“Out-of-the Box” Survival Strategies for Labs During an ......Economic Downturn Presented by Susan Stegall, Managing Partner Sprick, Stegall & Associates, LLC ... Cutting administrative

““OutOut--ofof--the Boxthe Box”” Survival Survival Strategies for Labs During an Strategies for Labs During an Economic DownturnEconomic Downturn

Presented by Susan Stegall, Managing PartnerSprick, Stegall & Associates, LLCwww.sprickstegall.com

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© Sprick, Stegall & Associates, LLC 21-Mar-09

Downward Spiral of ThriftDownward Spiral of Thrift——Since Since September 2008September 2008

Stocks lose 50% of their valuePeople lose their jobsPeople stop buying; conserving cash is kingRetail companies lose customersResorts lose customersElective surgeries are foregonePeople lose their healthcare coverageIndustry, after industry, after industry is impacted in a negative fashion

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The Health Care EnvironmentThe Health Care Environment

Capital crunchDeclining financial health for hospitalsChange in number & mix of patients seeking careTrend: Physicians seeking financial support from hospitalsFinancial stress at State and Federal levelsHealthcare & hospitals a major source of private sector jobsCapital expenditures being reconsidered or placed on holdLower patient demandUnemployment is rising—uncompensated care is increasing

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Cutbacks and Changes per AHA Cutbacks and Changes per AHA SurveySurvey——November 11, 2008November 11, 2008

People focused cuts are front and center!!!

59%

53%

27%

12%

8%

21%

0% 10% 20% 30% 40% 50% 60%

Cutting administrativecosts

Reducing staff

Reducing services

Divesting assets

Considering merger

Other

Hospital Strategies to Weather the Economic Storm

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Warning!Warning!

Some of the strategies I am about to suggest will not be what you want to hear!

Change is tough—it’s not always fun.

It is the right time to do it.

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Strategy 1Strategy 1——Change Your Scope Change Your Scope

Option 1—Financial Outcomes Before Scope Change:♦ Many more mid-level

esoteric tests are performed

Option 2—Financial Outcomes After Scope Change:♦ Less performed mid-

level esoteric test & less billed reference work

Option 1 Option 2 % ChangeTest Performed 182,000 165,000 -9.3%Test Referred 19,133 36,133 88.9%Technical Costs 1,445,000$ 950,000$ -34.3%Support Costs 433,000$ 378,000$ -12.7%General Admin 260,000$ 282,000$ 8.5%

Subtotal 2,138,000$ 1,610,000$ -24.7%

Note: About 24,000 of the referred tests in Option 2 were billed by the referral lab (insurance company rules/mandates) and not by the clinic lab—only ~12,000 of the referred tests were billed by the clinic lab in Option 2.

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Strategy 2Strategy 2——Increase Level of Increase Level of ConsolidationConsolidation

What are you still holding on to? Find the sacred cows in your lab!♦ Microbiology?♦ HgbA1C?♦ Hepatitis testing?♦ Other mid-level, non-time dependent, non-

STAT testing? Simplify / optimize your service delivery.

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Strategy 3Strategy 3——Change Your Skill MixChange Your Skill Mix

Improve / change how you use your Clinical Laboratory Scientists—they are becoming a rare breed.Old debates:♦ Phlebotomy services♦ Specimen processing♦ Client services♦ Instrument maintenance♦ Temperature checks

New debates:♦ Standardized work routines♦ Automated work cells♦ Rapid response teams

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Department of Labor Statistics, 2006

In 2006, NAACLS reported about 2,500 Medical Technologists graduate annually♦ This is 19% decline from 10 years

ago (~3,100 graduates ) and . . .♦ Is 48% decline from 20 years ago

(~4,800 graduates)The picture gets worse!40% of med techs are 46-66 years of age49% of med techs will be ready to retire in 2010Here’s the most depressing:♦ 13,800 med techs per year are needed

through 2012 to fill current and upcoming vacancies!

