Robert D. Betka Jr.

U.S. hospitals that have implemented highly touted performance improvement tools over the past two decades have continued to see operating expenses grow despite these efforts. Part of the problem may be in how they have implemented these tools.

At a Glance  

  • Hospitals today can all too easily fall into a performance improvement trap if they do not adequately consider how best to approach efforts to improve performance.
  • To ensure that such efforts will be effective, hospital leaders should first understand the reasons why an organization can stumble into this trap.
  • Reasons that improvement initiatives can fall short include the absence of coherent strategy, an inability to distinguish between action and results, and a disjointed use of performance improvement tools in isolation rather than as part of a coordinated effort.

Since the advent of prospective payment, and particularly over the past two decades, U.S. healthcare organizations have sought ways to reduce the cost of providing healthcare services. To this end, they have implemented various performance improvement tools and methodologies, from total quality management to Six Sigma and Lean. Many of these same approaches have been used for years by the industrial and manufacturing sectors to improve businesses' operating performance, with the result that these sectors have seen remarkable improvements in productivity and quality in the past 20 years.

But what about the healthcare sector? A look at financial performance of hospitals shows that, over same period, operating expenses per case have continued to grow year over year (see the exhibit below). Although this trend to a certain extent reflects the need for many hospitals-i.e., the not-for-profits-to "manage margin," it also suggests that, despite the performance improvement efforts of America's hospitals, there is still ample room to improve the cost structure of these organizations. And as healthcare reform and the expectation of value-based purchasing bring reduced payment and at-risk arrangements, hospitals face increasing pressure to manage their cost and productivity even more aggressively.

Exhibit 1


Nearly all healthcare organizations today are actively involved with various performance improvement initiatives and tools. In fact, many organizations have used every one of the leading performance improvement tools at one time or another. If these tools are as effective as their proponents claim-and as evidence has proved in other sectors-there should be clear evidence of improvement in the cost performance of hospitals. Yet, as noted previously, the trend suggests otherwise.

One problem may be that many hospitals have fallen into what can best be called the performance improvement trap. Organizations that stumble into this trap do so because they have pursued performance improvement initiatives in the absence of coherent strategy, confused action with results, chased the latest fad, and failed to evaluate impact. How can healthcare delivery organizations avoid this predicament? They first need to understand thoroughly all of the ways an organization can stumble into the trap.

This knowledge will give them the foundation they need to make sure their productivity and performance improvement efforts are truly effective.

Symptoms of Being Ensnared

The performance improvement trap is largely a product of misdirected effort, resulting from initiatives undertaken without due consideration and preparation. Following are some of the most prevalent symptoms of such misdirection.

The missing link. Performance improvement initiatives will suffer and fail if there is a poorly articulated link to organizational mission (Why are we doing this?) or strategy (What will this do for us?). An organization should not invest in anything that does not advance its strategy and help it to achieve its mission.

One way this missing link manifests itself is through copycatting, or applying the "management method du jour." If the latest buzz in the professional literature is all about Method X, then it's all too easy to say, "Let's convene some Method X teams and get some Method X projects started."

Hospitals should have a mission-related goal for undertaking a performance improvement initiative. Hospital leaders should candidly answer the following question: "If we terminate our performance improvement initiative, how will the organization be at risk of not executing its strategy and not achieving its objectives?" The inability to come up with a good answer to this question could indicate a missing link.

Management co-optation. Management co-optation is a prominent symptom of the performance improvement trap. To illustrate, consider an actual case of a large teaching hospital whose CEO became enthralled with the idea of Six Sigma. He hired a director of performance improvement, who reported directly to him, and charged the new director with implementing a Six Sigma program across the organization. Within a year, there were more than 20 teams, dozens of people being taken off line for rigorous training, and a performance improvement organizational chart with multiple boxes and lines in all directions.

