CHKD Nets $22M in CFO-Validated Savings with a Blend of CBA s 100-Day Workouts and High Impact Margin Improvements

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1 CHKD Nets $22M in CFO-Validated Savings with a Blend of CBA s 100-Day Workouts and High Impact Margin Improvements CHALLENGE With reimbursement rates the lowest in history, and a higher cost structure from specialized and academic medicine, CHKD needed to align its staff and processes with an action-oriented approach to sustainable change that directly affected their bottom line. SOLUTION CBA 100-Day Workouts Quality Waste Physician-Driven Clinical Waste In-Quality Staffing One-More-Throughput High Impact Margin Improvement RESULTS Over 2,009 plans identified in just the first three workouts. $22M in CFO-Validated Savings. High Impact Margin Improvement delivered 15:1 Return on Investment. Re-engineering contract management process garners 3% in annual savings. Situation A recent Standard & Poor s report, U.S. Not-For-Profit Children s Hospitals Median Ratios Remain Sound But Long-Term Challenges Could Affect Business Model 1, noted key challenges affecting children s hospitals around the country, including those related to healthcare reforms, and the rise in Medicaid usage by patients. Children s Hospital of The King s Daughters (CHKD), Virginia s only freestanding children s hospital and the heart of a comprehensive pediatric healthcare network, was indeed facing many of these issues that made it difficult for them to realize margin improvements, including: The lowest commercial reimbursement rates in its history. Higher cost structure with highly specialized care and academic medicine making cost reduction difficult. Physician alignment, integration, coordination and accountability were key issues, as cost and quality measurements become more popular in commercial and Medicaid payment contracts. Needed to iron out the details of clinical co-management between doctors and management. Patient volumes shifting to outpatient (less revenue) and to general acute care hospitals. Needed a sense of urgency and method for creating accountability. Process changes not corresponding to the bottom line. Lacked a structure to monitor and track activity. Needed to limit board involvement in approving new budgets for consulting fees by using alternative payment options. To combat these challenges, CHKD initially considered just providing their staff with expanded Lean Six Sigma training. However, after a careful review, the leadership team realized that additional, traditional training alone would not produce the strategic or financial gains they required. Nor would it help them fully engage managers and directors, or break down the barriers and resistance to change. To meet the rapid changes occurring in their environment they needed a combined solution that would deliver an action-oriented approach to planning with the entire staff, as well as hands-on, high impact margin improvements led by CBA s experienced team. 1

2 Solution Applied CHKD engaged CBA, tapping its expertise and 15 years of ensuring continuity and sustainable work through leadership coaching and driving accountability. Key criteria in CHKD s decision to hire CBA were: CBA s 3:1 guarantee with deferred payment. Former CEO/C-Suite on-site coaching at least four days per month (vs. lower levels of staffing offered by other firms). METHODS APPLIED Day 1 readiness via CBA s 100,000+ online searchable idea 100-Day Workout Structure database to jump start bottom line results. General introduction to Lean Together they focused on designing a system that included proven methods for increasing focus, accountability, speed and interdepartmental collaboration while producing tangible ROI with validated margin improvement. This system included two separate practices working in parallel; with senior leaders focused on strategic process and policy changes, and directors and managers using 100-Day workouts to make them accountable. Part I Strategic Initiatives via High Impact Margin Improvement CBA and CHKD s senior leaders initially embarked on a series of parallel, project-oriented, High Impact Margin Improvement initiatives and strategic interventions proven in CBA s national research to impart immediate bottom line impact. These focused on moving quickly from volume (fee for service) to value, linking quality and payment as part of the process. Caldwell Butler uses its hands-on, High Impact Margin Improvement Program to assist health systems with closing their growing margin gap in an increasingly challenging operating environment. This is initiated with a six to eight week assessment to validate needs and prioritize opportunities using CBA s High Impact checklist. The next step was implementation, featuring on-site Chief Implementation Officer support provided by one of CBA s former turnaround CEOs. This program focuses on several high-return areas: Concepts of: Quality Waste Recovery (7 Categories of Waste) In- and Out-of-Quality Staffing Material & Information Movement Over-Processing Over-Inventory Motion Over-Correction / Inspection Waiting Rapid Cycle Testing Action Targets EXCELerator 84 Proven Change Concepts Labor Management Non-Labor Management Perioperative Optimization Growth and Leakage Physician Alignment/ Clinical Co-Management CHKD and CBA worked together using CBA s High Impact checklist, internal best practices, external benchmarks, and CBA s C-Suite-experienced coaches to identify and validate margin improvement opportunities. These Million Dollar opportunities were then prioritized by magnitude, time, and difficulty to execute. An implementation plan was then