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In 2006, NAACLS reported about 2,500 Medical Technologists graduate annually♦ This is 19% decline from 10 years ago

(~3,100 graduates ) and . . .♦ Is 48% decline from 20 years ago (~4,800

graduates)The picture gets worse!40% of med techs are 46-66 years of age49% of med techs will be ready to retire in 2010Here’s the most depressing:13,800 med techs per year are needed through 2012 to fill

current and upcoming vacancies!

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In 2006, NAACLS reported about 2,500 Medical Technologists graduate annually♦ This is 19% decline from 10 years ago

(~3,100 graduates ) and . . .♦ Is 48% decline from 20 years ago (~4,800

graduates)The picture gets worse!40% of med techs are 46-66 years of age49% of med techs will be ready to retire in 2010

Here’s the most depressing:♦ 13,800 med techs will be needed each year

through 2012 to fill current and upcoming vacancies!

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Strategy 4Strategy 4——Outsource Your LabOutsource Your Lab

Find a regional or national lab who understands how to manage a lab like yours.♦ Alverno Clinical

Laboratories, LLC♦ Spectrum Laboratory

Network♦ PAML♦ Michigan Co-tendency

Lab♦ Quest | Laboratory

Corporation of America, Inc., etc…..

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Strategy 5Strategy 5——Start An Outreach Start An Outreach Program or Grow Your Outreach Program or Grow Your Outreach ProgramProgram

Invest in your laboratory! Where else can you get a 20%+ return on your invested dollar today?

Visit http://www.sprickstegall.com for some free spreadsheet models to help you understand how to grow your hospital-based outreach or independent lab program.

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Strategy 6Strategy 6——Improve Your Processes Improve Your Processes with Leanwith Lean

The goal of Lean is the total elimination of waste!

Most service organizations have 50-80% waste without even knowing it—hospitals and laboratories included.

$-$5,000,000,000

$10,000,000,000$15,000,000,000$20,000,000,000

$25,000,000,000$30,000,000,000$35,000,000,000$40,000,000,000

10%Waste

20%Waste

30%Waste

40%Waste

50%Waste

60%Waste

70%Waste

80%Waste

Net Revenues of US Lab Industry ~$50 Billion

Projected Savings Estimated Bottom Line Impact

Learning to see waste and eliminating it will save the healthcare industry billions of dollars.

$6.25 Billion

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Strategy 6Strategy 6——Improve Your Processes Improve Your Processes with Leanwith Lean

Lean is doing twice as much work with half as much effort (labor) in half the space in half the time with half the needed inventory on site.

As a responsible and accountable leader / manager, why would you want to continue to pay your staff to perform wasteful work?

Use the Lean Tool Set to go after the low hanging fruit in your laboratory—rapid wins through pure waste reduction!

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Strategy 6Strategy 6——Improve Your Processes Improve Your Processes (cont.)(cont.)

Effects of Reducing Waste on Margins

Operating Margin

Tim

e S

pent

on

Was

tefu

l Wor

k:

Mor

eLe

ss Reducing waste by 1% improves operating margins by .25%

Murphy Leadership Institute, 2003 study

=

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Lean Scorecard

Lean Metric Validated Industry Averages1

SS&A Clients’Results after 14

Weeks

Productivity Improved

45-75% 30-65%

Cost Reduced 25-55% 10-30%

Throughput / Flow Increased

60-90% 50-75%

Defects Reduced 50-90% 20-30%

Inventory Reduced 60-90% 50%

Space Reduced 35-50% 20-25%

Lead Time Reduced 50-90% 40-75%

1 Source: Institute for Healthcare Improvement, 2005 Companies in the Validated Industry Averages column range from 1 to >7 years in Lean principles application / executions.

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Strategy 6Strategy 6——Improve Your Processes Improve Your Processes with Six Sigmawith Six Sigma

The goal of Six Sigma is to reduce variation in your processes in order to meet “customer specification.”

