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By creating a performance-driven culture, a health system lowered costs and raised quality of care

Clinical operations transformation—from front line to back office—yields lasting results.

Challenge

A large regional healthcare system in the southern United States, concerned about upcoming healthcare reform, needed to significantly improve its operating margin. The system had been meeting its cost targets, primarily through cost-cutting and labor management. However, it needed a step-change in performance to meet the challenges ahead. The system asked McKinsey to help it design and implement a frontline-driven lean transformation with three objectives:

  • improve quality while reducing costs
  • instill a performance-driven culture
  • ensure that the results were sustainable over the long term

Discovery

It became apparent during our initial conversations that the client lacked two necessary elements if the frontline transformation was to yield solid, sustainable results: a robust performance management system that would deliver real-time data to all staff members, and trained "internal consultants" capable of overseeing an ongoing, large-scale improvement program.

We also realized that the client could achieve stronger results if it transformed some of its business support functions (e.g., its purchasing and billing departments) at the same time that it transformed frontline clinical operations. We therefore undertook four streams of work simultaneously.

  • Performance management. We helped the client build a data repository system that could pull information from multiple IT sources, combine the information into a set of key metrics, and then deliver them in a simple-to-use scorecard. We also established regular performance dialog meetings for all groups, and taught its leaders how to role model desired behaviors and deliver appropriate rewards and recognition. Working with the frontline and support staffs, we helped instill a culture built around root-cause analysis and iterative problem-solving.
  • Internal consultants. To create a cadre of internal consultants, we provided both formal training (lean and leadership boot camps) and less formal weekly training sessions based on adult learning principles and best practices. We gave candidates real-time, shoulder-to-shoulder coaching and had them undergo an apprenticeship as junior consultants, responsible for specific streams of work. The candidates then took on more responsibilities as they demonstrated mastery of particular areas.
  • Frontline transformation. We conducted a pilot in a few medium-sized, mid-performing hospitals to refine the approach we would use with the client's staff. The remaining facilities were then transformed in a series of three rounds. At each hospital, we performed rigorous analytics and held multiple discussions with the frontline staff to pinpoint the biggest opportunities for improvement. Those opportunities were similar at all facilities, but each staff was encouraged to pinpoint the problems hindering its own performance and then to develop solutions. We taught the staff lean tools, leadership skills, and how to use the new performance management system. This approach gave the frontline staff "ownership" of the transformation, and the change program has delivered strong results that have grown over time.
  • Support function transformation. The efforts focused on support services also included rigorous analytics and discussions with frontline staff, who then led the transformation. However, they also included representatives from both the support departments and clinical operations to ensure that the highest-impact solutions were identified.

Impact

Within a year and a half, each hospital had increased revenues, improved productivity and cut costs—for a more-than-threefold return on the client's investment. The operating margin improvement should be sustainable over the long term, given that it results from revenue enhancements as well as cost savings.

Specifically:

  • Emergency department (ED) length of stay decreased 20 to 35 percent (depending on the facility); inpatient discharge times declined 35 to 60 percent.
  • The rate of ED co-pay collections doubled.
  • The rate of operating room first-case on-time starts rose 75 to 100 percent.

The client now has crucial elements it previously lacked. Its new performance management system ensures that all frontline staff meet daily and, when necessary, make real-time changes to drive the highest-quality performance. In addition, the client has an experienced team of about 10 internal consultants who can support the frontline staff in these efforts.

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