How lean management helped hospitals avoid layoffs

Image removed.Despite the common allegation that lean improvement methods, based on the Toyota production system, must lead to layoffs at hospitals or health systems, the reality is quite different at several leading hospitals where lean methods are actually saving or creating jobs.

Traditionally, without or before the adoption of lean, healthcare organizations relied on layoffs and service reductions to reduce costs and attempt to balance budgets. Lean provides an alternative, where a strengthened commitment to the workforce is repaid with continuous quality improvement, better patient care, and better financial performance for the organization. Employee engagement and satisfaction are often higher in a lean setting.

Here are four examples of U.S. hospitals that practice some variation of the “no layoffs due to lean” philosophy or policy:

ThedaCare, a health system in Wisconsin, has used lean thinking for almost 10 years, achieving better patient care and financial performance--without layoffs. For example, the percentage of patients who were "very satisfied" increased from 68 to 90 percent with their new Collaborative Care hospital model, developed through the lean process. Additionally, ThedaCare's operating margin increased from 2.5 percent in 2003 to 6 percent in 2009.

ThedaCare adheres to a practice of "no layoffs," according to the Milwaukee Journal-Sentinel. "Nobody would get very enthusiastic about improvement in that world [where employees lost their jobs after finding ways to improve efficiency]," ThedaCare CEO Dean Gruner said.

ThedaCare's case also illustrates that an organization must do more than make promises about not resorting to layoffs. Organizations must manage carefully to avoid overstaffing or financial shortfalls to make sure such a policy works. "To have this policy, you have to be disciplined in your hiring," Gruner said.

While Denver Health, which has a "no-layoffs philosophy," as well, would never rule out the need to eliminate jobs, in conjunction with lean transformation, the "handful of times" that a job was no longer needed, the employee was reassigned, CFO Peg Burnette told CFO Magazine.

Additionally, lean methods have led to increased financial stability for Denver Health. The system has saved $54 million over the last five years, according to the Denver Post. Without those savings, Denver Health would "absolutely have had to cut jobs," CEO Patricia Gabow said. They found that the financial benefits of lean, including reduced cost and higher revenue from utilization of increased capacity, offer an alternative to traditional cost cutting and layoffs.

Avera McKennan hospital is maintaining its "no layoffs due to lean" philosophy even in the era of health reform uncertainty and financial pressures, Fred Slunecka, Chief Operating Officer for the Avera Health system in South Dakota, said. Avera has exited some businesses, such as home health, but "everyone had the chance to stay with the organization," Slunecka said.

While Avera is committed to giving individuals a lifetime career, it cannot promise individuals a specific job, he noted. "Collectively, our careers are best protected by our full commitment to lean principles," he said. But everyone must be prepared to perform different jobs in the years ahead.

At Akron Children's Hospital in Ohio, a "no layoff policy" has been declared by leadership as a result of the hospital's lean initiatives, according to Dr. David Chand, a hospitalist and Lean Six Sigma project leader. In some cases, he said, rigorous data analysis during projects has even supported the hiring of additional personnel to achieve project goals.

As these four examples illustrate, lean does not focus primarily on headcount reduction. In a lean system, the primary goal is meeting patient needs, including high quality and prompt access to care, with the right staffing levels. With lean, staffing decisions are based on data, such as workloads and patient volumes. Lean financial improvements certainly do not come as the result of painful layoffs or benchmark-driven reductions in force.

Mark Graban is the Director of Communication & Technology for the Healthcare Value Leaders Network. He is also the author of the book "Lean Hospitals: Improving Quality, Patient Safety, and Employee Satisfaction" (Productivity Press, 2008).