March 15, 2018
By: Michael Cadwell

Lean Six Sigma implementation alone by hospitals misses critical efficiencies in supply savings

Exciting new formulas for success can be mistaken for panaceas or even magic elixirs. It’s a pitfall hospitals and other healthcare providers face regarding Lean Six Sigma (LSS) operational efficiency programs.

Not long ago, hospitals were leery of Lean Six Sigma, believing it more suited to manufacturers. But cost, quality and patient experience issues have prompted hospitals to reconsider LSS. Now, I find some hospital administrators thinking if they have successfully incorporated LSS, they don’t need anything else to address supply costs.

They could not be more wrong.

Yes, the Lean Six Sigma approach does work, improving a hospital’s process efficiencies and related costs. Well-implemented, LSS can improve the quality of patient care by reducing wait times and hand-offs, eliminating errors, and reducing process steps. This results in lower operating costs due to improvements in staff productivity, declining labor costs and decreased cost of waste and errors.

However, not all not all supply and service costs are associated with process issues. I see three principal areas of opportunity to reduce costs that will not be addressed solely by implementing LSS:

Supply/services acquisition costs: Lean Six Sigma’s focus on building efficient processes often overlooks the purchase cost of products and services used in the process. A LSS project may create very efficient processes that use very expensive supplies, missing significant opportunity for cost improvement.

Supply standardization: LSS programs focus on improving inventory management of items already on the shelves, not standardizing and/or reducing the variety of supplies. In the case of many physician preference items, such as implantable devices, price variations can range into the thousands of dollars. Even with less expensive commodity supplies, prices vary significantly. If organizations are not acutely focused on supply standardization as part of their overall program, they miss a major opportunity to reduce costs.

Supply/service utilization: Many LSS steps identified as “value added” require the use of supplies or services where the utilization volume/amount itself is not subjected to scrutiny. As an example, an organization might develop an improved room-turnover process which reduces the time required to ready a room for a new patient, including linen changes. However, if they are using a standard bed make-up that incorporates more linen than necessary or a heavier weight of linen than is required (since most linen is charged by the pound processed), this might not be identified as “waste” under prescribed definitions. In most organizations, over-utilization of linen is a significant opportunity, often yielding in excess of $100,000 in savings.

Lean Six Sigma is a smart method for reducing wasteful spend and process, but it is no magic bullet for supplies and service costs. Given that these costs typically make up 35 percent to 45 percent of a hospital’s cost structure, adopting a suboptimal approach to address them is a wasteful proposition.

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