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1Clinical operations excellence:Unlocking a hospital’s true potentialA multiprong approach that puts physicians—and clinical care—at theheart of performance transformation efforts can help hospitals andhealth systems deliver more financially sustainable, patient-oriented,and physician-friendly care.Growing financial pressures are forcing moston nonclinical operations and did not seekUS hospitals to lower their total cost of care—the active involvement of physicians. Yetespecially for the most complicated and ex-clinical care accounts for a significant portionpensive Medicare and Medicaid patients—of operational expenditures at most hospitals.while simultaneously decreasing their relianceWithout significant changes to how clinicalon cross-subsidization from commerciallycare is delivered, hospitals will not be ableinsured patients. The reasons are well-known:to achieve the 5- to 10-percent reductionemployers, payors, and consumers arein operational costs that most expertsdemanding greater cost controls. Growthbelieve is needed to cope with today’sin Medicare and Medicaid reimbursementeconomic challenges.Bede Broome,MD, PhD; KurtGrote, MD;Jonathan Scott,MD; SaumyaSutaria, MD;and Pinar Urbanrates has slowed. Further pressure is beingplaced on hospital economics by the shiftInvolving physicians in operational perfor-in payor mix from commercially insuredmance improvement efforts is thereforepatients toward more government-sponsoredcrucial. A provider that wants to lower itspatients, as well as by the ongoing migrationoperational costs by 5 to 10 percent wouldof procedures from the inpatient to thehave to reduce its nonclinical variable costsout patient setting. In addition, there is anby an average of about 30 percent if it leftincreasing move toward the use of innovative,clinical operations off the table.1 This levelvalue-based payment models as a way toof savings is unrealistic for most hospitals.incentivize reductions in the total cost ofHowever, most providers are reluctant tocare. Most providers have come to acceptaddress clinical operations, primarily for twothat these trends are not transient but ratherreasons. First, many administrators and per-have created a “new normal.”formance improvement staff members lacka clinical background and thus often shy awayAs a result, many hospitals (and the healthfrom changes that disproportionately affectsystems they are often part of) have under-clinicians and care delivery (because theytaken operational improvement programs,either do not fully understand clinical pro-such as lean transformations, Six Sigmacesses or are intimidated by the cliniciansprojects, and rapid improvement events.who carry them out). Second, many providersAlthough some of these programs havebelieve that addressing clinical operationshelped the hospitals reduce costs, few havewould alienate high-volume physicians, whoachieved substantial or long-term impact—might then take their patients to competingin large part because most of them focusedhospitals. Although this concern may once1 his estimate is based onTour experience in 150 community and academichospitals nationwide.

2The post-reform health system: Meeting the challenges ahead May 2013What is clinical operationsexcellence?have been justified, McKinsey researchsuggests it is no longer valid. In a surveywe recently conducted of more than 1,400US physicians, most respondents said thatClinical operations excellence includes ele-they are willing to change their practice toments of traditional hospital performancehelp control costs.improvement efforts (especially lean trans 2formations), but it goes beyond them becauseOur experience “in the field” confirms thatof the emphasis it places on improving carephysicians can be actively engaged in per delivery as well as nonclinical operationsformance improvement efforts and are willing(Exhibit 1). It uses a variety of process improve to make changes in care delivery. Theirment and change management concepts andinvolvement increases the likelihood not onlyapproaches to increase operational efficiencythat operational performance will increaseand reduce clinical variability; the ultimatebut that care quality, patients’ satisfaction,objective is to drive down the total cost of careand physician/staff satisfaction will also rise.while maintaining or improving care quality.Our “clinical operations excellence” approachIn our experience, most hospitals have signi enables hospitals to achieve all of theseficant, unintentional variability in how clinicalgoals. It is quite different from the conven-care is delivered. Most hospital executivestional change management programs mostwould agree that this variability drives up theThepost-reformhealthsystem:Meeting— Aprilhospitals2013 less competitiveprovidershave beenusing,becauseit putsthe challengescost of aheadcare, makingphysicians—and clinical care—at the heartand less likely to survive in a world of value-ClinicalOperationsof the changeeffort.ExcellenceBy doing so, providersbased payment. Reducing clinical variabilitycan make transformative changes that im-would release working capital (e.g., throughExhibit1 of 4quality, and satisfaction simultaprove costs,inventory reduction), lower supply costs (e.g.,neously, and ensure that those changes areby shifting to one or two vendors), increase thesustained over the long term.pace of care delivery (e.g., by reducingEXHIBIT 1 Clinical operations excellence encapsulates a broader rangeof initiatives than many health systems typically use2 or more informationFabout this survey, see theaccompanying article,“Engaging physicians totransform operationaland clinical performance,”on p. zation