At the year's end, when asked about the effectiveness of his program, the director pulled out his slide show with all the boxes and lines and teams and a spreadsheet of problems being addressed. But he was unable to show any specific results of all this effort. In its enthusiasm, and cheered on by the CEO, the organization had mistaken the performance improvement program for managing. It had built a huge infrastructure, and had confused activity with results. Meanwhile, financial performance was rapidly deteriorating. In short, the program had become the goal.

Instituting a successful performance improvement initiative requires a clearly articulated intent (e.g., reduce operating costs; improve patient satisfaction) and a routine reporting and monitoring process to ensure that activities are making a measurable impact on that goal.

Management co-optation typically arises when performance improvement becomes a staff responsibility rather than that of line managers, and programs are built simply to justify the decision to undertake a performance improvement initiative. Because most performance improvement activities attempt to change existing operational processes, line managers responsible for those processes should have accountability for improvement.

Silver bullet. Success at solving a problem with one tool legitimately suggests that the tool could effectively be applied to other problems. But there is a danger in becoming so enthralled with a tool that it is seen as a "silver bullet" for solving every problem. For example, the teaching hospital in the previous example had a Six Sigma team for patient throughput. The team had control charts for various measures, and months of complex spreadsheets to measure different cycle times. But length of stay had not budged.

It is important to remember that patient throughput is a complex set of processes involving numerous actors and occurring over the course of a patient's entire stay. Six Sigma is not the most appropriate tool to address patient flow. Six Sigma focuses on very discrete, replicable activities and aims to reduce variation. A different tool, such as Lean, is more suited to improving cross-functional process flows.

Organizations with the silver bullet symptom use one tool to attempt to fix everything, which is both impractical and impossible. They fail to recognize that different problems often demand different solutions. Management discretion and creativity are squelched by the monolithic adherence to the one approved approach, and what may once have been out-of-the-box thinking becomes unimaginative and conventional. If the only weapon you have is a black belt, then every problem needs a control chart.

Brain drain. When seeking ambitious, highly competent managers to lead new projects or undertake important new initiatives, hospitals often encounter this type of response: "Well, Susan's got so much going on right now. She is leading the patient flow project, chairing the team to look at medication errors, taking responsibility for our core measures, and working on the EMR implementation team. She just hasn't got the time."

This brain-drain symptom of the performance improvement trap occurs when an organization diverts its best resources and competencies away from what the customer values (clinical skills) toward internal projects. It is evidence of an inward focus, not outward toward the patients. When too many people are pulled away from their key responsibilities for training and project team meetings, the core aspects of day-to-day operations management suffer. And a big program infrastructure actually increases overhead costs.

Siloing. Poor coordination of performance improvement initiatives across the organization can result in silos in which different areas may be working at cross-purposes. Consider the case of a community hospital in the Midwest that was executing a number of separate performance improvement initiatives. The hospital's array of initiatives-all championed by the CEO, a devoted reader of management literature-included several Six Sigma Black Belts with rosters of projects to be completed, Lean design teams focused on patient flow, a Work-Out initiative focused on turning around certain service lines, and a newly begun "Just-Do-It" (JDI-pronounced jed-i) quick-hit improvement program. The hospital also was pursuing Magnet nursing status. The multiple, uncoordinated initiatives confused staff and managers and bred elitism between opposing camps-what one cynical manager called "cylinders of excellence."

Meanwhile, market share was being lost to an encroaching system, and productivity was diminishing, adversely affecting the hospital's margin. The hospital was forced to scrap several of these programs and engage in a turnaround. What the CEO and his leadership team failed to recognize was that they were implementing piecemeal solutions to holistic problems. By effectively "siloing" each program from the others, the hospital was unable to achieve the synergy available.

Innovation degradation. This is the most dangerous symptom of the performance improvement trap, because it occurs when an organization focuses only on improving what it already does, rather than on real innovation-i.e., finding new ways to do new things and gain new customers. No healthcare organization can survive without growth, whether in new services, in geographic reach, in patient volume, in clinical excellence, or in partnership with another organization.

