HEALTH ECONOMICS A participatory approach for reducing costs in the Public Hospitals of the Canton de Vaud (Switzerland)
Item
- Title
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HEALTH
ECONOMICS
A participatory approach
for reducing costs
in the Public
Hospitals of the Canton de Vaud
(Switzerland)
- extracted text
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THE CANTON DE VAUD
HEALTH
ECONOMICS
A participatory approach
for reducing costs
in the Public
Hospitals of the Canton de Vaud
(Switzerland)
Filippo Boila
Geneva university hospital
Marianne Binst
Bossard Consultants
task
force
on
HEALTH ECONOMICS
November 1995
HEALTH ECONOMICS
Documents in the «Task Force on Health Economics» series are :
- A bibliography of WHO literature.
WHOfTFHE/93.1. e-mail access: heconl@who.ch (English)
- A guide to selected WHO literature.
WHO/TFHE/94.1. e-mail access: hecon2@Aho.di
- Une demarche participative de reduction des cotits hospitaliers. Hospices cantonaux vaudois (Suisse).
WHO/TFHE/95.1. e-mail access: hecon3@who.di
- Environment, health and sustainable development: the role of economic instruments and policies.
WHO/TFHE/95.2. e-mail access: hecon4@vho.ch
- Identification ofneeds in health economics in developing countries.
WHO/TFHE/95.3. e-mail access: hecon5@wtiodi
- Health economics: a WHO perspective.
WHO/TFHE/95.4. e-mail access:
hecon6@who.ch
- WTO: What’s in it for WHO?
WHO/TFHE/95.5. e-mail access:
hecon8@who.ch
Task Force technical briefing notes:
- Privatization in health.
WHO/TFHE/TBN/95.1. e-mail access: hecon7@who.ch
0 World Health Organization, 1995
This document is not a formal publication of the Woht^Health Organization (WHO), and all rights are reserved
by the Organization. The document may, however, be ffeefy. reviewed,-abstracted, reproduced and translated.
in part or in whole, but not for sale or for use in conjunction with commercial purposes.
The views expressed in documents by named authors are solely the responsibility of those authors.
For users of electronic mall: this document may be accessed at the following address:
hecon3e @ who.ch
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
TABLE OF CONTENTS
FOREWORD................................................................................................. V
PREFACE....................................................................................................... 1
SUMMARY....................................................................................................2
INTRODUCTION........................................................................................ 3
The hospital in the health system............................................................... 3
The hospital: a complex organization......................................................... 3
THE FINANCING OF THE HEALTH SYSTEM IN SWITZERLAND................... 4
Health costs in Switzerland......................................................................... 4
Financial structure of the Swiss health system.................................. 5
Reimbursement of in-patient and out-patient services......................... 5
Minimal coverage.................................................................................................6
The health network in the Canton de Vaud.......................................... 6
The Public Hospitals of the Canton de Vaud....................................... 7
METHODOLOGICAL SOURCES..........................................................8
Benchmarking.........................................................................................................8
The zero base budget........................................................................................ 9
Re-engineering....................................................................................................... 9
WHICH METHOD FOR COST CONTAINMENT?..................... 10
OBJECTIVES AND PRINCIPLES OF THE APPROACH......... 12
Objectives............................................................................................................. 12
Main Steps........................................................................................................... 12
THE APPROACH STEP BY STEP.................................................... 13
Step 0: Pre-diagnosis........................................................................................ 13
Step 1: Training in the method and communication............................ 14
Step 2: Analysis of activities and costs................................................ 15
Step 3: Analysis of the activity and search for improvements ... 16
Step 4: Analysis of risks and choice of ideas...................................... 17
Step 5: Implementation and conduct of projects................................ 17
lii
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
RESULTS OBTAINED............................................................................ 18
Results obtained in the Public Hospitals of the Canton de Vaud.... 18
An example from Sweden............................................................................... 19
SEVERAL EXAMPLES OF IDEAS USED.......................................20
PROBLEMS ENCOUNTERED............................................................ 20
Poor participation of the medical profession...................................... 20
Making personnel understand the approach.......................................... 20
Applying benchmarking methods in the hospital.................................. 21
Having a good information system............................................................ 21
Looking for cost containment was slower than expected............. 22
CONDITIONS FOR SUCCESS............................................................ 22
The support of the top management......................................................... 23
The organization of the project................................................................. 23
The choice of project heads......................................................................... 23
Training................................................................................................................ 23
Communication....................................................................................................23
Involvement of the hierarchy......................................................................24
Clear directives from the management................................................... 24
PROSPECTS FOR USE........................................................................... 24
CONCLUSION........................................................................................... 25
BIBLIOGRAPHY...................................................................................... 26
IV
A PARTICIPATORY APPROACII FOR
REDUCING COSTS IN THE PUBLIC IIOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
FOREWORD
Building upon activities already undertaken in the area of health
economics, the Director-General created a Task Force on Health
Economics in November 1993 in order to enhance WHO’s support to
Member States.* Its goal is to further the use of health economics in the
formulation and implementation of health policies, giving priority to
countries in greatest need.
