Change necessary in the Dutch Healthcare Industry

Last week, the Dutch Ministery of Healthcare reached an agreement with the Dutch Hospitals and Insurers to limit the budget of the Healthcare specialists based on the 2007 actual expenses. Based on that cap the budget for healthcare specialists is only allowed to grow with approximately 2,5% per annum.

The above text clearly shows that liberalization of the Dutch Healthcare Industry has failed. We are basically back in time with a socialistic/communistic measure from the government. What is really failing here is not the continuous rising of the incomes and salaries of the Dutch Healthcare Specialists, but the failure of the entire Dutch Healthcare Industry to be able to improve its performance while at the same time controlling its operating costs.

Only the so called Independent Healthcare Providers are able to follow this path of continuous perrformance improvement and controlled operating expenses. The result is continuously (albeit slow) declining tariffs for treatments. Most of these treatments can be performed like an assembly line and that is of course one of the reasons that these independent providers can reduce their tariffs. Based on the same level of operating costs increases in production output yield great benefits to both the providers, the patients as well as the healthcare insurers. Under the Dutch Healthcare Insurance Law this means that these cost reductions would flow directly into the pockets of the government and therefore the general population.  

However, due the inability of the Generic Healthcare Providers to improve their performance and at the same to control their operating costs and the (lobbying) strength of these institutions at the Ministery, the above mentioned agreement has been reached without involving the independent healthcare providers nor contemplating what changes are really necessary to improve the performance and control its costs.

The symptoms of the failing generic Dutch healthcare system are substantial increases in healthcare professional’s salaries and income while at the same time hospitals are almost going bankrupt. This symptom is possible by a combination of factors:

– healthcare specialists are independent from the healthcare provider they are working at

– healthcare specialist bill the insurers directly

– failing administrative cost and revenue system

– limitations in the number of healthcare students

The Goal of the Healthcare Industry should be to be able to treat more patients, better, sooner, cheaper, now and in the future.  This goal basically state that the only way to improve the healtcare industry is by improving the productivity of the healthcare providers. In order to be able to do this, all healthcare professionals must work together. It also mean that the healthcare professionals are more or less employed by the healthcare provider at which they work.

The approach with the new budget agreement is the wrong step. It only looks at the effect of the problems within the Dutch Healthcare Industry without managing and/or eliminating the real root causes of all the problems we have. Many healthcare managers have attempted to improve their organization, but have very often fallen prey to consultants and methodologies that:

– do not adress their core problems

– fail to yield an effective return on investment

– are strangely familiar to long serving staff who claim to have ‘seen it all before’

– fail to take into consideration the concerns and reservations of the people who know best( i.e. the professional staff  ) and who are also expected to implement all these changes

The most important reason why these improvement programs failed is that these programs do not consider the entire system. Each organization consist of business processes which are interdependent of each other. Consider the following systems:

Which system is considered the most complex system by most people? The prevailing perception is that due to the interdependencies, system two is the most complex system. For most people the common idea is that complexity can be determined based on the number of data elements one has to provide in order to fully describe the system. However, when one is considering and taking into account the degrees of freedom ( i.e. the number of elements or variables one has to touch in order to impact the whole system ), system one would be the most complex system. Reason being that system two has only one degree of freedom.

The major reason why most improvement programs have failed can be contributed to the fact that these programs are not geared towards improving the entire system. Most of these programs are usually geared towards taking out business process variations, starting to eliminate the biggest variations first. Such a local view will never be able to improve the system itself. If one improves a local element which does have plenty of interdepencies, than the performance of the overall system might be jeopardized. So, instead of improving the system, these programs may even deteriorating the performance of the entire system.

It is quite understandable why most improvement programs are more or less local improvement projects. The perception of most people is that large-scale healthcare orgranizations are simply too big to manage as a system. As a result these organizations are divided into smaller operating units. Each of these units will try to improve, but as long as there will be interdependencies across operating units, the performance of the system will not improve.  

The biggest obstacle with regards to improvement programs is the fact that the healthcare industry is a people’s business. Most interaction and interdepencies will exist between people and is based on communication. Another obstacle is the fact that the healthcare industry is a continuous changing environment with new techniques and knowledge. In a lot of cases, the number of changes taking place within a healthcare organization at a certain time are too numerous to track effectively. Taking these two obstacles together means that successful results of improvement programs can only happen when the “process units” are actively involved.

