John Toussaint, MD -- Lean in Healthcare: Long- and Short-term ROI

Part 1 of 6, Full Interview

John S. Toussaint is CEO emeritus of ThedaCare, and CEO of the ThedaCare Center for Healthcare Value. As a strong proponent of applying the lean methodology to rooting out waste across the healthcare industry, we asked John about his experience at ThedaCare, specifically how he measured the return on their lean initiatives.

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I think ROI is frankly not the right way to look at this. As the CEO I was interested in total organizational performance. And so what I measured was what’s our operating income year over year, is it improving or not? Are expenses improving year over year? Is our productivity improving year over year? Is our quality improving year over year?

What I get concerned about when Lean is broken down to ROI is that people miss the whole point of what the methodology is about. It’s really about changing people’s habits.

This is an organizational transformational sort of philosophy and you should be measuring organizational performance, not specific ROI per sensei hour. Because the problem with doing it that way is that you get focused on the wrong things. That’s the problem with any kind of cost accounting system. So we stayed away from that.

Frankly, I don’t really care if we do an event and we don’t free up any [space], we don’t improve productivity or we don’t reduce any expenses. I’ve got ten people on a team who have learned to solve problems, [and] helped solve the problem. Because eventually those people are going to free up [space]… they’re going to improve productivity and they’re going to reduce expenses.

Once we knew that there was a direct correlation between our continuous improvement events and our financial results, and we continued to see organizational performance improvement year over year–actually month over month, or week over week–that’s all that mattered.

Are we going to be able to absolutely prove that because we had 35 facilitators, and because we did three to five events a week and two value streams a month, that’s why we achieved what we did? We’ll never be able to prove that causally, but that is the reason.

In four years we doubled operating margin and had the best year in 2009 in the history of the organization financially. That would not have happened in the financial crisis we had unless we had been dramatically improving productivity.… I think the urban hospital division in 2009 had a close to 7% productivity gain. That’s unheard of in the industry and it only could happen by focusing on taking waste out of the system.

We did track the savings that we were achieving with our kaizen events for the first two and a half years and we were saving $40,000 to $50,000 per event. And so after we tracked that for that period of time, we proved to ourselves that this was really working.

You don’t do lean just to do lean. You do lean to improve your performance. There’s no question now that we have peer-reviewed data on the performance of organizations that are using this method that clearly shows that these organizations are performing at a much higher level than before they were using the methodology. So there’s no question that this works.

Full Interview