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Proceedings of the 2012 Industrial and Systems Engineering Research ConferenceG. Lim and J.W. Herrmann, eds.

Cost Reduction in Healthcare via Lean Six Sigma

Yu Huang, Xueping Li, Joseph Wilck, Thomas Berg

Department of Industrial and Information EngineeringUniversity of Tennessee

Knoxville, TN, 37996

Abstract

The cost of medical care has been increasing at an alarming rate; thus, it is imperative to apply Lean Six Sigma philosophy to gain operational control of a hospital while simultaneously maintaining a high level of service quality.The proposed study concentrates on the concepts of Lean Six Sigma, the integrated Lean Six Sigma framework, andthe strategic approach to process innovation to decrease hospital operational costs, streamline the process, andeliminate waste, which consequently improves healthcare quality and patient satisfaction. The study first synthesizesLean and Six Sigma, and then examines successful Lean Six Sigma practice. As the result of the study, we present

the key elements of Lean Six Sigma approach, organizational infrastructure of Lean and Six Sigma, and insights onimplementation and deployment of Lean Six Sigma practice to provide an alternative to healthcare for better serviceand greater efficiency with less cost.

KeywordsLean, Six Sigma, healthcare, cost reduction

1. BackgroundQuality healthcare has become a worldwide goal. Growing evidence demonstrates that United States healthcaredelivery system falls short of care that is safe, effective, efficient, patient centered, timely, and equitable.Furthermore, healthcare costs have been rising for several years. Expenditures in the United States onhealthcare surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990, and over eight timesthe $253 billion spent in 1980 [1]. Given the current economic climate, the government has become increasingly

intent on actualizing the value in the healthcare system and looks for ways that can contain or reduce publichealthcare spending while simultaneously assuring the quality of service. Lean and Six Sigma have been widelyapplied in industry for many years in the pursuit of continuous improvement in operations. Lean focuses onremoving non-value added work and improving process efficiency. Six Sigma, on the other hand, is designed toreduce variation of processes and measure how much a process varies from perfection [2]. Indicated by economichistory, Lean and Six Sigma are two popular process innovation approaches that have achieved high levels ofoperational efficiency and cost reduction [3-5]. Both provide a systematic approach to facilitate incremental processinnovations and improvements. Lean and Six Sigma have gone through parallel developments in recent years. Bothapproaches are now also widely used in administration and service areas, although they were originally applied tothe manufacturing environment [6,7].

With century-long development in industry and manufacturing, the principles of Lean and Six Sigma have beengradually moved into the healthcare industry in several years and offered an opportunity to expand theirimplementations and methodologies for process improvement in healthcare settings. In essence, Lean Six Sigmaintends to advance the principles of continuous quality and process improvement through systematic organizationalstudies and data analysis. Throughout the years of research by nonclinical professionals and industrial engineering

pioneers who have been working in healthcare performance improvements, the healthcare industry has experiencedseveral improvements aimed at patient satisfaction, quality of service, diagnostic and treatment options, use ofresources, as well as efficiency and cost effectiveness. Figure 1 indicates some early research done by industrial

pioneers with ultimate goal of cost reduction and better service quality.

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Huang, Li, Wilck, Berg

Figure 1: Early research on process improvements in healthcare

The need of Lean Six Sigma tools in the healthcare cost reduction and process improvement is imperative. Asummary of recent studies shows that approximately 30%-50% of all healthcare work activities can be considered aswaste, and waste in the U.S. healthcare system costs as much as $700 billion annually [1,8]. The situation getsworse: healthcare organizations cannot fully control their fixed costs and have less and less control of their revenues.In California, for example, there are laws mandating nurse staffing levels, and a hospital can be cited for notmaintaining the mandated levels; a hospital can charge whatever they like for a service, but whether or not Medicareor insurance will pay that price or allow the patient to pay is an entirely different matter [4]. Furthermore healthcareoften faces the evolution of complex processes, but most of the underlying healthcare practices have not changedsubstantially in 50 or 60 years [8]. Implementing technology alone often has not simplified processes and sometimeshas increased complexity. Process improvement in healthcare is also being driven largely by the payment reform,which is a movement under way toward paying for healthcare services based on quality and necessity instead ofquantity [8]. Thus the demand for proven methodologies such as Lean Six Sigma (hereinafter Lean Sigma) inhealthcare system has increased.