32241680

6.0

4.5

3.0

1.5

0.0

C2

Freq

uenc

y

Mean 15.5StDev 8.803N 30

0.4

0.3

0.2

0.1

0.0

X

Den

sity

-1.96

0.025

1.96

0.025

0

121086420

3

2

1

0

Normal Curve

Freq

uenc

y

Mean 5.263StDev 2.825N 19

108642

Median

Mean

6.04.53.0

1st Quartile 3.0000

Median 5.0000

3rd Quartile 8.0000Maximum 10.0000

3.9014 6.6249

3.0000 7.1360

2.1349 4.1782

A-Squared 0.28

P-Value 0.610

Mean 5.2632

StDev 2.8253Variance 7.9825

Skewness 0.03089

Kurtosis -1.17468N 19

Minimum 1.0000

Anderson-Darling Normality Test

95% Confidence Interval for Mean

95% Confidence Interval for Median

95% Confidence Interval for StDev

Histogram of C2Normal

Distr ibution PlotNormal, Mean=0, StDev=1

Histogram of Normal CurveNormal

95% Confidence Intervals

Summary for Normal Curve

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Strategy 6Strategy 6——Improve Your Processes Improve Your Processes with Six Sigmawith Six Sigma

Six Sigma is:♦ A business

strategy & methodology:

♦ Creates breakthrough performance and

♦ Saves money—Each successfully executed and sustained Six Sigma project should save your company about $250,000.

Six Sigma improves the value of your service in the eyes of your customer.You reduce variation in your process to meet their service expectations from:♦ A price

standpoint,♦ Delivery

standpoint, and ♦ A quality /

functionality standpoint.

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Strategy 7Strategy 7——Sell Your Outreach Sell Your Outreach ProgramProgram

Real money for your healthcare system:♦ Cash infusion was the #1 reason hospital

administrators said they would sell their lab outreach business1 (40%) in 2005 and it’s probably more true today.

Real cash examples include:♦ Clinical Labs of Hawaii♦ Stanford Outreach Lab♦ St. John Health Lab—Deal on the table♦ DSI Laboratories♦ Biotech Labs♦ Presbyterian Reference Lab

1 Are Hospital Laboratory Outreach Programs For Sale, HCDS, Inc., 2005, Table 13, p. 14

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Strategy 8Strategy 8——Lead Whatever Strategy Lead Whatever Strategy You SelectYou Select

Managing Complex Change Managing Complex Change

VISION SKILLS INCENTIVES (WIFM) RESOURCES ACTION PLAN SUCCESSFUL

CHANGE

SKILLS INCENTIVES (WIFM) RESOURCES ACTION PLAN CONFUSION

VISION INCENTIVES (WIFM) RESOURCES ACTION PLAN ANXIETY

VISION SKILLS RESOURCES ACTION PLAN GRADUAL CHANGE

VISION SKILLS INCENTIVES (WIFM) ACTION PLAN FRUSTRATION

VISION SKILLS INCENTIVES (WIFM)

RESOURCESFALSE STARTS

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Lack of vision yields confusionLack of vision yields confusion

2009 is not the time to sit on the sidelines!

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Lack of skills will create anxietyLack of skills will create anxiety

Either train, hire, or contract but don’t leave home without it!

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Lack of incentives will slow the Lack of incentives will slow the change processchange process

People want to understand “what is in it for me.”Make sure you think this through so you can communicate it openly and often.

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Lack of resources will lead to frustration and defeat

Inputs Processes Outcomes

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Lack of action plan leads to false starts

Create the plan and then execute the plan.

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Why CEOs Get FiredLeadership Excellence, Vol. 22, Sept. 2002

31%28% 27%

23% 22%

0%

5%

10%

15%

20%

25%

30%

35%

Mis-managingChange

IgnoringCustomers

ToleratingLow

Performers

DenyingReality

Too MuchTalk, NotEnoughAction

Reasons CEOs Get Fired

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What Works: Picking the right Out-of-the-Box Strategy for Your Laboratory

OUT THINK

OUT PERFORMBEYOND CHANGE

OUT-OF-THE-BOX STRATEGIC IMPLEMENTATION

Documents

“Out-of-the Box” Survival Strategies for Labs During an ......Economic Downturn Presented by Susan Stegall, Managing Partner Sprick, Stegall & Associates, LLC ... Cutting administrative