When Jack Welch took over General Electric Co. in 1981, the Conn.-based firm’s annual revenues were roughly $27 billion. By the time he left it two decades later, GE’s revenues had reached almost $130 billion and its stock price had grown by 4,000 percent.
A successful tenure, by any measure. Impressive growth, however, wasn’t the only hallmark of the Welch era at GE. In addition to warding off competitors and navigating through challenging transitions, including the acquisition of broadcaster NBC, Welch also dramatically remade the company by vastly improving areas he considered vital to his company’s continued success: customer service and quality.
Sound familiar? Today, ambulatory surgery centers and other healthcare providers also face a fast-evolving and crowded marketplace, widespread consolidation, and other difficult market conditions. Taken together, these dynamics are pushing customer service and the quality of patient experience to the forefront in healthcare delivery, especially as millions of Americans formally enter the nation’s healthcare system for the first time.
‘Driving out variation’
The implementation of Six Sigma at GE played a well-publicized role in Welch’s effort to lead it into the 21st century. Pioneered by Motorola in the 1980s, Six Sigma was adopted by Welch a decade later to standardize and refine internal processes to improve quality, reduce errors and, ultimately, make customers happy.
In a video available online, Welch described the straightforward role Six Sigma played at GE this way:
“In every annual report, we’re a ‘customer-focused company,'” Welch said. “Well, Six Sigma really drives you in a methodology to be one. Because all you are doing is driving out variation and driving better, new products that are right the first time [customers] get them.”
While simple in concept, Six Sigma’s financial results are anything but. In the first five years after it was implemented at GE, Six Sigma produced an estimated $12 billion in cost savings by creating a standard structure for identifying, studying and improving processes.
A step-by-step approach
Many of the same proven Six Sigma methodologies implemented two decades ago at GE can be applied today at ASCs to improve quality, implement standardization and create efficiency, resulting in fewer scheduling and billing errors and unnecessary labor costs. In turn, ASC revenue cycle management is more consistent, operations are more predictable and patients receive better customer service.
For nonclinical healthcare-related processes, Six Sigma methodology is best understood through two concepts: DMAIC and DMADV. Short for Define-Measure-Analyze-Improve-Control, the DMAIC tool is used to analyze and improve existing business processes, while DMADV (Define-Measure-Analyze-Design-Verify) is used to design new processes.
Revenue cycle management is typically the most common nonclinical concern for ASC administrators. Without smooth cash flow, facilities can face difficult – and often unexpected — financial issues that make it challenging to even make payroll. Even more, cash flow crunches could become an increasingly common problem for providers in the coming years, as cost-sharing efforts force them to bill and collect a higher percentage of overall revenue directly from patients.
Fortunately, revenue cycle management is an aspect of ASC administration that easily addressed through the step-by-step Six Sigma approach for improving existing business processes:
Define: Typically, there can be a number of reasons behind big fluctuations in an ASC’s cash flow from one month to the next. For example, did the payer or case mix differ substantially from month to month? Did the ASC’s overall caseload drop? Or did front desk staff enter incorrect information into the billing system? During this stage of the process, Six Sigma-certified professionals set out to define the universe of possible reasons why an ASC’s ledger is off.
- Measure: Once the potential problems are identified, an analysis of key performance indicators is conducted to determine the extent of the ASC’s cash flow difficulties. By how much was the ASC’s revenue off for the month? What was the payer mix for the month compared with previous months? This step allows an ASC’s financial team to assess how big the problem is and, generally, how it can be addressed.
- Analyze: Using KPIs and industry or practice-specific benchmarking, possible problem areas identified during the define stage are eliminated one-by-one. Then, through a process of elimination, the issue behind the cash shortfall quickly becomes apparent.
- Improve: Once the problem is identified, a series of improvements are developed and piloted for possible implementation. During this step, statistical methods are used to determine the most efficient solution possible.
- Control: In order to be considered successful, an optimized process must not only be implemented but sustained long term. This final step ensures that the new process is adopted and enforced.
Is healthcare lagging behind?
Despite well-publicized successes at GE and other companies, healthcare providers appear to be slow in adopting proven Six Sigma tools. According to a 2009 survey by the American Society for Quality, 42 percent of hospitals reported partial Six Sigma methodology implementation, while only 8 percent reporting a “full deployment.”
Meanwhile, another survey published the same year by Compdata showed that 59 percent of manufacturers implemented Six Sigma methodology in their operations.
So why the disparity? The ASQ survey offers many clues, which may come as little surprise to healthcare veterans. While we lead the world in clinical innovation and novel treatments, antiquated business processes are more common than not in many of our healthcare facilities, unfortunately. Education, too, appears to be a factor. In the ASQ survey, more than 10 percent of the hospital leaders interviewed had never heard of Six Sigma and nearly 60 percent said they lacked the resources to implement it.
In this highly competitive marketplace, the ASC community cannot afford to wait.
Written by Michael Rock, Lean Six Sigma Black Belt, Senior Vice President, Process Improvement, National Medical Billing Services
At National Medical Billing Services, Michael Rock works to implement Lean and Six Sigma principles across the company, looking for opportunities to cut waste and make existing systems and processes more efficient and effective. He also works directly with each of National Medical’s department heads to ensure that they are properly staffed to meet workload capacity.
Ref. Becker’s Healthcare
This post was first published September 24, 2014 and was updated July 29, 2020.