The rest of the study is organized as follows. Section 2 briefly reviews key concepts in Lean and Six Sigmarespectively. Section 3 introduces the integrated framework of Lean Sigma. Section 4 exemplifies some successful practices of Lean Sigma in healthcare. Section 5 illustrates the key elements in Lean Sigma approach and furtherdiscusses some insights based on the practices in previous section. Section 6 concludes the paper.

2. Overview of Lean and Six SigmaAs a broad long-term decision-making strategy, Six Sigma both preserved the concepts from total qualitymanagement (hereinafter TQM) that everyone is responsible for product quality, and six-sigma statistical metricsoriginating at Motorola Corporation that is in response to sub-standard product quality [9]. From managerial point ofview, Six Sigma is defined as improving the profitability, effectiveness and efficiency of all operations to meet orexceed customers needs and expectations by identifying and removing the cause of defects or err ors andminimizing variability. From statistical point of view, Six Sigma is defined as having less than 3.4 defects permillion opportunities or a success rate of 99.9997%, where sigma is a term used to represent the variation about the

process average [10,11]. The fundamental principle of Six Sigma is to take an organization to an improved level ofsigma capability through rigorous applications of statistical tools and techniques [12]. With additional innovationsthat enhance its effectiveness while expanding its focus, Six Sigma today has become a systematic and data-drivenapproach to using the define, measure, analysis, improve, and control (hereinafter DMAIC) process and utilizingdesign for six sigma method. More comprehensive than prior quality initiatives such as TQM, Six Sigmamethodology includes measured and reported financial results, uses additional and more advanced data analysistools, focuses on customer concerns, and uses project management tools and methodologies. Overall Six Sigma can

be summarized as following management method [12]:

Six Sigma = TQM + Stronger Customer Focus

1910

Time studies ofsurgery delays

(Gilbreth &Taylor)

Basic Process & capacityanalysis

1 9 2 0

- 1 9 4 0

M anagement engineerin g&

nursing (Gilbreth)

1 9 4 5

Queueing &scheduling (Smalley)

1 9 5 9

Hospital inventoryoptimization

1 9 6 5

Simulation, queueing of patientwaits (Fetter, Thompson)

1 9 6 5

- 1 9 6 6

Nurse scheduling algorithms(Warner)

1 9 7 0

- 1 9 7 2

Perishableinventory, blood

banks (Pierskalla)

1 9 7 0

Simulationplanning models

(Rising)

1 9 7 2

- 1 9 7 3

Opportunity costs &hospital inventory

1 9 7 3

Regional planning OR models(Shuman & Wolfe)

1 9 7 4

Forecasting bed needs(Griffith)

1 9 7 9

Cancer screeninganalysis &

optimization (Eddy)

1 9 8 0

Total QualityManagement (Berwick

& Bataldan)

1 9 7 9

1980

1 9 1 1 - 1 9 1 8

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+ Additional Data Analysis Tools+ Financial Results+ Project Management

The philosophy of Lean management can be traced to Toyota production system. Lean management emphasizes oneliminating waste so that all activities along the value stream can create value [2]. It focuses on the reduction ofwaste and pursuing continuous improvements. Thus a core element of Lean management is the distinction betweenvalue-adding and non-value-adding activities. One primary analytical tool in Lean management is the value streammap which is described as a process flowchart extended with information about continuity of the workflow, work in

