lean-labor-pictureIs Labor Waste?

Over the last 10 years it has become increasingly fashionable to incorporate Lean principles into hospital operations.  As many readers are likely aware, Lean Methodology is derived from the manufacturing processes developed by Toyota to improve quality and reduce cost that continues to be used effectively.

As part of operational excellence initiatives by companies such as Motorola, GE, and others, Lean, 6Sigma, as well as iterations of Total Quality Management developed by W. Edwards Deming were instituted through the 80’s and 90’s and have become mainstays from business school to the boardroom.  In recent years, hospitals have joined the fray.

Ultimately, the question that needs to be answered as we consider using these tools in our hospitals is: what outcome can we reasonably expect from implementation?

There are two areas that are targeted as part of any workout and subsequent project.  Lean focuses at the most basic level on maximizing “Value Added” activities, and minimizing waste.  Hospitals, by their very nature provide a great deal of value which is underpinned by research and EBM initiatives.  Though we can always train better, and adopt best practices faster, the medical community has always been effective at developing new cures and procedures to improve outcomes.

In today’s post, I would like to focus on waste.

Where is the waste?

  • Waste associated with reimbursements
  • Uncompensated care
  • Waste associated with data that is acquired, but not used
  • Waste in the form of expertise that goes unused because collaboration is hindered by incompatibility in technology, poor process management, lack of vision.

How do we manage waste?

One of the principles that is integral to the success of the Toyota Production System is that everyone has  a stake in the process. Everyone is considered a respected member of the team, and their work is valued. If there are defects in their work, it is considered a problem with the process rather than with the individual.

The story that often is told to illustrate this is of the janitor who is cleaning around the production line. When he notices that the lighting is inadequate to ensure that the floor is clean, he stops the line knowing that if he can’t see well, other workers on the line may miss something and pass an error along through the manufacturing process.

To ensure the buy in of all employees, few if any employees are ever fired, and budget cuts result in executives reducing their pay. Some say this is more applicable in Japan, but similar productivity has been seen in Toyota factories in the US.

So how does this relate to hospitals?


Frequently, I see hospitals institute layoffs, then several months later hire staff to fill the same positions. This creates resentment in the folks who stay, and cynicism in those who are forced to look for work. While a snapshot of the balance sheet for the few weeks following the layoffs shows reductions in labor costs, the added expense of cross training and rework can cancel out these gains.  More importantly, productivity can be dramatically reduced.

According to work done by Tom Muha, PHD referenced in his article Medical Errors Why don’t nurses speak up? hospital productivity in the US is in a lot of trouble:

“Surveys show that over 50% of the staff in a typical hospital are disengaged, only performing their jobs and doing the minimum required to collect their paycheck.

Even more startling is that up to 20% of hospital workers are “actively disengaged.”

What proportion of the staff at your hospital falls into these categories?

The bottom line

As Medicare continues to emphasize bundled care reimbursement, it is critical that expenses are reduced to achieve margin targets.  Labor is traditionally one of the largest costs on a balance sheet and may appear to be an easy target for cuts.  The impact on operations is such that any short term gain is vastly outweighed by significant losses.  Driving more efficient operations will likely require more rather than fewer personnel, though they should be better tailored to their roles.  The greatest source of waste  is likely found in preventable complications which can result in huge costs and for which there is no reimbursement.

Ultimately the greatest form of waste is poor patient outcomes.  Better managing this type of waste will drastically reduce costs and support revenue generating opportunities.