Organizations evidencing innovation degradation are concerned with fixing, not growing, and with implementing packaged solutions that can stifle innovation. Indeed, in each of the examples described previously, the organization was so inwardly focused that it failed to recognize that its true need was to innovate and grow.

Avoiding the Trap

So how does a hospital avoid the performance improvement trap? Or if the hospital is in it, how does it escape? Here are eight actions leaders should take to ensure success of their organizations' performance improvement initiatives.

Exhibit 2


Exhibit 3


Link all initiatives to the organization's mission and strategy. The performance improvement methodologies discussed above are all good tools for reducing costs and improving performance, but these objectives are merely tactics to execute a given strategy. What needs to be clearly articulated is explicitly how these performance improvement programs will help the organization grow. Leaders and participants in these initiatives will then see their work as enabling strategy and working for a greater cause, rather than solving a narrow operational problem. For example, one community hospital has as part of its mission statement the phrase, "to provide care as we would to our own families." In this instance, it is easy to see the link between mission and the active and successful use of Lean techniques to smooth patient flow; no one would want their own family member to linger in the emergency department for hours waiting for a bed.

Focus on outcome desired. Hospital leaders should ask, "What are we trying to accomplish and what will help get us there?" Successful performance improvement programs focus outward, on customer needs and organizational growth. Unsuccessful programs are focused inward on tools, training, and technique. For example, if an organization needs to increase its inpatient volume, implementing a combination of tools to improve flow and uncover latent capacity (e.g., Lean) and to improve patient satisfaction and, thereby, increase market share (e.g., patient-focused care) might be the best approach.

Implement a portfolio approach to performance improvement. Just as a hospital's investment portfolio has various holdings for long-term growth and short-term income, so too an organization's performance improvement program should address differing objectives with the appropriate tools. Small, localized issues require small-bore tools (such as Six Sigma); broader issues require more holistic tools (such as Lean or Work-Out). The performance improvement realm is replete with multiple tools for multiple issues.

Maintain a lean (pun intended) program infrastructure. Hospitals should ensure that all performance improvement initiatives are owned by line managers, with profit-and-loss responsibility, and are sponsored by a senior executive.

Front-line managers should be trained to be business managers with the right tools to support them. The line managers should be supported by a few high-caliber staff analysts and management engineers with the right technical expertise and good business acumen.

Inculcate a performance improvement culture. Hospitals should move away from "campaigns" and "programs" toward individual engagement in an ethic of continuous performance improvement in day-to-day management and operations.

Design in accountability. Individual rewards should be linked to results, and results should be measured not by activity but by correct movement of defined measures. Hospital leaders should demand periodic reports on performance and results and cut or redirect initiatives that are not pulling their weight.

Calculate ROI. Hospitals should exploit the capabilities of their decision-support systems and analytics tools to ensure the investments of time and labor in performance improvement activities are generating a sufficient return in time, cost, and quality. Initiative performance should be linked to actual reductions in the cost of episodes of care through the use of time-driven activity-based costing.

Adjust tactics as the environment changes. This is a very fluid time for healthcare leaders, and the landscape is constantly shifting. Hospital leaders should remain on the lookout for emerging trends and challenges, and alter course as necessary.

A Need for Tools and the Right Approach

As healthcare reform remains on the political front and value-based purchasing continues to emerge as the next wave of payment reform, most organizations will need to accelerate and increase their use of performance improvement methodologies and tools.

As revenue increasingly is put at risk, many hospitals will need to reduce operating expenses substantially, while improving quality and patient outcomes. Many of the performance improvement tools available today can prove instrumental in achieving these goals-as long as leadership remains alert to the performance improvement trap.

Robert D. Betka, Jr., FACHE, is managing director, Catalyst Management Advisors, Grand Rapids, Mich. (


Publication Date: Friday, June 01, 2012

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