3 developed in collaboration with the senior leadership team, physician clinical chiefs, and other key stakeholders to achieve and sustain the margin improvement efforts. These included: Offering fair market value (FMV) compensation to eligible physicians for participating in co-management activities, with an incentive for improving performance on pre-set measures. Putting together action plans, developing roadmaps and training staff. Steering Committee of CSSG, CSG, and independent community physicians; including Chief of Surgery (ex-officio), Chair of SAC (ex-officio), and hospital representatives. Meet monthly to select and prioritize performance measures based on organization goals. Re-engineering their contract management process to make it easier and faster to acquire products the hospital needed while saving money and improving service levels. CBA is helping renegotiate key contracts - targeting 3% annual contract savings and a 10% reduction of annual food and paper supply expenses. CBA is helping work with referring physicians to reduce the expense of high-cost genetic testing. Part II Engaging Managers & Directors As senior leaders embarked High Impact Margin Improvement initiatives, it became clear that engaging directors and managers in tactical, process-oriented organizational change to increase margin in their cost centers was also necessary for the entire organization to reach its goals. CBA s 100-Day Workouts were used to meet those additional needs. CHKD adopted CBA s 100-Day Workout accountability structure for two initial key business areas, followed by several more workouts in other focus areas. This system makes progress, or its absence, instantly visible, thus demanding a corrective response from leadership when unacceptable deviations from plans occur. To create a sense of urgency and encourage the commitment to change to run throughout the organization, each workout included a minimum of two (mandatory) successful process changes for all managers, directors, and senior leaders, per month. These changes would all move the hospital toward its financial goals. In all, CHKD completed four 100-Day Workouts focused on the following high opportunity areas: Quality Waste: The first 100 days were spent focused on quality waste exposing managers to Lean concepts and an easy-to-understand overview of the seven categories of waste. By the end of day one, each manager had recorded several ideas and was expected to have eight plans recorded that they could fully implement in the next 100 days. Physician-Driven Clinical Waste: In parallel with the director-driven Waste Workout, physicians were coached to implement process changes directed at clinical waste. In Quality Staffing: This utilizes CBA s proprietary In Quality Staffing approach in which managers are coached to detect variations in quality staffing standards combined with 35 change concepts to improve In Quality Staffing. One More Throughput during which directors are coached to handle one more unit of service with the same staffing. Throughout this process CBA also taught CHKD s staff how to leverage its core programs like Rapid Cycle Testing and the resources of the CBA ToolBOX, so they could act on the information they were receiving to improve operating margin as a whole. Think of it as an approach that creates an experimental mind set, reducing the fear of failure, increasing speed and reducing barriers to change.

