“The Institute of Medicine estimates that between 20 and 30 percent of annual healthcare spending is wasteful, redundant, or performed inefficiently. This includes excessive or duplicated fees for services and administration, failure to provide preventive medicine when appropriate, and accounting for the greatest financial waste, services that were performed unnecessarily. Unnecessary services cost the U.S. an estimated $210 billion, over twice the number of diagnostic tests than other OECD countries.” [Emory, Jan ’14]
As leaders of these complex systems, do we seemingly tolerate this waste? They are significantly higher than other countries, exorbitant when compared to other industries and beyond conceivable in numerical figures. We can educate consumers or encourage them to get educated. We can bring evidence-based practices into our operations. We can continue to challenge historic fears of litigation through new approaches to health information management. And we are doing these things and more. However, with the exception of a few healthcare systems, we address waste with variance and incremental impact. In our efforts to reduce the associated costs, we largely ignore the human element that is present in nearly all causes of waste.
What is Waste
The New England Healthcare Institute define waste as health care spending that can be eliminated without reducing the quality of care. One detailed perspective developed by Marc Hafer outlines eight kinds of waste driving healthcare costs: transportation, inventory, unnecessary motions, waiting, over-producing (previous quote illustrates), processing waste, defects, and unused human potential. While all of these have links to the humans fulfilling health-related care, the last four can very clearly be linked back to human performance.
When we take it step further, beyond defining the kinds of waste, and look into the root causes, a clearer picture about the potential to reduce or eliminate waste becomes evident. Here is one research-based summary:
“1. Lack of compliance with clinical guidelines, raising issues of potential shortcomings in physician decision making; 2. Variation in the intensity of clinical care, suggesting a lack of evidence-based decisions; 3. Limited adoption of information technology in areas such as decision support and care coordination; 4. Underuse of cost effective diagnostic tests; and 5. Failure of the primary care system to meet access needs.” – Waste and Inefficiency in the U.S. Health Care System, The New England Healthcare Institute.
As with the types outlined, humans are also the helm of the causes for waste that increase our costs. However, most will argue this is a function of the systems we as humans have created. Human-driven waste is not a function of malicious intent to: ignore guidelines, vary intensity, resist technology, select expensive diagnostics or prevent patient access. As Hafer notes, unused human potential can be leveraged to address the system barriers and reduce costs associated with financial waste. We know that caregivers are often ‘called’ to heal, to care, to the life purpose of taking care of the sick. Most, if not all concur that they too wish for a simpler system; one that permits quality, compassionate and efficient care.
The contact of a human provider with a patient in need, is how care is delivered. It is through humans that equipment is utilized, images are obtained and electronic records are viewed. There is human-driven waste that includes variance in care and medical errors, which might be the worst form of waste in the industry. There are direct costs like ordering a diagnostic exam that becomes waste when it wasn’t needed, was duplicated or had to be re-done. There are indirect costs such as incorrect documentation that gets put into an IT system and either causes a drug-related error or requires a provider to re-review information, referred to as ‘defects’ in the list of the eight types.
Additionally we experience significant waste in the form of lost talent or employee turnover. With approximately 50% of the cost of running a hospital comes down to salary and wages; often the largest expense in running an organization. One in five (20%) nurses leave within the first year and one in three (33%) leave within the second year.
“The average cost of turnover for a bedside RN ranges from $44,380 to $63,400 resulting in the average hospital losing $4.21M – $6.02M. Each percent change in RN turnover will cost (or return) the average hospital an additional $359,650.” [NSI Nursing Solutions, 2014]
These are direct turnover costs. Waste occurs beyond these costs, as indirect costs: training, organizational-knowledge lost as the resulting effects on relationships and engagement across team members, providers and ultimately the patient.
In a system in Texas, a top-performing nurse recently left voluntarily for a competitor hospital nearby. Five of her colleagues followed, to join her at that system. Imagine the impact to the remaining team members when six of their colleagues left. The effect on the ‘social network’ of care extending from that team inclusive always of providers. Imagine the effect on the patient experience. Imagine the ‘ready to roll’ team of relationships that the competitor organization received. Our systems have yet to determine the cost of the waste created across these effects.
Is it that we tolerate financial waste, including turnover and disengagement, or are we victims of the ‘”societal norms and pressures in the U.S.” as outlined by Sarah at Emory? Maybe we have become desensitized from the many years of evolving technological and quality advancements. Or have we been so cost focused that we have lost sight of where value is created. Margins, efficiency, staffing ratios, patient time are all consistently reviewed for the cost impact with the frequent imperative of cost reduction.
We have little time, many barriers and a lack of supporting systems to consider the value creation potential across the multitude of human interactions of every patient experience. But realizing this value is exactly what we must do to unleash potential and reduce waste.
Because staffing is viewed exclusively as a cost and not an investment or even an asset, our decisions about ratios, reductions and efficiencies frequently start here as a cost-reduction exercise. Our decisions about how those humans are in fact an asset to our organization remains undocumented and at best intangible to our operations. A value-created review might include the drivers of engagement so we don’t lose our top-performers. Watch for a future post on ‘The Whole Human Approach to Staffing.’
By just retaining talent, we reduce waste. We directly reduce un-necessary spending and we indirectly increase quality by slowing the domino effect of waste associated with that turnover.
The life-saving difference in compassionate care, intuitive communication with family, and accurate, timely interaction as a team, all illustrate human-driven value. Healing happens every day in spite of the enormous ‘cost center’ that is our human capital.
Even if we agree in this value driven by humans, our systems restrict our access to measuring, tracking and aligning this value to our investment, funding and financial decision-making. In a few healthcare systems where integrated medicine like Mayo Clinic or programs like Triple Aim are being adopted, some components of this value are being prioritized. We must continue efforts to quantify human capital value; to redefine how we evaluate our financials against a long-term strategy. If we are to believe that humans can reduce waste and therefore costs, we must also reconcile the investment we make in human capital and the associated return to create organizational value.
Based our research we offer a challenge to our current cost-focused system. A human capital investment strategy. It is defined by human capital as an investment inclusive of: salary, benefits, training, development, well-being, and community. Ultimately this strategy will inform ways to align human capital as core to the value of the organization.
“The seven strategic practices that position the organization to realize the value of this investment approach include: 1) long-term thinking, 2) proactive leadership, 3) input-based indicators, 4) cost-reduction decisions place human capital secondary to technology and real estate, 5) bottom plus top line financial impact, 6) prioritization of talent, and 7) patient-centric practices.” – Human Capital Value, Research Study 2015, LEAD the difference
It is clear that until we balance the cost review with a value review, we will be limited in addressing Hafer’s eighth kind of waste: unused human potential. After all, we are asking our humans to reduce costs, not to increase value. We might mean both but we aren’t clear about the paths and systems that enable value creation.