Making healthcare more efficient simply leads to lower revenues.

I had breakfast with Mark Graban on Sunday morning. He is a senior fellow at the Lean Enterprise Institute and author of the book Lean Hospitals: Improving Quality, Patient Safety, and Employee Satisfaction. It’s always a great time talking with him. He and I think a lot alike and I really envy his knowledge of lean healthcare. For those unfamiliar with Lean, here’s a basic summary:

Eliminating waste along entire value streams, instead of at isolated points, creates processes that need less human effort, less space, less capital, and less time to make products and services at far less costs and with much fewer defects, compared with traditional business systems. Companies are able to respond to changing customer desires with high variety, high quality, low cost, and with very fast throughput times. Also, information management becomes much simpler and more accurate.

He mentioned a situation where his team worked with a hospital to implement some lean strategies. And through these strategies they saved the hospital $300 per patient.

This means that the hospital’s revenue decreased and the hospital made $300 less money per patient. It saved Medicare $300 per patient, but the hospital was financially penalized.

In any other industry, this would be a strategic advantage that would make you more competitive and more profitable. The opposite is true in healthcare. Implementing waste increases revenue. Decreasing waste decreases revenue.

There is also a term called Evidence-Based Medicine:

The average person imagines that medicine has always been “evidence-based”, but there is quite a difference between the older ways of thinking about evidence and the systematic approach to evidence that is now considered the state of the art.

In the past, if you were a medical student, resident, or practicing physician trying to find answers to a specific problem, and your attending or your consulting physician said “this is your answer” you assumed it to be true.

What has changed is that we now ask who or what is the authority for the evidence. We are now more systematic about deciding when something is authoritative.

The most important characteristic about the new approach is that the evidence is scrutinized in standard ways, leading to more accountable and transparent clinical recommendations.

Unfortunately much of current medical practice still uses the “it’s true if I say so” approach, so a lot of medical practice is not evidence-based by current standards.

Evidence-based medicine (EBM) is very lean. It’s the ideal medical care– nothing more, nothing less. A radiology department at a hospital in North Carolina recently implemented EBM in order to optimize their CT scan usage– this decreased CT scans by 30%. This also decreased their revenue by 30% and, again, made them less competitive and less profitable. Medicare saved money. The hospital lost money.

This is the business model of healthcare in America. This is how it works. No matter who pays, private insurance companies, “public option,” Medicare, blah, blah, blah…it’s all just backwards nonsense. The business model of healthcare is fundamentally broken at its core and is unfixable unless incentives are aligned for all those who pay for and deliver healthcare profit from lean, efficient, consistent, evidence-based, focused, high quality healthcare to a population of individuals. This could happen if allowed and fostered by the federal government. This would involve deregulating these new business models and protecting them from the insurance companies that would threaten them with legal action for infringing on their monopoly enabled by the federal government.

They even go after individual doctors who are trying to create new business models for healthcare delivery and payment.

Are new business models that disrupt the status quo protected from the established players? Is that provision in any of the healthcare bills?