process and so on, to specify the value-added and non-value-added steps. It helps identify the bottlenecks and guidethe quality improvement activities. The value-stream map provides a holistic picture of the entire organizationalvalue chain. Another element of Lean management is to seek every opportunity to reduce variability and attempt toreduce variation by establishing standardized work procedures. Lean provides some system approaches toorganizational problems, such as visual management, complexity reduction and 5S (a method for organizing theworkplace: sort, straighten, scrub, standardize, sustain), cellular production, pull system, line balancing, one-pieceworkflow and so on [2]. In the Lean literature the advantages of and principles behind these solutions are describedin depth [4, 13]. Lean focuses on process throughput, and thus the lead time is an important variable. The lead timetells that how long it will take to complete any item of work. According to Littles Law [13] the lead time equals theamount of work-in-process divided by the average completion rate. So one can increase the process speed either byreducing the amount of work in process or by increasing the average completion rate.

Generally, Lean has the advantages of standardized solutions to common problems and its focus on the customer.Lean seeks to prevent the sub-optimization by its focus on the entire value chain [14,15]. However, Lean is weak onorganizational infrastructures, deployment plans, analytical tools, and quality improvement and control. Six Sigma,on the other hand, offers a structured, analytic, and logically sound approach to problem solving, as well as a strongorganizational framework for its deployment. It deploys problem-solving strategies through DMAIC process, andoffers an option to sub-optimization [2,15]. It is characterized by its customer-driven or project-by-project approach,emphasis on decision-making based on careful analysis of quantitative data, and a priority on cost reduction [15].One perceived weakness of Six Sigma method is its complexity [14]. In the case of simple problems with obviousand easy-to-implement solutions, rigorous adherence to the Six Sigma problem-solving process (DMAIC) may beconsidered overkill and inefficient [ 4]. Furthermore, Six Sigma typically does not resort to standard solutions tocommon problems as Lean does. Finally, sub-optimizing a process sometimes will jeopardize the entire value chaindue to failing to take entire system into account [14]. Thus the ideal solution is to combine the two approaches. In

the following sections, we introduce the integration of Lean management and Six Sigma and how it will work forhealthcare sector.

3. Integration of Lean and Six SigmaWith disparate roots but similar goals, Lean and Six Sigma are both effective on their own. However, someorganizations that have embraced either Lean or Six Sigma may find that they eventually reach a point ofdiminishing returns. Lean and Six Sigma have complementary benefits. For integration, Lean may use themanagement structures that Six Sigma offers. For example, Six Sigmas DMAIC approach provides an effectiveembedding framework to apply Lean principles. Further, Lean does not analyze the economic performanceindicators of a process to establish where the main points of improvement are, but focuses on inefficiencies in the

process flow, even if that is not where the main opportunities for improvement are. Six Sigmas DMAIC methodoffers a thorough roadmap for analysis and diagnosis, driven by powerful tools and techniques. However, Six Sigmais a general problem-solving framework. Given the ubiquity of process inefficiencies, Six Sigma projects can benefit

from the standard solutions that Lean offers. The key to a successful integration of Lean and Six Sigma is to regardSix Sigmas project management and its DMAIC method as a general framework for problem solving and processimprovement, b ut within this framework, Leans standard solutions and mindset should find their places. Thus, thevalue stream map could be found as one of tools used in DMAIC steps of designing improvement actions andimproving quality control systems [14].

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Figure 2: Lean Sigma benefits

Figure 2 indicates how Lean Sigma approach can benefit an organization, and the corresponding improvements thatLean or Six Sigma alone could not offer. The horizontal axis represents the defect rate (the target of Six Sigma); thevertical axis represents the costs that add no value to the process (the target of Lean); the middle straight line goingupward is an ideal state that achieves lowest non-value-added cost and simultaneously improves both quality andefficiency. Under either Lean or Six Sigma, represented by the dashed lines in Figure 2, improvements will be made,

but these improvements will begin to level off at a certain point in time. With Six Sigma alone, the leveling off ofimprovements may be due to the emphasis on optimizing measurable quality and deliverable metrics, but ignoringchanges in the basic operating system to remove wasteful activities. With lean management alone, the leveling off ofthe improvements may be due to the emphasis on streamlining process flow, but doing so in a less scientific mannerrelated to the use of data and statistical quality control methods. Lean Sigma is a process of combining Six Sigmaquality with Lean speed. Overall Lean Sigma incorporates Leans principles into Six Sigmas improvement processitself to increase the speed of improvement projects and results. Lean Sigma also incorporates Six Sigma s view ofthe evil of variation and reduces its impact on the lead time and process speed. Finally, Lean Sigma has unique

advantage of recognizing that unnecessary complexity adds costs, time, and enormous waste to the process.

