Value measurement in health care: a new perspective

Healthcare Financial Management, August, 1999 by Jeffrey E. Michelman, Patricia E. Rausch, Thomas L. Barton

Using a Horizontal Information System with a Team-based Approach

The confrontational nature of a traditional command-and-control management structure should be restructured toward a common agenda for both managers and workers. Communication of continuous improvement should take place throughout the organization. Although organizational goals previously were divided into maximizing profits for managers and maximizing wages for employees, managers and employees both should now be focused on the final bill-paying customer. The ultimate goal should be the delivery of customer value. In the healthcare industry, customer value would be provided to both the primary and secondary customers - patient and payer - if they were not the same.

EXHIBIT 5: INFORMATION SYSTEM COMPARISON TOP SHOW COSTLINESS OF
NON-VALUE-ADDED WORK ACTIVITIES

Traditional Information System

Gross profit                           $3,000
Less: Expenses                          3,300

Loss                                    $(300)

Horizontal Information System

Gross profit                           $3,000
Less: Value-adding costs                1,899
Real profit                             1,101
Less: Costs of irrelevant work          1,137
Profit before quality costs              $(36)
Less: Costs of poor quality work         $264

Accounting loss                         $(300)

Adapted from: Hope, Tony, and Hope, Jeremy, Transforming the Bottom
Line, Boston, Massachusetts: Harvard Business School Press, 1996.

The value that a final customer derives from a service can be broken into core business processes. Teams should be formed for each core process to focus on coordination of functions to add value. Most importantly, each individual team member must have a clear understanding of how his or her efforts create value for the final customer. The basis for this understanding is the horizontal information system's measurement of value-adding activities. By sharing information with employees, a relationship of trust and integrity can be established.

The difference between a traditional and horizontal structure can be illustrated by referring back to the nursing services example. Horizontal structures are particularly useful to initiate interaction between functionally based departments, such as the laboratory, medical records, and nursing services. In the traditional system, the departments have conflicts and work independently, and employees have an internal view regarding work responsibilities. If all three departments were focusing on value-adding services for the patient, there would be seamless delivery of services.

By reorganizing around key processes and activities, the focus becomes how work is performed. Eliminating steps in a process will allow for greater efficiency. For example, if the laboratory logged in each sample for testing and tracked the progress of testing on-line using a real-time computer system, nurses could link on-line and check the progress of tests. Chasing down information would be eliminated. The medical records system could be more efficient by electronically maintaining and updating information via a computer-based patient record.(b) Computer input forms could be based on manual form design. That way, nurses would already be familiar with the on-line form structure. The benefit of electronically maintained data is that nurses would not have to reenter information that is already contained in the system. A benefit of electronically maintained records is that input of redundant information is eliminated, information is more easily accessible, and more than one person can access the information at a time. Further, information is always available. As a result, poor quality will not occur due to a missing laboratory test or report.