Massachusetts General Hospital: Cabg Surgery

MASSACHUSETTS GENERAL HOSPITAL: CABG Surgery (A)

Today, governmental, corporate and individual customers increasingly are resisting insurers' attempts to pass on rising healthcare costs. Healthcare providers' costs meanwhile are escalating in the face of an aging population, expensive technologies and therapies... Both payers and providers must determine their true competencies and find ways to remain profitable despite leaner margins. In 1994, Massachusetts General Hospital (MGH), with its $1 billion budget and its dozens of thousands visits per year, is urged to find a new business model to resist cost pressure… In other words, how MGH could lower its costs while enhancing the quality of care provided?

Financially speaking, evidence shows that MGH’s cost structure is so important that it hampers dramatically its profit margin. Considering Exhibit 1, the ratio of after adjustments on Total Operating Revenues does not even go beyond 2%. In fact, even if the whole industry faces huge cost pressures, it seems that MGH is underperforming compared to its local competitors (the Boston area does not count less than 9 other major hospitals). Many patients stay longer in the hospital and often receive more tests and expensive medication than they actually need. Exhibit 6 and Exhibit 7 show that patients spend on average 2 to 4 days more at MGH than anywhere else. If we look at the Charlson Index for Brigham & Women’s, Exhibit 7 also shows that the severity of illness does not account for a higher mean length of stay (LOS); we may infer that we are dealing with a structural problem in terms of capacity management.

Moreover, 80% of the MGH’s CABG patients are on the Diagnosis-Related Groupings (DRG) payment method, which means that the hospital receives the same fee from the government for all patients diagnosed, regardless of how costly the patient is to treat or how long she stays in the hospital. Hence, MGH cannot adopt any different pricing policy to improve its profit margin; the only way for it to be more profitable is to trim down its operating costs.

A study of MGH’s internal resources shows for instance that its workforce is not allocated the most cost-effective way it could be: nurses and other highly trained, highly paid technicians perform functions that could be assigned to less expensive personnel. If we are to focus on its accounting systems, it seems that they contain only poor data and are even unable to trace costs to individual patients. As a result of this lack of information relative to the efficiency of different treatment methods, we do not even know which treatment provides the best outcomes. How to improve in such conditions?

One may argue that in any cases, doing nothing is always a solution. However, with increased cost pressure and competition, MGH must do something; it must rethink its way of curing its patients, its way of doing business. That said, MGH will sooner or later have to deal with the inherent reluctance that medical staff has in considering its job as a business. Basically, the conditions for success in the healthcare industry are focus on costs of services, average length of stay (which also has a high impact on costs) and quality (often measured through mortality rates, the patient’s perception of quality, which will depend on a successful outcome, a good follow-up and a positive experience before, during and after the operation.).

In terms of cost reduction, MGH can reduce the number of nurses and increase the number of medical assistants to perform low value-added tasks for example. MGH can also strive to consolidate its services Brigham’s & Women’s Hospital, after their merger.

As a matter of fact, one solution is to standardize procedures as far as possible without adversely affecting the quality of the outcome. One way to do it is to apply Total Quality Management techniques to MGH, in a comprehensive approach: MGH would have to identify and define its processes and its areas of improvement, by creating lists of recurrent problems for each process. In brief, MGH could improve its operating processes by creating a “care path”, i.e. reengineering the service delivery process to make it shorter and smoother. The aim of such an initiative is to minimize delays in the flow of interventions (rearranging sequencing and compressing time-lines), optimize resource and capacity utilization (personnel, beds…), while maximizing the quality of care (checking whether the patient is either “on the path” or “off the path” as a quality indicator).

One of the main objectives is to shorten hospital stays for instance. Another objective is to create a stable process of care flexible enough so that the medical staff can respond to every patient’s individual needs. Yet, as long as the hospital changes its processes,