People Innovation Excellence

Can Costs be ‘Managed’ Into Control?

controlling cost

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INDUSTRIAL ENGINEER – Volumer 43 Number 6

If the ongoing healthcare reform debates are any indicatior, healthcare costs desperately need to be managed. But how do excessive healthcare costs occur in the first place? Leaders in healthcare organizations are responsible for reducing costs through improved operations. Good managerial skills will not be sufficient to drive costs out. Fortunalety, we have other tools.

Most health facilities face the same cost issues and constraints: labor-intensive processes; high capital investment in facility infrastructure, technology and equipment; and competitive pressures rarely linked to cost considerations. IEs must offer leaders a synchronized holistic approach to optimize processes, evaluate investments and assess cost of care.

Optimize processes. In its 2009 report, the Institute for Healthcare Improvement advocated developing a balanced portfolio of waste-reduction quality improvement projects focused on reducing costs. This report constitutes an endorsement of a widely applied set of industrial engineering tools called lean. The healthcare engineer can use lean tools to help the organization identify the “seven” or “eight” forms of waste. They can document value- and non-value- added activities and guide project teams using tools like the A-3 method, PDCA, and Six Sigma.

Evaluate investments. IEs offer guidance and computation tools to leaders in facilities management, material management and IT to determine potential return of investment for capital investments, infrastructure changes, medical equipment and new technology. Healthcare engineers also can facilitate collaborative sessions with financial analysts, clinical specialists and other user groups to ensure that the detailed assessments and decisions consider efficiency, effectiveness and cost.

Assessing cost of care. Recent conversation on the Healthcare Management Engineering group’s LinkedIn discussion board started off talking about quantifying costs using lean methods in rural hospitals. The discussion evolved into debate on the value of trying to estimate all the factors that go into delivering care for a particular procedure versus quantifying and controlling costs using value stream analysis. Activity-based costing is another approach to estimate and control operational costs. Additional research could lead to paradigm shifts as the country seeks to reduce healthcare costs.

Performance measurement expert, Robert Kaplan, tells us that “to manage, one must understand, but to understand, one must measure.” Healthcare engineers bring reliable and effective cost management tools to leadership team and build systematic approaches for assessing, computing and reducing costs.

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