Driving LEAN Enterprise in Iowa’s Health Industry

1. Driving LEAN Enterprise in Iowa’s Health Industry Presentation to the Advanced Manufacturing Research Collaboration Cluster Board October 8, 2003 Paul M. Pietzsch President Health Policy Corporation of Iowa 100 Court Ave., Suite 215, Des Moines, Iowa 50309-2257 515-282-7727 / Fax 515-282-2008 E-mail: health@hpci.org www.hpci.org

2. “Between the care we have and the care we could have lies not just a gap but a chasm. The current care systems cannot do the job. Trying harder will not work. Changing the system of care will.” Janet Corrigan (et al.), Crossing the Quality Chasm –2002 Report of the Institute of Medicine, National Academy of Science November 2, 2002 HPCI Statewide Health Policy Conference Keynote

3. Health Policy Corporation of Iowa • Private, non-profit organization • Est. 1982 by Iowa leaders in private and public sectors • Focus on cost containment, quality and access to health care services • National recognition for effectiveness • Health care purchasing initiatives • Research, data collection, analysis, education • Leadership in setting community health goals

4. Initiating a Proactive Effort Purpose: To address fundamental issues in Iowa’s Health Industry through the use of sound quality improvement and purchasing principles - Control costs - Improve Quality - Engage employees/consumers/patients

5. The Approach Approach the issue very much like any other LEAN or Sigma challenge -- start at the customer and work the complete process: • Problem analysis. Understand the problem before you jump to conclusions including quality and cost implications of each process step. • Constituent needs. By carefully understanding the problem, we will be much better prepared to articulate the ‘burning platform’ as well as potential opportunities for each of the constituents along the way. • Buy-in for results. The better everyone understands the process, what is in and out of scope as well as the potential returns for each of the constituents, the higher the potential for everyone to buy in to the outcome.

7. Manufacturing Defective Products Over-production Excess inventory/capacity Excess motion Processing Transportation Waiting Health Care Sub-optimal outcomes Unnecessary services Patients in queue/capacity Excess motion Processing Patient movement Waiting!!! Wastes

8. Plan of Action • Step 1. Identify and get rid of obvious waste. • Step 2. Eliminate waste between the value-adding processes (from customer point of view). • Step 3. Last area is clinical processes.

9. Slide 1. Health Industry High Level Process Map of the Current State Information / Reports Health Plan % of Premium and Eligibility Information Employer % of Premium Information and $ Information (i.e., claims) Information (EOB, other) Employee / Patient Health Care Provider $ Service and Information Note: A process map will show all the individual steps within a particular process so you can “see” the process and “see” the wasted steps that add no value. (Some are mandated processes.) From this map, develop a new map of how it should be and implement it. Mapping a process: Ask, “where is the pain or heartburn?”; look for bottlenecks and focus in and dig down; look at input vs. output (time it takes, money, etc.). Each iteration will show more details.

10. Slide 2. Map of Current State Billing, Claims and Payment Processes Remittance Advice Employer Of Policy Holder Document Flow of Information Claims & Fee Summary Claims Payment Flow of Money Type of Payment Claims & Fee Payment Insurance Carrier “A” PPO Preferred Provider Organization Hospital Patient Payment ... Care Provider “A” Billing Process at Hospital Patient Billing Info Policy Owner Explanation Of Benefits ... 3rd Party Billing Service Indicates Several Inside Providers Insurance Carrier “Z” Co-pay Deductible Balance Due Or Direct Bill Care Provider “Z” Patient Payment Patient Billing Info. Outside Care Provider “A” Remittance Advice ... Indicates several outside providers Claims Payment Co-pay Deductible Balance Due Or Direct Bill Outside Care Provider “Z” NOTE: Within any typical process there are multiple process steps. For example: “Billing process at the hospital” includes compile, code, enter, print, and post.

11. Remittance Advice Employer Of Policy Holder Document Flow of Information Document Flow of Information Claims & Fee Summary Claims Payment Payment Delays Type of Payment - Incoherent payment statements - Plan Design - Rules of the game Flow of Money Flow of Money Type of Payment Claims & Fee Payment Insurance Carrier “A” PPO Preferred Provider Organization Hospital Patient Payment ... Care Provider “A” Billing Process at Hospital Patient Billing Info Policy Owner Explanation Of Benefits ... 3rd Party Billing Service Indicates Several Inside Providers Insurance Carrier “Z” Rules of the Game & Plan Design Co-pay Deductible Balance Due Or Direct Bill Care Provider “Z” Billing delays & Coding errors Patient Payment Patient Billing Info. Outside Care Provider “A” Payment Delays & Incoherent Payment statements Remittance Advice ... Indicates several outside providers Claims Payment Co-pay Deductible Balance Due Or Direct Bill Outside Care Provider “Z” NOTE: Within any typical process there are multiple process steps. For example: “Billing process at the hospital” includes compile, code, enter, print, and post. Slide 3. Map of Current State Billing, Claims and Payment Processes The HEARTBURN

