In this course, you’ll learn the foundational economic theories behind health care innovation and how to optimize your own health care practice or organization. Designed to help you gain a practical understanding of the theoretical frameworks of behavioral economics and operations management in the health care setting, this course will help you apply these frameworks to assess health care practices and apply innovation while managing risk. You’ll also explore the best practices for evaluating one’s innovative practices, using real-life examples of success to see the concepts in action. By the end of this course, you’ll have honed your skills in optimizing health care operations, and be able to develop the right set of evaluations and questions to achieve best innovative practices within your organization.
À partir de la leçon
Module 1
This module was designed to give you a foundational knowledge of health care operations and methods of optimization. You’ll examine the provider-patient relationship and learn how a provider can improve performance measures for the patient by analyzing the different types of performance metrics such as patient-centric, operations, and financial measures. Through discussing the different types of inefficiencies such as waste, variability, and inflexibility, you’ll be able to optimize performance and service. You’ll also learn how to gauge patient flow by flow rate, flow time, and inventory, and be able to map processes using a flow diagram and a Gantt chart. By the end of this module, you’ll be better able to calculate the financial viability of a health care provider using Key Performance Indicators (KPI) and create a framework to assess and optimize performance.
Andrew M. Heller Professor at the Wharton School, Senior Fellow Leonard Davis Institute for Health Economics Co-Director, Mack Institute of Innovation Management The Wharton School
Amol S. Navathe, MD, PhD
Assistant Professor of Medical Ethics and Health Policy Department of Medical Ethics and Health Policy
David A. Asch, MD, MBA
Professor of Medicine and Professor of Medical Ethics and Health Policy Department of Medicine
Roy Rosin, MBA
Chief Innovation Officer Penn Medicine
Kevin Volpp, MD, PhD
Professor of Medicine, Division of Health Policy / Professor of Health Care Management Perelman School of Medicine / The Wharton School
In the last session, we introduced the framework of the KPI tree.
Profits were at the root of the tree.
We broke up profits into revenue and costs,
and we then cascaded these measures down further into the operations,
all the way to technical and medical measures such as
processing time and the revisit frequency for the hygienist support.
At the end of the analysis,
we had something that looked like this.
So, what is the value of a tree like this?
Yes, everything is somewhat connected here,
and we see that to get better financial results,
we have to change something deep down in the operations.
But what should I change?
Should I try to get the light fees down,
increase the panel size,
work longer hours, try to cut the procedure durations for crown?
In short, where is the juice worth the squeeze?
What I really want to know is by how much am I changing profits?
So, I'm changing one of
the operational variables that are out here on the right of my leaves of the tree.
Mathematically, this correspond to what we call a sensitivity analysis.
Sensitivity analysis really means quantifying the impact of a change in one variable,
in our case typically an operational variable,
on another variable, in our case typically profits.
Now, if you remember your calculus days,
you will remember this being the whole idea of taking partial derivatives.
But no worries, here in my course nobody needs to take a derivative.
In our case, the way we do with the sensitivity analysis is
by taking this entire tree and putting it in an Excel spreadsheet.
Here is what such an Excel spreadsheet might look like.
Let me walk you through this.
Up here, you have the demand process.
Demand is driven by our panel size and by how often I see my patients.
Here is the mix between consults and procedures.
I give hygienist visits priorities so procedures and
consults can only happen once the capacity of those visits are considered.
And then here, you see the target man care calculation for the hygienist.
You'll see the procedure revenues and
the hygienist revenues and you see the expenses such as lab fees and utilities.
That gets us to the number we care about which is your operating profit.
So, here's a question for you.
What do you think will happen as I change my processing time for a crown?
Specifically, what happens if I reduce it by 10 percentage points?
Now, shorter processing times are a good thing.
So, I think we all agree that profits should go up,
but by how much?
One percentage points? Two? Five? Ten? Maybe more than 10?
Take a minute or two and commit yourself to
a number that will not be enough to build an entire tree.
But, I want you to come up with your own estimate even if it
is based on gut feel intuition alone. Think about a tree.
What I'm doing here is I'm picking a leaf in the tree,
I start to wiggles a leaf in the tree and
I'm measuring how much the root is going to move.
How many percentage points or fractions of a percentage point will profit go up?
If you want pause the video now.
All right, I assume you have your estimate.
Now, we come to the moment of truth.
The estimate is what it is.
Let's see what the Excel model predicts.
Profits go up dramatically. How can that be?
And please don't tell me that my spreadsheet here is wrong.
Before we dive into the question of why a 10 percentage point improvement in
a small operational variable like
procedure time has the power to increase profits by so much more,
let me introduce the term value driver.
Value drivers are operational,
we might say little variables,
in the KPI tree that have a big impact on financials.
Knowing these value drivers is critical.
Any improvement is costly and requires managerial effort.
Let's take a look at our Excel model again and play around a bit.
What is the value of a 10 percentage point improvements in
hygienist visits in the time it takes a dentist to do a consultation?
In lab fees or crowns?
In salaries or hygienist or the front desk?
As you can see, the value of these improvements are much smaller.
Even though some of the expense categories,
in the case like overhead and benefits they are rather big,
they are rather substantial.
So, knowing which operational variables are worth going after and
which ones matter less is a really important skill I want you to develop.