Figure 3: Deployment of Lean Sigma

Lean Sigma can create an aggressive identification and elimination of non-value added activities in a workflow process. To provide a direction of improvement efforts, George [4] states five laws of implementing Lean Sigma,market, flexibility, focus, velocity, and complexity and cost, and elaborates each phase of deploying Lean Sigmastrategies (see Figure 3). M any practitioners also have done such tacitly for quite some time which leads to anintegrated framework for deployment of Lean Sigma consisting of the following elements [14-18]:

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A structured approach: The deployment infrastructure is largely based on Six Sigma task force mechanismconsisting of project leaders who are usually called Black Belts and Green Belts , and members ofupper management who play the role of project owner, also known as Champions.

A projected deployment: Projects can be classified as either quick wins ( Lean ) or advanced(Six Sigma)in such deployment. Lean projects apply best practices and focus on implementing standard solutions. Such

projects typically involve speed, reduction of lead-time, inventory, and processing time. Six Sigma projects

apply to more general and complex problems and involve solid data analysis methods and statistics,including Quality Improvement (hereinafter QI) and control methods. The problem-solving algorithm ofDMAIC can be used, and projects are monitored after each phase is completed. Typical Six Sigma projectsinvolve increasing quality, decreasing defects, reducing variation, and increasing yields, but more generallyinvolve systematic process innovation.

Organizational competency development: A dedicated workforce of Lean Sigma project leaders are trainedin a curriculum that resembles that of Six Sigma with additional Lean components.

Organizational anchoring of solutions: To secure the implementation of solutions, tasks and responsibilitiesare clearly defined, procedures are standardized, and process controls are imposed as part of animprovement project.

Linking strategy to project selection: Strategic objectives are translated into performance indicators andtactical goals. These are then used as a basis for project selection, and help secure an alignment of projectswith the overall organizational strategy.

4. Lean Sigma in healthcareIn industry, the concepts of process speed and lead time are related to cost reduction and have to do with internalquality while a client is only interested in the end product. In healthcare, on the contrary, the customer the patient,is participating in the entire process. Thus the lead time has become one of the most important quality indicatorsfrom the perspective of the patients. The concept of lead t ime and the consequences of Littles Law offer healthcareindustry major opportunities to enhance quality and, by nature, to reduce costs. Waiting times and waste stronglyaffect the quality perception of healthcare service. Defects in healthcare are usually considered as complications orinfections. They do harm to the patients and cost vast amounts of money. Therefore the principles of Lean Sigma

provide great potentials to achieve process improvement in healthcare. In fact, as Lean Sigma has been increasinglyapplied to a wide variety of non-manufacturing operations, it is not a novel concept to the healthcare. There have

been some early adopters of Lean Sigma healthcare, and some of their experiences are described here [4,19,20]:

At Park Nicollet Health Services (PNHS) in Minneapolis, Minnesota, implementation of Lean and SixSigma has enabled to improve patient access through flow improvements. Results include increasing thenumber of CT and MRI scans performed per day by 2 and 1 respectively; creating a capacity for 10additional thermotherapy and antibiotic infusion patients per day in the cancer center; reducing the waitingtime of patients from 122 to 52 minutes at the urgent care clinic; standardizing surgical instrument used bythe general surgery group, which resulted in processing more than 40,000 fewer instruments each month.These improvements achieved through applying Lean Sigma concepts have resulted in Park Nicollet beingrecognized by the American Medical Group Association (AMGA) with its top rated Acclaim Award. Inaddition, PNHS has been able to achieve a record 3.9% operating margin, which equates to a $7.5 million