Clinical operations excellence: Unlocking a hospital’s true potentialthe number of potential paths of care), shortenImplementing the changes necessary toaverage length of stay (e.g., by initiating carereduce or eliminate unintentional variabilitysooner in the care pathway), and reduce thein care delivery in a sustainable way is farlikelihood of adverse events (e.g., by standard from easy. It requires a complex combinationizing and error-proofing nursing workflows).of approaches to streamline processes(including those for patient admissionsPhysicians can be convinced to reduce theand discharges), standardize clinical pro amount of variability in care delivery if theytocols, and rationalize supply utilization.understand that the changes will not onlyOur experience suggests, however, thathelp control costs but also improve patientthis combination can have a significantoutcomes. By ensuring that all patients re-impact (Exhibit 2).ceive high-quality care in a reproducible andevidence-driven manner, a virtuous circle canAfter using this multiprong approach inThe post-reform health system: Meeting the challengesahead — April 2013more than 150 hospital transformationsbe created: as the quality and efficiency ofcare delivery rise, per-patient costs decrease,over the past few years, we have found thatoutcomes improve, patient and staff satisfac-it can significantly improve hospital perfor-tion increase, referral streams expand, andmance. On average, most hospitals see ahigh-volume physicians become less likelyreduction of 5 percent or more in operatingto migrate to other hospitals.costs (Exhibit 3).Clinical Operations ExcellenceExhibit 2 of 4EXHIBIT 2 Achieving ‘best-in-class’ performance can have compelling valueLever‘Best-in-class’ impact achieved1Improved patient outcomesImprove outcomes by service line(e.g., 25% reduction in severe sepsis mortality)2Operational efficiency(direct variable cost reduction)Achieve positive EBITDA across MedicareProduce 15% annual reduction in ED DVCs3Improved supply utilizationAchieve sustained cost trend of 3-4% annually4Cost and capital avoidanceDelay/avoid big capital investments to increase capacity5Ability to capture disproportionatepayor volume and priceCapture 90% of available PFP funds6Increased physician retention and abilityto integrate physiciansKeep site-specific physician turnover below 7%7Nursing satisfaction and retentionKeep site-specific nursing turnover below 10%DVC, direct variable cost; EBITDA, earnings before interest, taxes, depreciation, and amortization;ED, emergency department; PFP, pay for performance.3

4The post-reform health system: Meeting the challenges ahead May 2013What prevents hospitalsfrom achieving clinicaloperations excellence?change at least some aspects of their practiceto remove waste from healthcare.3 We alsodiscovered that many physicians regard theopportunity to be involved in operationaldecision making and performance improve-In our experience, five key issues have pre-ment efforts as second only to financialvented many hospitals from achieving clinicalincentives as a way to derive satisfaction fromoperations excellence.their work. In hospitals that have achievedclinical operations excellence, strong clinicianThe first (as discussed above) is the beliefengagement is encouraged and embraced.that physicians, especially high-volume phy For example, physicians from a range ofsicians, are not willing to engage in perfor-departments collaborate in clinical councilsmance improvement efforts and will insteadto drive policy decisions and help reconcilemove their patients to other hospitals. Eventhe many different viewpoints that individualif this belief were true, hospitals would havephysicians may express.to consider whether their efforts to protectpatient volumes and profitability in the shortA second factor that can prevent hospitalsterm are hindering their longer-term pros-from achieving clinical operations excellencepects. However, our research supports ouris underestimation of the magnitude of changeexperience that this concern is unwarranted.required. Too often, hospital leaders giveIn late 2011, we surveyed 1,400 US physiciansthe change program no more time, attention,in a variety of specialties; 84 percent of theor resources than had been allocated torespondents said that they were willing toprevious, smaller improvement efforts. TheseThe post-reform health system: Meeting the challenges ahead — April 2013Clinical Operations ExcellenceExhibit 1 of 4EXHIBIT 3 Benchmarking performance is a prerequisite for achievingthe level of financial impact requiredExamples of high-impact effortsAverage across more than 30 acute-care facilities, expressed as percentage of inpatient operating costs)131The 011 McKinsey Physician2Survey.Improvement effortsImpactLean operations ED throughput/registration OR throughput/pre-admit testing Inpatient discharge 1–3%Clinical standardization ICU protocols LOS reduction IP vs. OBS determination 3–4%Combined impactfor a multifacetedimprovement effortshould be 5–10%of operating costsSupply utilization OR/procedure supply use 1–3%A comprehensiveprogram will berequired to achievethese results30 hospitals referenced here are only a fraction of the 150 hospitals in which McKinsey has led transformation efforts.ED, emergency department; ICU, intensive care unit; IP, inpatient; LOS, length of stay; OBS, observational status;OR, operating room.