Hospital CEOs manage staff time, inventory to cut costs

— -- Each of the nation's 5,700 hospitals must cut $2.6 million a year on average in costs in the next 10 years to meet the demands of President Obama's proposed health care reform, a daunting task when half of those hospitals lose money.

Criticism came from almost every corner leading up to Obama's speech before Congress on Wednesday night, yet many hospital CEOs aren't complaining, at least not publicly. They say that the hospitals they run are rife with inefficiency and that they are optimistic that the $155 billion in savings is do-able with the help of business disciplines, such as the Toyota Production System, lean manufacturing and Six Sigma.

"Efficiency has not been the hallmark of health care delivery operations," says Alan Aviles, CEO of New York City Health and Hospitals Corp. (HHC), one of the largest hospital and health care systems in the country, with $5.4 billion in revenue.

Those disciplines have been wringing costs from manufacturing for decades, and the cost-cutting has also delivered a counter-intuitive benefit. TVs and computers have gotten better as the cost of making them has declined. Similarly, hospital CEOs say, quality can improve as waste is eliminated.

The 11 hospitals under Aviles' command recently had storage rooms brimming with $10.2 million in supplies. Some of it expired, worthless, before it was used. HHC is moving to a just-in-time inventory system. Supplies now arrive as needed five days a week, which will slash inventory in half and provide a one-time windfall of $5 million.

Where HHC once stocked 20 varieties of rubber gloves of different colors and thicknesses, doctors must now choose from two, which will let HHC negotiate the price of the 132,000 cases it uses each year from $58 to $28 a case, a savings of almost $4 million a year on gloves alone.

Reducing waste

St. Vincent Indianapolis Hospital has made a 78% cut in the number of steps emergency department nurses take to get supplies, says President Kyle DeFur.