profit in 2004. At Virginia Mason Medical Center in Seattle, Washington, changes implemented by using Lean methods

have resulted in decreased incidence of ventilator-associated pneumonia from 34 cases with 5 deaths in2002 to 4 cases with 1 death in 2004. This led to a cost reduction of nearly a half-million dollars. VMMChas also reported increased profit margins and improvement in space utilization at its cancer center,enabling 57% more patients to be seen in the same allotted space, and it has taken measures to decrease thenumber of medication errors by standardizing and mistake-proofing the process of ordering, delivering, andadministering medications.

In Pittsburgh, Pennsylvania, a group of hospitals participating in the Pittsburgh Regional HealthcareInitiative (PRHI) have implemented Lean concepts to minimize the risk of developing central catheterrelated bloodstream infections. Several hospitals have been able to cut the incidence of central lineinfections by 50%-90% through implementation of Lean and Six Sigma methods.

At Community Medical Center in Missoula, Montana, a series of pilot projects have been initiated to testLean Sigma methods. Some of the early results have demonstrated a reduction in turnaround time for

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pathology reports from the anatomical pathology lab from 5 to 2 days, a reduction in the number of stepsand therefore the time from medication order to treatment initiation from 4 hours to 12 minutes, and areduction in time for unit clerks to process new physician orders from an average of 43 minutes to 10minutes during the hospitals busiest hours .

Sponsored by the Iowa Business Council, the University of Iowa Hospital and Clinics (UIHC) with twoother Iowa Hospitals have hosted a weeklong event to test the adaptability of Lean Sigma concepts using

Kaizen methodology. Lean Sigma activities have shown positive results and led to the benefits that includea 30% reduction of calls to the command center, a 31% increase in patient throughput, a 30% reduction intotal Takt time, a 33% reduction in patient experience time, a 91% reduction in travel time for technicians,and a 50% reduction in travel time for preparation personnel. The business translation of these resultsindicated that more than 3,000 additional CT cases could be handled annually, increasing net revenue byapproximately $750,000.

5. Lessons learnedThe aforementioned practices illustrate the key elements of Lean Sigma approach. First, the hospital applies thetypical organizational infrastructure of Six Sigma. Second, the deployment of QI is project by project. Third, theLean Sigma approach is based on developing organizational competencies for innovations and processimprovements, and is executed by well-trained dedicated force of Lean Sigma project leaders ( Black Belts andGreen Belts ). Fourth, the project selection has a strategic and operational objective, which necessitates a strictconcentration on cost reduction while maintaining or possibly improving quality of service. The champions, forexample, hospital department heads, suggest potential projects, but final approval to proceed is usually given by thegeneral manager, based on an evaluation of the projects strategic relevance. There are some others insights worth offurther discussion.

5.1 Team building and personnel training strategyA designated Lean Sigma team often represents a combination of the statistical rigor of Six Sigma with the waste-reduction focus of Lean [21]. Facilitated by team leaders, the team members need to identify Lean Sigma initiatives.Moreover Lean Sigma team needs to clarify strategic objectives, walk through every step of major processes,measure time, identify activities, make rapid improvements through the elimination of wasteful activities, andevaluate the outcomes based on preset performance indicators. In a Lean Sigma team Black Belt is usually a

person who learns and practices proficiency in statistical analysis and is an expert in the complete set of Six Sigmamethods and tools; and t he Green Belts are t rained to be problem solvers and receive the same training as BlackBelts with the exception of the statistical analysis component. Green Belt team members often are operationalspecialists from various areas of the organization. Furthermore, the changes to cross-departmental teams is critical

because it can eventually bring in a very strong focus on entire service line by looking at patient care from the beginning to the end, not just from each individual department.