So, how do you find these value drivers?
First of all, I do encourage you to build an Excel model like this,
play around to just sharpen your intuition.
Second, we have to ask ourselves,
what keeps us from treating more patients?
One thing you might have
noticed is when I change the processing time by 10 percentage points,
we increase the number of procedures and that's revenue.
The reason for that is we were capacity constrained.
We had enough demand.
Whenever you have demand that is sufficient to keep you busy,
improvements in productivity are worth a lot.
We will dive into this more in a moment.
If however your operation is currently demand constrained,
meaning it has an insufficient demand but enough capacity,
an increase in productivity is worth nothing.
All it does it creates idle time for the resources.
Value drivers, in that case,
are variables that allow you to get more out of the demand
that you have or attract additional demand.
Here, clearly, we're hitting another ethical point.
Not to mention the risk of outright fraudulent behavior but I
guess that is why some bad providers perform unnecessary procedure on patients.
It just don't get enough demand.
Let me point out that no general rule exists for these value drivers.
Your insight is needed.
And the last thing you want is to rely on an outside accountant
or a management consultant telling you what your value drivers are.
You know better. Now speaking of accountants,
remember my Benjamin Franklin quote,
"Lost time is never found again."
You need to look for time,
not for money. Now, let me elaborate.
Our dentists makes close to $300,000 per year which is a little less than $1500 per day.
If we divide this by the minute they practice per day,
we see a dentist cost us a couple of dollars per minute.
So, when we shaved off 10 percentage points of procedure time,
this was worth a certain amount of money per procedure.
We're doing many procedures per year.
So, over the year this is worth thousands of dollars.
But why did we see profits go up by so much more?
Again, I want you to not look at costs.
Here's why procedure times are so critical.
The dentist is our bottom link and crown procedures are super profitable.
During the time the dentist is doing a crown procedure,
we're making a lot of money.
The cost of consumables and lab fees are
tiny and so we are making more than $10 per minute.
Most other expenses stay fixed.
Building SGNA, salaries, nothing will move.
All of that is extra profit.
I like to call this effect fixed cost leverage.
Fixed costs are the cost that don't directly change with volume.
Variable costs in contrast,
are the costs that change proportionally to volume.
Now, arguably nothing is fixed forever.
You can increase or decrease your staff or the size of your building even.
And so yes, what is fixed and what is
variable will always depend on your planning horizon.
To our hygienist a fixed cost for tomorrow but when I make a plan for next year,
they might be variable cost.
But irrespective of this hairsplitting here,
if you sit on a lot of fixed costs,
your variable cost tend to be low.
In our case, we barely spending 10% of
the variable cost such as on consumables or lab fees.
And in the short run, our salaries are fixed and so is our building.
So, we're making 90 cents on every dollar that we bring in
terms of extra revenues right into profits.
We're simply better utilize our resources
or in other terms we better leverage our fixed cost.
Let me share a non-medical example to emphasize this point.
A while ago I talked to an executive of
a big computer manufacturer about issues similar to this.
He was capacity constrained in his plans.
But for him most costs were variable.
If he sold one more computer,
he would spend 80 cents on the dollar paying his suppliers for more memory,
more processors or other components.
Contrast that with a hotel.
What does it cost us to host one more guest in a hotel?
Right, hotels are high fixed costs and low variable costs.
Now, is health care more like computer assembly or is it like a hotel?
I would vote for the latter.
Health care operations are low and variable cost and
thus value drivers tend to be in the productivity space.
If your capacity constrained,
what you should be doing from a financial perspective is to make sure to get
as much revenue as possible per minute of bottleneck time.
By the way, that's also that measure or
that approach that will improve patient throughput and patient access mode.
Again, that is why procedure durations in our case ended up being a value driver.
Per minute of dentist times procedure are more profitable than consults.
That is why the effect were bigger.
Lab fees really don't matter much as they don't leverage the fixed cost.
Now, if your dentist is demand constrained,
the story is different.
Do you know the value drivers in your practice?
Does everybody working for you know what the value driver in your practice?
Operational variables always sound so technical.
They look irrelevant to the success of the business when compared
to the financial variables with big multimillion dollar numbers.
Operational variables and medical details have no place in accounting statements.
And as a result, management's understanding of these details is oftentimes limited.
The consequences of that are substantial.
Without understanding the relationship
between the operational and the financial variables,
bad things are likely to happen.
In search of cost savings,
critical operational variables get sacrificed by some profit hungry administrator.
And while the operations get worse,
the expected profits never materialize.
The same profit hungry administrator, however,
does not see the opportunities for lucrative improvement in the operation.
Again, mostly reflecting an inability linking operational variables to financial ones.
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Christian TerwieschAndrew M. Heller Professor at the Wharton School, Senior Fellow Leonard Davis Institute for Health Economics Co-Director, Mack Institute of Innovation Management
Amol S. Navathe, MD, PhDAssistant Professor of Medical Ethics and Health Policy
David A. Asch, MD, MBAProfessor of Medicine and Professor of Medical Ethics and Health Policy
Roy Rosin, MBAChief Innovation Officer
Kevin Volpp, MD, PhDProfessor of Medicine, Division of Health Policy / Professor of Health Care Management
