Cost Reduction

Hospital Saves $49M by Engaging Department Leaders

December 12, 2018 11:48 am

This is about more than margin improvement—it’s about leadership development, say leaders at Dignity Health St. Joseph’s Hospital.

Not every process improvement project needs to be led by a corporate team of Lean black belts. Just ask the leaders at Dignity Health St. Joseph’s Hospital and Medical Center in Phoenix, who have significantly improved their margins by implementing more than 1,600 small-scale process improvement plans with an average savings of $7,500. During the past 18 months, the 577-bed academic medical center has saved $49 million because of small changes led by department directors and managers in the trenches.

Knowing What Needs to Change

As the flagship hospital of Dignity Health, one of the largest hospital systems in the country, St. Joseph’s aims for a 2 percent net operating margin and a 9 percent earnings before interest, taxes, depreciation, and amortization (EBITDA) target. Leaders also strive to reach the top quartile for patient experience and quality.

While St. Joseph’s does utilize Lean-trained staff at the local and system level for major initiatives to reduce expenses and improve productivity and performance, it also works with a consultant to engage its directors and managers in smaller, 100-day process improvement cycles that are less data-driven and resource-intensive. During each cycle, St. Joseph’s asks its approximately 100 department directors and managers to implement at least eight process changes around a particular theme, such as reducing waste.

The ideas for the changes originate from the directors and managers themselves, who have the “tribal knowledge” on which processes could be more efficient, says Patty White, RN, FACHE, president and CEO. For example, several nursing managers have developed strategies to avoid “hoarding” linen in the patient rooms. In the laboratory, managers cut the number of orders they print, saving $1,000 each month.

“When you take 100 leaders who are all doing small plans like that, it adds up to real money,” White says. The hospital’s goal is to achieve $50 million in cost savings by 2020, representing approximately 5 percent of their budget.

During the first 100-day cycle, leaders focused their attention on reducing supply waste. In the cardiac catheterization lab, managers standardized supplies in the prep packets to reduce waste. Managers in patient care areas also reviewed periodic automatic replenishment (PAR) levels so they could avoid ordering excess supplies with the potential to expire.

Physicians also are engaged in the process improvement cycles at St. Joseph’s. In general surgery, physicians led an initiative to standardize the procedure trays in the operating rooms, which helped eliminate some costly physician preference items and reduced waste, saving approximately $300,000. In addition, physicians on the lung transplant team reviewed utilization of chest X-rays and daily laboratory tests for opportunities to eliminate unnecessary tests and improve patient care. After reviewing the research, they determined that patients who met specific criteria only required X-rays and lab tests every second or third day in the hospital.

St. Joseph’s Cost-Savings Results to Date

Heeding Lessons Learned

White offers the following tips for other organizations looking to reduce costs by engaging department directors and managers in smaller process improvement projects.

Recognize that this is about more than margin improvement—it’s about leadership development. After leaders at St. Joseph’s asked their consultant to perform a baseline study of director and manager engagement, they realized they needed to improve collaboration across the organization. “We found there were department directors and managers who didn’t even know each other—let alone had worked together on projects,” White says.

To help break down barriers, the consultant provided leadership development training focused on collaboration, which had an immediate effect. For example, nurses in the patient care areas collaborated with environmental services to change the process for sharp container management, making it more efficient. In addition, managers in radiology and in the outpatient cancer center worked together to adjust the schedule for nuclear medicine studies so it was more efficient for staff performing studies at both sites.

The consultant also provided financial management coaching to leaders to help them understand the impact of their staffing decisions on their budget. In addition, leaders received training to help them prioritize and implement their plans more quickly.

As a result of this training, White and her team became familiar with the “hidden” champions within their organization. “Leaders have emerged that I probably wouldn’t have recognized had we not gone through this process,” she says.

Encourage high-performing leaders to help others. At St. Joseph’s, leaders who perform well during their 100-day process improvement cycles are asked to coach six to 10 other leaders, who form a mentor team. These teams, which receive support and guidance from an executive sponsor and the consultant, focus on addressing issues that slow implementation.

Create more accountability. Every two weeks, St. Joseph’s COO and CFO host a labor stewardship meeting in which directors and managers present their plans for getting their staffing back on budget. As part of this process, some managers have learned how to better adjust staff to reflect volume. For example, the radiology department was able to shift some staff to provide better coverage on Saturdays without increasing staff.

Choose themes that resonate with staff. While some of the cycles have been focused on reducing waste and adjusting staffing to meet demand, another recent theme was improving the patient experience. For example, the post-operative team developed a protocol to greet cardiac and transplant patients and transport them to their patient care unit.

Secure the executive team’s commitment to sustain the change. “Go all in, and make sure your leadership team is with you,” White says. This includes the finance team, which needs to validate the savings during each process improvement cycle.

Realizing Results

Since January 2017, leaders at St. Joseph’s have implemented 1,640 plans resulting in $49 million in cost savings, which has been validated by the finance team. This includes nearly $10 million from waste reduction, nearly $18 million by adding volume and adjusting to demand, and $11 million from matching staffing to volume, which they refer to as rapid budget variance. The system also saved more than $10 million on procedural supplies.

This fiscal year, St. Joseph’s also achieved a $30 million bump in its financial performance compared with last fiscal year, thanks to reduced expenses and increased revenue.

Looking at Supplies Next

Leaders at St. Joseph’s are on track to meet their goal of saving $50 million by 2020, which they will likely achieve by the end of 2018, given their current pace. Looking ahead, pharmaceuticals and supplies are likely to be a target of future process improvement cycles. “We have a lot more opportunities to reduce costs in supplies and utilization,” White says.

At the time of this writing, leaders at St. Joseph’s were preparing for their triennial Joint Commission survey as well as their annual performance reviews. To ease the burden on directors and managers, White extended the previous 100-day process improvement cycle for another 20 days. But taking a break was never an option.

“I believe we can never pause,” White says. “If we pause, it is going to break our momentum.” Keeping the cycles going also helps to keep department directors and managers engaged. “They get very energized when they are able to make the changes and see the impact,” she says.

This article is based in part on a presentation at the American College of Healthcare Executives’ 2018 Congress on Healthcare Leadership.

Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill.

Interviewed for this article:

Patty White, RN, FACHE is president and CEO, Dignity Health St. Joseph’s Hospital and Medical Center, Phoenix.


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