To facilitate engagement of Lean Sigma process, training curriculum that combines Lean with the DMAICmethodology can be provided in organizational wide. Materials on time-value maps, value-stream maps, and thestandard forms of waste can be added to the curriculum in the analysis phase. Furthermore, the curriculum for theimprove phase can be expanded to include complexity education, cellular production, pull systems, and the 5Smethod to reduce inefficiencies due to clutter and poor organization. The participants of the training curriculum can

be distributed in teams of two or three Green Belts .

5.2 Administrative strategyFirst, it is an important point that Lean Sigma projects in healthcare typically include both medical and

administrative problems. Some healthcare professionals indeed think QI methods should address only defects, suchas medication errors, but widening the field of applications to all processes, operational inefficiencies, and waste canmake significant gains.

Second, the healthcare organization should realize the importance of the availability and use of data. Some data,such as how many of each kind of lab test was performed, is essential for making decisions about whether the

procedures could be changed to reduce pati ents hospital stay without doing them any harm. Thus having easyaccess to the data can help improve decision-making at a fundamental level, reduce the waste in data handling, andeliminate unnecessary procedures. Moreover it can provide additional support to QI project and teams for adapting

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the process to staff needs and benchmarking.

Last but not least, t o sustain this continuous quality improvement and cost reduction the organizations executiveteam must openly support the Lean Sigma effort for the chosen project. The executive team must embrace theapproach, endorse the changes presented by the team, and support the team through open acknowledgement of theaccomplishments, regardless of the size of the results.

5.3 Waste reduction strategyFully understanding waste in healthcare setting is necessary to improve the process and value-stream mapping. Inhealthcare, the waste of inventory and storage commonly includes excess supplies in patient and exam rooms,nursing stations, and in staff pockets; the waste of overproduction includes requesting or preparing unnecessarymedications, collecting excess blood samples, too many copies of a form, or preparation of too many procedure kits;the waste of over-processing includes duplication of information, or asking patient demographics several times.Such waste can be eliminated or significantly reduced by effective use of and easy access to data as mentioned inadministrative strategy previously. To avoid over-processing or redundant work, the Lean Sigma team shouldthoroughly monitor and exam each step in the process to map the value steam in the initial phase of performanceimprovement project. In addition to the typical seven types of process waste, an eighth waste, which is the waste ofunderutilized intellect, is important in healthcare yet neglected [21]. For example, nurses mop floors, or pharmacistscheck refrigerator temperatures.

Furthermore the concept of reuse and re-sterilization can be introduced to reduce costs and medical waste. Researchshows that hospitals are able to eliminate waste by recycling medical equipment, and such practice can savehundreds of millions of dollars annually and curb trashes at medical centers [8]. Surgical gowns, towels,laparoscopic ports, and expensive ultrasonic cutting tools are tossed after one use. Re-sterilizing and retesting suchdevices can decrease the amount of needless waste from hospitals. A recent study by the U.S. GovernmentAccountability Office concluded that reprocessed devices do not present an increased health risk over new devices.However safety concerns including possible malfunction and disease transmission still exist. And there is theabsence of patient consent to use such devices, which also largely hinder the implementation of cost reduction byreuse and re-sterilization [8].

6. ConclusionHealthcare system deals with spiraling healthcare costs and a decreasing proportion of population who will be ableto afford high-quality healthcare. If healthcare services are inefficient, they cost more, and fewer can benefit fromthe advances of modern medicine. Continuous pursuits of process innovations and improvements in healthcare arenecessary. Lean Sigma offers a viable alternative to healthcare for providing better service and greater efficiencywith less cost. However it doesnt mean that healthcare becomes less personal or service quality is compromised.Lean and Six Sigma have strongly complementary strengths that are particularly useful for systematicallydeveloping healthcare service innovations and process improvements. Lean Sigma incorporates the organizationalinfrastructure, thorough diagnosis and analysis tools of Six Sigma, and best practice solutions of Lean for problemsdealing with waste and unnecessary costs in healthcare system. Synthesizing these approaches can lead to anintegrated framework to improve service quality of healthcare system and reduce operational costs.

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