Healthcare is a specific industry in which two types of project organization exist in parallel:

– patient project organization in which patients are ‘processed’ through the system

– operational system improvement projects

So, the healthcare professionals must perform two tasks at the same time, processing the patients and improving the system. These two tasks create the following dilemma for healthcare professionals:

Given this dilemma, clear priorities must be given to all the people within the organization about which projects should be executed. Since patient processing time is the most important part of the healthcare professional’s time, his/her time devoted to operational performance improvement projects must be determined carefully.

Based on the systems approach, each healthcare organization must determine the impact on the system’s goal for each operational improvement project. Those with the biggest gains should be started first, subsequently followed by lesser payoff projects.  

Due to the fact that the healthcare industry is a peoples-driven business, we can count on the fact that the majority of the problems that demand the attention of the staff are those generated by the interaction between people. This means that each healthcare organization must have a platform and a mechanism to enable healthcare professionals to safely express their concerns, problems but also potential solutions.

In order to be able to identify the current root causes(s) of the problems within the organization, a very powerfull technique based on cause-effect relationships ( aka current situation mapping ) can be utilized. Based on these concerns, problems and potential solutions, a current situation schema can be generated by a professional consultant.   

Based on this current situation schema, the root causes of the current situation can be identified. Usually, root causes are constraints within the organization based on:

– physical reasons ( resource capacity )

– policy reasons ( rules and procedures )

– paradigm reasons ( way of thinking )

Based on the nature of the constraints/root causes, they can be managed or even liminated. Elimination is the best cure for policy and paradigm constraints, but not for physical constraints. It is better to have one strategic constraint within the organization upon which all other processes will be subordinated. This limits the degrees of freedom to one which means much easier management. One must “Simplify Systems Control for Real Bottom-Line Results”.

Once all constraints/root causes within the current situation have been identified, managed and/or even eliminated, it is time to ‘predict’ the future. We can now construct a future situation schema in which the positive effects of taking away the root causes/constraints have been taken into account. This way we can see whether the solutions are sufficient, but also whether there could be obstacles on the road to improvement.

Based on the future situation schema with its identified obstacles, a system improvement project plan can be determined.

A systematic approach in which the entire healthcare system is taking into account is a much better and more powerful method than the local focused improvement projects that are usually undertaken. Methods like SixSigma and Lean are wonderfull methods, but will only pay-off handsomely when in conjunction with a systems approach. The reason being that a systems approach takes into account the interdependencies within the system where Lean and SixSigma rarely do.

It is time for the Dutch Healthcare Industry as well as the Ministry of Healthcare to undertake a systems approach and not a local/silo approach and above all focus on the root causes and constraints and not on the symptoms. I understand that focusing on symptoms from a political point of view is very tempting, but it does not solve the real problems and most of the time the ‘solution’ is not fair at all. This agreement with which we started this article is a typical example of a well intended view, but with unintended unwanted consequences. For example, setting a budget based on the 2007 actual expenses for healthcare specialist may be a good idea, but only to determine the overall amount to be spend within the system, but not to determine the hospitals individual’s budgets. That is not fair towards the hospitals and independent treatment centers who made progress.

Most of the time, solutions are not checked against potential obstacles and negative effects and this is one of the main reasons for failure to implement real improvements. No wonder, because, although the intention may be good and understood by everybody, due to the negative effects of the solution, people and organizations will raise objections and resist changes. And one can not blame them for that when the effect is not fair. One must create a win-win situation and not compromise in order to be able to really make improvements and the only way to achieve this is to use a systematic approach based on clear cause-effect relationships.


About iCPM Solutions

This is a blog in which I am presenting my thoughts about integrated Constraints-based Performance Management Solutions. I would appreciate any feedback, comments and tips around a topic. I am working on developing a full integrated framework for CPM based on a synthesis of various theories and common best practices. However, the most important inputs will be based on the TOC concepts, since those are dealing with constraints and as we all know constrainst are preventing us from reaching our goals. Hence the reason for the name Constraint-based Performance Management. This blog is part of my website You can reach me through my email, LinkedIn Profile and Website. I hope you all enjoy reading my blogs.
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