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Why Lean Can’t Be as Effective in Healthcare as in Other Industries

Lean has been making tremendous strides in healthcare. Like all industries, there are some nuances that demand special attention, but the basic tools and concepts work well.

But there is one monumental barrier that disrupts the effectiveness of Lean in the medical field. So what’s the problem? Whenever I talk to someone in other industries about their operation, the conversation invariably includes discussion about customers and the value that is provided to them.

In healthcare, the common perception is that the patient is the customer. This, in truth, is only part of the story, and a somewhat small part. To find the customer, follow the money. And most of the money that goes to healthcare providers comes from the insurance companies. (Note: I wrote a similar article about the nature of customer-supplier relationships in healthcare a while ago, but the point there was a bit different than in this article.)

So, there are three players in this relationship: the healthcare provider, the insurance company, and the patient.

The healthcare provider serves two customers, namely the insurance company and the patient. Both want different things. Generally, the patient wants to be overly cautious and get every test they can, and stay longer in the hospital for observation, and get the best possible treatment. The insurance company, on the other hand, wants to minimize costs while adhering to the letter of the contract to avoid liability. The end result is that the provider can’t clearly state what the customer wants, because there are two of them, and they are competing.

The insurance company has a customer, the patient, and a supplier, the healthcare provider. Don’t agree with the nature of that relationship? Again, follow the money. It always flows from customer to vendor. But it gets complicated when you consider that the supplier, the healthcare provider, is a representative of the insurance company’s customer, the patient. So, in effect, the patient is both the supplier and the customer of the insurance company.

In my previous article I pointed out one shortcoming in the relationship. In nearly every other customer-vendor relationship, winning and losing is defined by how the total profit pie is sliced up. More sales is good for all parties along the value chain. Selling more cars is good for tire manufacturers, even if they ‘lose’ in the negotiations. Imagine if selling more Fords and Hondas meant that Firestone and Goodyear lost money. Think they would resist the increase in sales? You betcha!

So think about the end user in that car sale. He gives money to the dealer, and gets a car. Simple. But imagine if they gave money to the steel company, and then went to the dealer to select the car they wanted. They may have to settle for some less than optimal choices.

Even that comparison is flawed, though. The insurance analogy is different from the steel company because their primary service of an insurance company is financial security, not a product like steel or healthcare. They keep people from breaking the bank when they break their leg.

So the problem with Lean in healthcare stems, at its core, from the fact that any patient related function that ties back to an insurance company lacks clarity with regard to its customer. While Lean can still make progress in this environment, it will not be as effective as it is in other industries that don’t have this obstacle.

Now, that said, there are lots of functions in healthcare that don’t have this ambiguity. The purchasing department only faces this problem indirectly. Marketing has to account for insurance issues, but many of the tasks (developing marketing materials, for example) are insulated from this fog. Food service and building maintenance, and inventory management, and HR and a host of other functions have pretty clear customer relationships.

And once treatment decisions are made, Lean certainly helps with the processes that go into healing the patient. But the underlying issue may still be there. The healthcare provider may be doing the wrong thing very well if it is what the insurance company wants and not what the patient wants.

I am not saying it isn’t a good idea to use Lean to improve operations in healthcare. To be clear, Lean still offers incredible value to a healthcare operation, but it is hamstrung by a tremendous obstacle that doesn’t limit it in the same way in any other industry. You may argue that there is a similar issue in government. One entity is acting on behalf of another, and choices are limited. But there is still not that circular link. The average taxpayer only has a relationship with the government, not the other parties involved. Plus, nobody loses money when more roads are built. The taxpayers pay the government to handle the day to day operation of the country, and the government pays the vendors. The flow of money is linear, not branched and circular like in healthcare. Not every taxpayer likes every expense, of course, but that is a different issue.

The core problem is that insurance companies and patients are misaligned in their goals. A common technique in continuous improvement is to use brainstorming to throw a bunch of ideas on the table. I’ll start with one, and then see if you can come up with more.

What if insurance premiums were treated more like a savings account? Patients pay in, and at the end of the year, part of the unused funds are returned to the patient. Premiums would likely have to be a bit higher, but with a potential for patients to come out ahead if they manage their healthcare well. In the event of serious injury or illness, there would be no payout. The effect would be that the patient would take a more proactive approach to their health, as there is also some money in it for them. Insurers and their customers would become more aligned in what they want, at least in preventative and routine healthcare.

So, what are your ideas? Let us know in the comments section below.


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Share Your Thoughts    |3 comments|


  • Jeff Hajek says:


    I guess I wasn’t completely clear. Lean does work in healthcare, but it will never work as well as it does in other industries that don’t have a diluted concept of customer.

    As long as there are extra steps in the process (approving procedures, coordinating payment, splitting billing to two parties, etc.) Lean will only be able to go so far.

    And your point about being diagnosed as quickly as possible is exactly my point. There are often more effective, and more expensive, tests that a patient might want but an insurance company doesn’t pay for. And a physician in a big clinic may be required to prescribe off a set list of drugs for an insurance company even though he or she things something else might be a better match. Both customer have different priorities. Insurance companies want to maximize profit. Individuals want to maximize health.

    Plus, people would be more conscious of their health if there wasn’t as much of a safety net. That would mean more preventative care, and less reactive care. That means a more predictable workflow and fewer insurance company negotiations.

    So the ‘so what’ is that a broken foundation can never be fixed by building on top of it. Unless someone comes up with a way to unify patient and insurance companies sense of value, there will always be built-in inefficiencies into healthcare that Lean won’t be able to overcome. People don’t fix what they accept as normal. If they don’t see the two customer situation as broken, they won’t fix it.

    Thanks for your insights. Always great to have discussions about topics like these.

    • Chad Walters says:

      Jeff –

      “a broken foundation can never be fixed by building on top of it” – I agree completely as this applies to healthcare (and just about everywhere else).

      I think you bring up a valid point in proper diagnosing – the patient wants the best for health, the insurance provider wants the best for cost-effectiveness. And that’s why the tail shouldn’t wag the dog and an overhaul of the system would be optimal.

      I think Lean can only go so far in every industry, not just healthcare. The value-adding components of any process can only be improved so far, but there are a lot of direct and indirect positive results that can come from attacking the non-value-adding activities in processes (such as freeing up the mental bandwidth to avoid errors).

      Thanks Jeff!

  • Chad Walters says:

    The first question I have about the two customers (patient and insurance provider) is: So what?

    I find it difficult to believe that both of these entities are going to find fault with using lean principles to prevent errors in dosage and treatment, reduction in wait times to see a doctor, and reduction in cycle times to get checked out.

    In addition, as a consumer of healthcare (I go to see the doctor) I find the greatest value in being properly diagnosed and treated as quickly and as cost-effectively as possible. I have no interest in staying in a medical practice or a hospital for durations longer than necessary. I want to know what my ailment is, with near 100% certainty, and I want to have the best treatment. Lean streamlines that process, which will save the patient time and save the insurance provider money. After all, it’s the mis-diagnoses and the medical errors that truly cost the big dollars.

    I have little doubt that lean can and does work in healthcare. It’s important to get it right the first time, and the more the medical practices get it right with the patients the more money it will save the insurance provider.

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