December 4, 2009 / 1:37 PM / 8 years ago

U.S. hospitals turn to GE for surgical cuts

<p>Virtua Health's vice president Barry Graf (R) and management engineeer Tejas Gandhi stand in a mock maternity room for the Vorhees replacement hospital at the Virtua Health facility in Vorhees, New Jersey, November 19, 2009.Tim Shaffer</p>

MARLTON, New Jersey (Reuters) - Virtua Health, a suburban Philadelphia hospital chain, had a problem. Scheduled caesarean sections were running behind schedule -- from one to two hours on a good day to as much as eight to 10 when things really got backed up.

Why such delays on a routine procedure that was planned ahead of time? The answer is one that would mystify a manager in most of corporate America -- every staffer needed in the operating room had a different understanding of when he or she was expected to show up for a 7:30 a.m. operation.

"The nurse who was bringing the patient thought that if it was a 7:30 C-section, they went to the operating room at 7:30. Anesthesia thought it meant when they came into the hospital, the physician thought it was when they actually cut the skin," explained Terry Ricca, vice president of ambulatory services at Virtua and a veteran of its labor and delivery staff.

While simple enough to solve -- hospital policy now requires nurses to move patients to the surgery area by 5:30 a.m. and anesthesiologists to arrive by 6:45 a.m. -- this sort of problem is all too common in the U.S. hospital system and goes a long way toward explaining estimates that the nation wastes about one-third of the money it spends on healthcare.

Enter General Electric Co.

The largest U.S. conglomerate is bringing its corporate arsenal of efficiency tools, like Six Sigma with its "black belt" experts who make factories run more smoothly, to the world of white coats and stethoscopes. They are the ones who helped Virtua clean up its scheduling mess.

Since launching its consulting business a decade ago, the Fairfield, Connecticut-based GE has advised more than 1,500 hospital systems in the United States and abroad, with clients including New York Presbyterian Hospital, the University of Southern California Medical Center in Los Angeles and the Baptist Health System in Birmingham, Alabama.

The premise is simple: find ways to cut costs while improving the quality of patient care, an issue at the heart of the ongoing U.S. debate over how to reform the healthcare system.

The nation spends a staggering 16 percent of its gross domestic product on healthcare, more than any other country in the world and almost twice as much as Britain or Spain. The U.S. Senate is currently wrestling with a plan designed to rein costs and extend insurance to cover about 30 million Americans who lack it.

All that means more hospitals will be looking for advice on how to shave costs and provide better care.

"It's going to be more relevant," GE Chief Executive Jeff Immelt said of the consulting arm. "If reimbursements get cut, if hospitals have to drive additional change, we think there's going to be a fairly broad appetite for this."

LEARNING TO BE 'BUSINESSLIKE'

When it comes to fat, U.S. hospitals are in need of extreme liposuction. The nation's healthcare system wastes $505 billion to $850 billion a year on medical errors, administrative inefficiency and redundant paperwork, a Thomson Reuters study released in October found.

That reflects an industry that for decades faced minimal cost constraints, where hospital administrators presumed that improving patient care required spending more money.

"Back in the '70s and '80s, health care was basically cost-reimbursed, so whatever hospitals spent, they got paid," said Richard Miller, president and CEO of Marlton, New Jersey-based Virtua. "The mind-set was not about cost control and keeping an eye on margins and cost, because it didn't matter. Now you're taking a major, massive industry and telling them to be businesslike."

To become more businesslike, some say, hospitals need to start by studying actual businesses.

"There are many lessons that hospitals can take from other industries, and they're constantly seeking to do that," said Kae Robertson, a principal in Deloitte Consulting LLP's healthcare arm. "There is a real focus on back-office costs, which would be things like billing and collections, paying for supplies, being able to create shared services."

Others question whether systems developed to speed the manufacturing of cars and mobile phones apply to the messy, all too human world of healthcare. Factories can run at a high, steady pace because they handle standardized parts -- every brake pad or chip set is identical and tends to arrive on the production line at a predictable clip.

Hospitals, on the other hand, face a far more unpredictable stream of patients, each of whom requires different care and brings a unique set of health problems.

"When you are talking about a Toyota production line, you don't have these peaks and valleys," said Eugene Litvak, an adjunct professor of operations management at the Harvard School of Public Health in Boston. "When people say we want to transform our healthcare system into a Toyota production line, that's wishful thinking. It's never going to happen."

But that doesn't mean hospitals can't run more efficiently than they do today, as Virtua's case makes clear.

The nonprofit chain was one of the first U.S. hospitals to adopt Six Sigma, a system inspired by Japanese auto giant Toyota Motor Corp, named by mobile phone maker Motorola Inc and refined by American industrial giants including GE and Caterpillar Inc.

Virtua, which generates about $1 billion in annual revenue, has cut about $27 million in costs from its budget through changes it developed with GE.

That has given it the highest operating profit margin in the state of New Jersey, according to the state's hospital association. Its 10.3 percent margin is almost three times the national average of 3.7 percent, according to research by David Koepke, senior scientist in the Healthcare & Science business of Thomson Reuters.

Like Virtua, the most profitable U.S. hospitals make it to the top of their field by focusing on efficiency. On average, the best-performing facilities treat and release patients 8 percent faster than the least profitable ones. That frees their staff up to see more patients.