4 Most importantly, this introduced CBA s EXCELerator - giving CHKD a structure for: Taking ownership of changes, assigning accountability and tracking key plans. Creating a sense of urgency. Providing a way to monitor implementation. Validating process changes that affect the bottom line. Results Four, four-month (trimester) performance improvement 100-Day Workouts, in parallel with implementing senior leader driven High Impact changes, enabled CHKD to realize $25M in planned savings, with $22M budgetized by the CFO this fiscal year, and remainder in line for budgetization next fiscal year. Immersion into the hospital s operations enabled collaboration with hospital leadership to develop specific recommendations, a detailed action plan and timeline with appropriate baseline, and target benchmarks for monitoring progress. Plans were designed with a constant focus on implementation and accountability through coaching and mentoring for sustainable results beyond the engagement. This enables CBA to deliver significantly greater than its guaranteed $3 margin improvement for every $1 clients Enables the organization to avoid the cumbersome Board approval process because CBA fees are better than budget neutral. The hospital s leadership involvement throughout the planning and implementation processes instilled buy-in and created a strong culture of accountability among the management team. The Finance Department assigned financial liaisons to assist managers in linking changes to specific cost centers and validate the financial tangibility of the changes by integrating these efforts within the budget process. Below is a detailed look at CHKD s $22 Million in CFO-validated results: 100-Day Workout 1: Waste Directors and Physician Leaders The first 100-Day Workout produced over 774 slated changes with $5.6M in targeted savings. $5.6M $5.6M $5.6M 774: 7 per manager

5 100-Day Workout 2: In-Quality Staffing By the end of this second 100-Day Workout directors and managers amassed over $5.4M in CFOvalidated margin improvement. Moreover, directors were well on their way on the road to becoming world-class leaders who assure sustainability for the challenging times ahead. $6.7M $5.8M $5.4M 633: 6 per manager 100-Day Workout 3: One-More-Throughput $3.2M $2.8M $2.2M 602: 5.7 per manager High Impact Margin Improvement: The Non-Labor focus area project was recently completed with a nearly $2M total annual margin improvement impact and 15:1 ROI. The next focus area, Physician Alignment, is now under way. Savings from Non-Labor Savings from Perioperative $2M (15:1 ROI) $7.6M Total Savings from High Impact $9.6M 15:1 ROI FROM HIGH IMPACT Total Savings from Three Director-Driven 100-Day Workouts Cumulative Margin Improvement $15.5M $14.2M $12.4M 2,009 total plans $25M $23.7M $22M

6 The CBA Advantage CBA is the nation s leading expert in successfully leading transformational initiatives and margin improvement for healthcare. For the past 15 years, CBA has conducted national research and published its findings on the methods of top performing organizations to improve performance. These proven methods have been field-tested and CBA has refined these concepts into proven tools you can deploy in your organization. Caldwell Butler & Associates, LLC For additional information, contact: Greg Butler gregb@caldwellbutler.com or visit: CaldwellButler.com Caldwell Butler & Associates is an innovative firm specializing in strategic deployment of Lean-Six Sigma resulting in cost position improvement, financial turnarounds, and patient throughput optimization. Caldwell Butler & Associates has assisted hundreds of clients increase productivity, maximize patient throughput, and improve patient satisfaction. Our team is exclusively dedicated to healthcare and brings extensive practical experience in hospital operations to each project. Our knowledge of the healthcare environment allows us to implement effective performance improvement programs tailored to the specific needs of your organization. Caldwell Butler & Associates is the trainer of choice for both the American College of Healthcare Executives and the American Society of Quality. During the past decade, Caldwell Butler & Associates has personally trained thousands of senior hospital executives in the effective healthcare application of Lean-Six Sigma. Unlike traditional consulting firms, Caldwell Butler & Associates believes on-site mentoring and apprenticing are the most effective methods for achieving sustainable gains in performance. Our on-site programs empower your employees by providing them with the tools to attain new levels of performance. We offer proven techniques and methods for enhancing personal accountability, monitoring progress of initiatives and tracking your ROI on each project. Where most consulting firms are satisfied with finding identified savings, Caldwell Butler & Associates works along side your team throughout implementation thus providing you with a sustainable process for managing the entire productivity improvement cycle. Caldwell Butler & Associates apprenticing and mentoring programs include: Effective use of aggressive benchmarking data Proven techniques for non-negotiable goal-setting Methods of identifying waste and generating cost savings strategies Creation of implementable 100-Day Action Plans Flawless execution of performance improvement projects Creation of internal tracking methods for enhancing personal accountability