs, and U.S. competitiveness. The White House Council of Economic Advisers has undertaken a comprehensive analysis of the current economic effects of healthcare costs in the United States. Some of the findings include the following:
• If healthcare costs continue to grow at historical rates, they would account for 34 percent of GDP by 2040.
• Slowing the annual growth rate of healthcare costs by 1.5 percentage points would increase GDP by more than 2 percent in 2020 and nearly 8 percent in 2030. The beneficial effect on employment is estimated at 500,000 jobs each year the effect is felt.

Effects of healthcare quality

Many studies have been done on how poor quality affects healthcare costs in the United States. A few examples from “National Strategy for Quality Improvement in Health Care,” a March 2011 report by the Department of Health and Human Services to Congress, illustrate the point:
• The Centers for Disease Control and Prevention (CDC) estimate that at least 1.7 million healthcare-treatment-related infections occur each year and lead to 99,000 deaths.
• Adverse medication events cause more than 770,000 injuries and deaths each year. The annual cost for treating patients affected by these events is estimated at $5 billion.
• A study on implementating CDC recommendations to reduce central-line-associated bloodstream infections was conducted in 100 intensive care units (ICUs). The implemented recommendations reduced the rate of such infections by two-thirds within three months; after 18 months more than 1,500 lives and nearly $200 million were saved, all in just 100 ICUs.

Baldrige criteria’s presence in healthcare

I believe—and an independent study has now documented—that use of Baldrige Health Care Criteria for Performance Excellence directly reduces healthcare costs and improves quality. The study was completed by Thomson Reuters in October 2011. Key findings include the following:
• Baldrige Award-winning hospitals and hospitals that received a site visit from Baldrige examiners demonstrate faster five-year performance improvement than their peers not following Baldrige Health Care Criteria.
• Baldrige Award-winning hospitals, as a group, are about 83 percent more likely to be listed as one of the 100 Top Hospitals in the United States than hospitals not following Baldrige criteria. The 100 Top Hospitals study uses objective research and independent public data to recognize the best U.S. hospitals, which are evaluated on measures of overall organizational performance.
• Baldrige Award-winning hospitals have outperformed hospitals not following Baldrige criteria on six of seven individual performance measures used in the 100 Top Hospitals composite score, including the CMS core measures and adjusted operating profit margin.

Implementation of Baldrige “practices” and criteria

Given the benefits that use of the Baldrige Criteria for Performance Excellence can offer, two recent studies have looked at the adoption of this improvement framework and related practices in healthcare. The first study looked at the current adoption of Baldrige practices. The study conducted by Truven Health Analytics (formerly known as the healthcare business of Thomson Reuters) was completed in October 2012. This study was based on Truven’s annual survey to understand the practices and strategies of CEOs of Truven’s designated 100 Top Hospitals. Key findings of that study include the following:
• Overall, the 100 Top Hospitals winners have extensively adopted Baldrige practices, even though 63 percent reported they did not intentionally use the Baldrige criteria to develop organizational goals or process improvement initiatives.
• Teaching hospitals reported the highest formal use of the Baldrige criteria. Nearly 70 percent of these hospitals noted that their teams have used the criteria to develop organizational goals and process improvement initiatives.
• One of the major challenges facing the majority of CEOs surveyed is organizationwide alignment (i.e., the ability of all parts of an organization to work together to support key goals, address key challenges, and respond to sudden changes) as they prepare their hospitals for healthcare reform. More than 80 percent of the respondents agreed or strongly agreed that they have implemented the Baldrige practices listed on the survey, with the exception of alignment of results across all areas (68 percent).

The second study posed questions specifically about the use of the Baldrige Health Care Criteria. This study was based on a survey of CEO members of the American College of Health Care Executives and senior, provider-based members of the Society for Healthcare Strategy and Market Development, as part of Futurescan 2013. Key findings include these:
• 65 percent of hospitals are likely to “use the Baldrige Criteria for Performance Excellence as a systematic framework for performance improvement or as an internal assessment tool” by 2018.
• 41 percent are likely to submit an application for the Baldrige Award or a state-level Baldrige-based award by 2018.

In 1995 when the Baldrige criteria were being piloted in healthcare, there was a significant discrepancy between the performance of healthcare organizations using Baldrige and leading-edge, for-profit service companies applying for the Baldrige Award. This difference is demonstrated by Baldrige Award applicant scoring profiles, as shown in figure 1. The weight of evidence in the studies described above, as well as the Baldrige scoring data shown in figures 1 and 2, validate several Baldrige premises. First, that a similar set of criteria can guide improvement and recognize excellence across industry and nonprofit sectors. Second, that best-practice sharing can be beneficial across sectors. Finally, and most important, that wide adoption of the Baldrige criteria by healthcare organizations can improve U.S. healthcare quality, reduce costs, benefit all of us, and positively affect competitiveness and GDP.

Now that you have the evidence, please join us in spreading the word about the benefits of Baldrige criteria in improving healthcare quality, reducing costs, and improving U.S. competitiveness as an outcome.

For more information and data on the use of Baldrige in healthcare, please read some of our available resources.

Figure 1: Baldrige Award applicant scoring profiles

Figure 2: Category scores for Baldrige Award applicants


About The Author

Harry Hertz’s picture

Harry Hertz

 Harry Hertz retired in June 2013 from the National Institute of Standards and Technology (NIST) where he served as director of the Baldrige Performance Excellence Program since 1995. For more than 15 years he was the primary architect of the Baldrige Criteria for Performance Excellence, responsible for expansion of the Baldrige Program and Award to healthcare, education, and nonprofits, including government. Hertz serves on the Advisory Group for VHA’s Center for Applied Healthcare Studies and on the adjunct faculty of American University. He has a bachelor’s degree in chemistry from Polytechnic Institute of Brooklyn and a Ph.D. from M.I.T.


Goals and Relationships

Granted that US healthcare could be improved by wider use of the Baldrige criteria.  However, we need to be careful about how and why this is done.  The biggest problem in US healthcare today is cost.  Healthcare services just cost too much.  If this is true, why all the attention to health insurance (Medicare, etc.)?  They just mirror the cost of the services they pay for.  Harry lauds teaching hospitals for their wider use of the Baldrige Criteria, but they are also the most expensive places to get healthcare.  The same service costs more at a teaching hospital than anywhere else. The missing link here is price competition.  No one in the US loses market share because the hospital next door underbid them.  Healthcare in the US is patchwork of mini-monopolies that by and large do not compete with each other and never compete on price.

He also perpetuates the mythical relationship between healthcare and population health.  The health of a population is mostly related to air and water pollution, personal habits, and genetics.  None of those factors can be improved by healthcare.  The various factors by which countries are evaluated--life expectancy, infant mortality, etc.--have almost nothing to do with healthcare per se.

If we had price competition in US healthcare, institutions might utilize the Baldrige Criteria to improve their competitive advantage in the market place and put ther neighbor out of business.  Until then, the Criteria for Performance Excellence will have little influence on the key problem with US healthcare--cost.