Chapter 1

The Challenge and the Opportunity

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© 2008 Health Administration Press. All rights reserved.
 The Challenge
• U.S. healthcare costs >$2 billion/year
• Healthcare inflation >CPI for many years
• Continuing issues of safety and errors
• Lack of use of evidence-based medicine
• Patient dissatisfaction

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© 2008 Health Administration Press. All rights reserved.
Institute of Medicine—Crossing the
Quality Chasm
Goals of a New System
• Safe
• Effective
• Patient-centered
• Timely
• Efficient
• Equitable
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© 2008 Health Administration Press. All rights reserved.
 Steps to Close the Chasm
• Care based on continuous healing
relationships
• Customization based on patient needs and
values
• The patient as the source of control
• Shared knowledge and the free flow of
information
• Evidence-based decision making

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© 2008 Health Administration Press. All rights reserved.
Steps to Close the Chasm (cont’d)

• Safety as a system property

• The need for transparency
• Anticipation of needs
• Continuous decrease in waste
• Cooperation among clinicians

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© 2008 Health Administration Press. All rights reserved.
 The Opportunity
• Evidence-based medicine
– Could reduce healthcare costs by 28 percent
– Over 400 care guidelines currently available
• Knowledge-based management
– The new engineering/healthcare partnership
– Widespread adoption of electronic health records
• A more active role for the consumer
– Consumer-directed healthcare savings accounts
– The Internet and self-care

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© 2008 Health Administration Press. All rights reserved.
 The Healthcare System

Environment
Level D

Organization
Level C

Microsystem
Level B

Patient
Level A

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© 2008 Health Administration Press. All rights reserved.
 System Stability and Change
(Peter Senge—The Fifth Discipline)

• The structure of a system is the primary

mechanism to produce an outcome
• No system is ever completely stable
• Each system’s performance is modified and
controlled by feedback
• Feedback is “any reciprocal flow of influence”
• Feedback can be one of two types: reinforcing or
balancing
• A confounding problem of feedback is delay
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© 2008 Health Administration Press. All rights reserved.
 System with Reinforcing and
Balancing Feedback
Employee
motivation

+
+

Financial
Salaries performance,
profit
+

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 System with Reinforcing and
Balancing Feedback (cont’d)

−
Actual
Add or staffing
reduce level
staff
−

Compare actual to
needed staff on
the basis of patient
demand

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© 2008 Health Administration Press. All rights reserved.
 Chemotherapy as an Example of Linkage of Parts
of the Healthcare System

Changes
are made
in care
Chemotherapy process
Payers want New payment and
treatment needs
to reduce method for support
to be more
costs for chemotherapy systems to
efficient to meet
chemotherapy is created maintain
payment levels
quality
while
reducing
costs

Environment Organization Clinical Microsystem—Patient

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© 2008 Health Administration Press. All rights reserved.
 Framework for Effective Operations
Management in Healthcare

Setting Goals
and Strategy
Execution

Fundamental
Healthcare High
Operations Performance
Challenges
Performance
Improvement
Tools,
Techniques,
and Programs

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© 2008 Health Administration Press. All rights reserved.
 Vincent Valley Hospital (VVH)
• Midwestern city of 1.5 million
• 3,000 employees
• Operates 350 inpatient beds
• Medical staff of 450 physicians
• Operates nine clinics

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 Vincent Valley Hospital (cont’d)
• Two major competitor hospitals
• Surgeons from all three hospitals recently joined
together to set up an independent ambulatory
surgery center
• Three major health plans provide most of the
private payment to VVH
• Plans, along with the state Medicaid system, have
recently begun a pay-for-performance system
• VVH has a strong balance sheet and a profit
margin of approximately 2 percent but feels
financially challenged

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 End of Chapter 1

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© 2008 Health Administration Press. All rights reserved.