PRESCRIPTION FOR PROFITS

General Electric traces its roots in the healthcare business to founder Thomas Edison's late 19th-century experiments with X-ray machines.

<p>A nurse feeds a baby in the neonatal intensive care unit at the Virtua Health facility in Vorhees, New Jersey, November 19, 2009.Tim Shaffer</p>

It is now poised to become an even bigger slice of GE as the conglomerate scales back its hefty finance arm -- which proved vulnerable during last year's credit crisis -- and sells a majority stake in its NBC Universal media business to No. 1 U.S. cable operator Comcast Corp.

The consulting business grew out of its medical device operation, and has been growing by an impressive 25 percent a year, generating hundreds of millions of dollars in annual revenue. But that's still a small slice of the $17.4 billion the company's health unit brought in last year. Most of that comes from selling high-end devices like magnetic resonance imaging and ultrasound machines.

And therein lies the rub: Some critics believe the proliferation of pricey digital imaging devices -- an ultrasound machine alone can set a hospital back $100,000 or more -- contributes to soaring U.S. health care costs. America's Health Insurance Plans, an industry lobbying group, last year estimated that Americans pay some $26.5 billion a year for unnecessary CT-scan and MRI procedures.

GE, for its part, says the devices it sells play a valuable role in patient care.

"There are plenty of clinicians who really use these tools to save lives or treat people more effectively, and ultimately that's what dictates the demand," Immelt said. "The clinical efficacy of our products has been proven over time."

TRAINING BLACK BELTS

Virtua's Miller said he first became interested in GE's consulting capabilities when Immelt visited during his time running GE's health care arm, before becoming CEO in 2001.

"I called GE and asked, can you have a master black belt or a couple of your master black belts come out and talk with us?" Miller said.

Their systematic approach to problem solving impressed Miller, who in 2001 sent a handful of staffers to GE's corporate training center in Crotonville, New York to be trained in Six Sigma.

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Nearly a decade and more than 100 Six Sigma projects later, Virtua has made scores of small changes to the way it operates, from better staff scheduling to slashing by two-thirds the amount of time it takes to treat a woman who discovers a lump in her breast, which can be a warning sign for cancer.

The hospital has also shifted the responsibilities of some departments. It is now up to the staff of patient wards on the upper floors to keep track of when people are admitted to the hospital via the emergency room, for example. The upshot: patients spend less time waiting on emergency room gurneys.

Making the change required upgrading communications systems so that the nursing staff on the upper floors know what's going on downstairs. Virtua has phased in video monitors at nursing stations, which track how many patients are waiting in the ER for rooms -- the screens turn red when a backlog forms.

That's a big break from how many hospitals operate.

"If you come into the (emergency room), housekeeping doesn't necessarily know that they need to get that bed ready," said Mark Vachon, who heads GE's hospital consulting arm.

FROM THE GROUND UP

But those changes are just a warm-up. The big payoff will come in a new, 680,000-square-foot (63,170 sq meter) hospital Virtua is building to replace its main 1970s-vintage site. In April, Virtua sold about $565 million in bonds to help fund construction of the new site.

Every element of the $460 million new facility -- from the separate entrances for juvenile and adult emergency patients to the height of shelves in the storage closets -- has been designed with efficiency in mind.

Hospital staff started planning for the new location in 2003, spending the first year analyzing basic functions like how they handle women in labor. Virtua estimates that it will be able to deliver another 2,000 babies per year -- a 35 percent increase -- in the new facility with just one more labor and delivery room, thanks to changes in work flow.

The hospital has gone so far as to build out full-scale, fully furnished mock-up patient rooms in a warehouse near its current facility to give staff and former patients a chance to weigh in on the new design.

During a recent tour of the still-under construction facility, which is scheduled to open in 2011, Virtua officials stressed that all these small tweaks could have big effects. There are separate entrances and corridors for outpatients -- basically healthy people in for a quick procedure -- and inpatients -- who tend to be sicker. Hospital officials said this should reduce the risk of those two populations sharing germs.

Similarly, patient floors will feature small storage closets spaced between every six to eight beds, versus the one large closet per 40 beds used at Virtua's current facility. That should greatly reduce the amount of time nurses spend walking around looking for bandages and syringes.

Still, the new hospital was not designed entirely with an eye toward cutting costs. For instance, the maternity level is made up entirely of private rooms, instead of the shared rooms common at its current hospital.

That shift -- as well as offering things like room service and Internet access -- adds costs. But the hospital has little choice if it hopes to meet the demands of finicky American patients, said Ninfa Saunders, executive vice president for health services at Virtua.

"Who would have ever thought, 10 years, 20 years ago, that we would do room service in a hospital?" Saunders said. "Do we need all these private rooms? No. But if we want our patient satisfaction to be the best there is, we better have that."

Those sorts of compromises between efficiency and comfort illustrate the tricky balancing act hospital administrators face --between controlling costs and attracting patients and doctors.

They also suggest that cost-cutting alone at hospitals is unlikely to provide enough savings to solve the problems that plague the U.S. health system.

"That's insufficient to create the significant change in the cost structure that we hear the government talk about," said Deloitte's Robertson. "It requires a different model and that's not within the control of the individual hospital."

But it has been significant for Virtua and other hospitals whose patients are better served by a more businesslike approach to healthcare.

Reporting by Scott Malone, editing by Jim Impoco and Claudia Parsons

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