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Provider insights

Clinical operations excellence: Unlocking a hospital’s true potential

Filed under: Consumer engagement, Hospitals, Operations

Growing financial pressures are forcing most US hospitals to lower their total cost of care— especially for the most complicated and ex­pensive Medicare and Medicaid patients— while simultaneously decreasing their reliance on cross-subsidization from commercially insured patients. The reasons are well-known: employers, payors, and consumers are demanding greater cost controls. Growth in Medicare and Medicaid reimbursement rates has slowed. Further pressure is being placed on hospital economics by the shift in payor mix from commercially insured patients toward more government-sponsored patients, as well as by the ongoing migration of procedures from the inpatient to the outpatient setting. In addition, there is an increasing move toward the use of innovative, value-based payment models as a way to incentivize reductions in the total cost of care. Most providers have come to accept that these trends are not transient but rather have created a “new normal.”

As a result, many hospitals (and the health systems they are often part of) have under­taken operational improvement programs, such as lean transformations, Six Sigma projects, and rapid improvement events. Although some of these programs have helped the hospitals reduce costs, few have achieved substantial or long-term impact— in large part because most of them focused on nonclinical operations and did not seek the active involvement of physicians. Yet clinical care accounts for a significant portion of operational expenditures at most hospitals. Without significant changes to how clinical care is delivered, hospitals will not be able to achieve the 5- to 10-percent reduction in operational costs that most experts believe is needed to cope with today’s economic challenges.

Involving physicians in operational perfor­mance improvement efforts is therefore crucial. A provider that wants to lower its operational costs by 5 to 10 percent would have to reduce its nonclinical variable costs by an average of about 30 percent if it left clinical operations off the table. This level of savings is unrealistic for most hospitals. However, most providers are reluctant to address clinical operations, primarily for two reasons. First, many administrators and per­formance improvement staff members lack a clinical background and thus often shy away from changes that disproportionately affect clinicians and care delivery (because they either do not fully understand clinical pro­cesses or are intimidated by the clinicians who carry them out). Second, many providers believe that addressing clinical operations would alienate high-volume physicians, who might then take their patients to competing hospitals. Although this concern may once have been justified, McKinsey research suggests it is no longer valid. In a survey we recently conducted of more than 1,400 US physicians, most respondents said that they are willing to change their practice to help control costs.

Our experience “in the field” confirms that physicians can be actively engaged in per­formance improvement efforts and are willing to make changes in care delivery. Their involvement increases the likelihood not only that operational performance will increase but that care quality, patients’ satisfaction, and physician/staff satisfaction will also rise.

Our “clinical operations excellence” approach enables hospitals to achieve all of these goals. It is quite different from the conven­tional change management programs most providers have been using, because it puts physicians—and clinical care—at the heart of the change effort. By doing so, providers can make transformative changes that im­prove costs, quality, and satisfaction simulta­neously, and ensure that those changes are sustained over the long term.

What is clinical operations excellence?

Clinical operations excellence includes elements of traditional hospital performance improvement efforts (especially lean trans­formations), but it goes beyond them because of the emphasis it places on improving care delivery as well as nonclinical operations (Exhibit 1). It uses a variety of process improve­ment and change management concepts and approaches to increase operational efficiency and reduce clinical variability; the ultimate objective is to drive down the total cost of care while maintaining or improving care quality.

In our experience, most hospitals have significant, unintentional variability in how clinical care is delivered. Most hospital executives would agree that this variability drives up the cost of care, making hospitals less competitive and less likely to survive in a world of value-based payment. Reducing clinical variability would release working capital (e.g., through inventory reduction), lower supply costs (e.g., by shifting to one or two vendors), increase the pace of care delivery (e.g., by reducing the number of potential paths of care), shorten average length of stay (e.g., by initiating care sooner in the care pathway), and reduce the likelihood of adverse events (e.g., by standardizing and error-proofing nursing workflows).

Clinical operations excellence encapsulates a broader range of initiatives than many health systems typically use

Physicians can be convinced to reduce the amount of variability in care delivery if they understand that the changes will not only help control costs but also improve patient outcomes. By ensuring that all patients receive high-quality care in a reproducible and evidence-driven manner, a virtuous circle can be created: as the quality and efficiency of care delivery rise, per-patient costs decrease, outcomes improve, patient and staff satisfaction increase, referral streams expand, and high-volume physicians become less likely to migrate to other hospitals.

Implementing the changes necessary to reduce or eliminate unintentional variability in care delivery in a sustainable way is far from easy. It requires a complex combination of approaches to streamline processes (including those for patient admissions and discharges), standardize clinical pro­tocols, and rationalize supply utilization. Our experience suggests, however, that this combination can have a significant impact (Exhibit 2).

Achieving ‘best-in-class’ performance can have compelling value

After using this multiprong approach in more than 150 hospital transformations over the past few years, we have found that it can significantly improve hospital performance. On average, most hospitals see a reduction of 5 percent or more in operating costs (Exhibit 3).

Benchmarking performance is a prerequisite for achieving the level of financial impact required

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