12. Inpatient Lead Times for Billings Shortest time identified on the map: 11,712 min. = 8.1 days Longest time identified on the map: 28,992 min. = 20.1 days Value added time 48 min. 46 sec. Outpatient Lead Times for Billings Shortest time identified on the map: 11,868 min. = 8.2 days Longest time identified on the map: 29,369 min. = 20.4 days Value added time 11 min. 3 sec. Lead Times and Value Added

13. Hospital Administrative CostSource: New England Journal of Medicine, March 13, 1997

14. What does an R.N. do? “Admin” Face to face patient time “Waste” Rework – correcting, hunting, clarifying. Redundancy. Waiting. Motion, etc. Observations: 1000’s of hours, Med/Surg units, mid shift, in 45-750 bed hospitals Source: John W. Kenagy, 2002

15. Slide 4. Map of Current State – Money Flow Using $1,000 Example: How and Where Money is Typically spent. See note below. Employer Hospital Hospital Inpatient $207 Patient Care (Clinical) $153 Non Patient Care $54 Insurance Carrier “A” (includesPharmacy Benefit Manager – PBM) PPO Preferred Provider Organization Hospital Outpatient $144 Patient Care (Clinical) $107 Non Patient Care $37 $1,000 $900 $940 Primary Care $126 PC $83 Non PC $43 ~($60) ~($40) Policy Owner Specialists $234 PC $154 Non PC $80 3rd Party Biller Insurance Carrier “Z” (includesPharmacy Benefit Manager – PBM) Rx $135 PC $74 Non PC $61 Utilization Review/Case Management/Disease Management (May be part of Insurance carrier at additional fee) Mental Health/Chem. Dep. $9 Ancillary $45 NOTE: Based on Iowa employers self insured plan using administrative cost data from Iowa Department of Public Health, 2003. Assumes insurance carrier is third party administrator (TPA) for self-insured employer plan with no broker/agent fees. Insurance financial risk and broker/agent fees add 10+%. LEAN Money Flow 916

16. Slide 5. New Health Industry Customer-Focused Performance Accountability Model(Based on LEAN Enterprise, and Supply Chain Integration Using Standards and QCDS Metrics) Health Plan A • Customer • Expectations • Quality and timely • care • Reasonable cost • Least hassle Hospital A PPO A PPO Z Hospital Z Health Plan Z Employer Utilization Review/ Care Management/ Disease Management A Patient / Policy Holder Care Provider Outside A Utilization Review/ Care Management/ Disease Management Z Q.What are the metrics you use to determine your customer’s satisfaction with your product or service? As the process owner each supplier tier level should be able to answer this question. 3rd Party Biller A Care Provider Outside Z 3rd Party Biller Z

17. Slide 6. Applying LEAN Enterprise in Iowa’s Health Industry: Two Complementary Tracks • Health Professionals and • Organizations • Adopt and operational LEAN principles in practices/org • Demonstration Projects • Identify other projects and efforts • Network • Education and communications Buy-in at top level by major customers and health professionals (Private/Public Partnership) 2. Customers (Employers, sponsors and other customers) • Adopt and operational LEAN Principles as customers • QCDS Matrix • Supply Chain Integration • Standards and Specifications • Measurement

18. #1. Working the Complete Process Step 1. Develop health system high level process map of the current state between employers, health plans health care providers and patients. Step 2. Identify some initial heartburn areas (problems), gather data and other information to describe and understand these issues.             Step 3. Identify desired future state.           Step 4. Gap analysis.           Step 5. Develop activities list – do now vs. visionary list. #2.  Identify Early Adopters in Health Industry #3. Support Iowa Demonstration Projects Networking among sites and supportive organizations Encourage new demonstration sites #4. Conduct Education and Communications Glossary of terms Communicate success stories Hold education sessions/seminars Providers want opportunities to share time with manufacturers and LEAN practitioners LEAN 101 training #5. Buy-in of Top Leaders Buy in and support of top leaders is essential Create two complementary tracks Upcoming strategy session and policy deployment Kaizen Summary: Efforts to Drive LEAN through Iowa’s Health Industry