The Task Force aims not only to strengthen the technical content of
WHO programmes so that they can better adapt the tools of health
economics to country needs, but also to foster cooperation among
development agencies in applying health economics at country level.
A series of documents in English and French is being produced to
help meet the information needs of both those involved in the organization,
planning and financing of the health sector and health professionals whose
expertise may lie in other areas. The documents currently available,
distributed free of charge, are listed on page ii.
Members of the Task Force arc: F. Antczana (Chairman). M. Jancloes (Vice-Chairman). G. Carrin (Secretary).
O.
Adams. S. Bcrtozzi. A.L. Creese. D.B. Evans. K. Janovsky. J.M. Kasonde. C.M. Kinnon. E. Lambo.
P. Lowry. B. Sabri. C. Sakcllaridcs. Than Scin. J.H. Perrot. L. Tillfors. G. Velasquez. C. Vieira. A.E. Wasunna.
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC IIOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
PREFACE
Hospitals consume a substantial share of the human, material and
financial resources available to the health sector; consequently, their
performance greatly affects that of the entire sector. Yet our
understanding of hospital performance and efficiency is limited. Because
of this, study of the economics of hospitals is an important part of the
work of the WHO Task Force on Health Economics.
To address issues facing hospitals in developing countries requires an
examination not only of actual hospital expenditures and their trends
but of the policies and management practices that underlie and affect
these trends. Analysis of the production and costs of hospital services
can address the issues of resource allocation, efficiency of hospital
operations, and the design of revenue generation policies for hospitals.
Economics provides a framework for such explorations and can facilitate
understanding of the efficiency, equity, utilization and revenue impli
cations of policy options. However, generalizable conclusions about
hospital expenditure and resource use may be difficult to derive because
of the diversity of experience among countries. Thus, there is need
for detailed country level economic analysis of hospital resource al
locations and costs to make short- and long-term policy, planning and
management decisions about hospitals.
Although this paper reviews an experience with hospitals in an
industrialized country, the issues addressed have widespread relevance.
Hospitals in both developing and industrialized countries face
economic losses due to waste and technical inefficiencies that result
from poor management practices and perverse financial incentives.
Given the resource constraints facing most countries, minimizing
these losses while maintaining or improving the quality of hospital
services is of vital importance. Therefore, it is hoped that some of
the lessons to be learned from this paper have widespread relevance.
J. Kutzin
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
SUMMARY
Hospitals are often considered by the authorities to be a good target
for reducing government expenditure.
The hospital is a complex organization. Any reduction in hospital
costs must be based on an analysis of activities and on the integration
of strategic changes into the network of hospital care.
The professional staff of a hospital must be fully involved in the
process of cost reduction, in order to:
■ develop management skills and
■ guarantee the quality of services.
Faced with the necessity of lowering costs, the Public Hospitals of
the Canton de Vaud (in Switzerland) developed a methodology for
reducing hospital costs. This method indicated a potential saving of
13.7% in the running costs, which are about 700 million Swiss francs
(about USS 480 million).
The method is based on two principles:
■ using the skills of hospital personnel by involving them
as fully as possible, and
■ critically analyzing the activities that consume most
resources.
The potential savings identified will be made over a period of three
years.
Some of the savings achieved may be allocated to other projects.
2
PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
INTRODUCTION
In a world of limited resources, those that are allocated to the health
sector cannot be allocated to other public services, such as education,
transport and environmental protection. Reducing health costs and
improving the health of the population by setting up a more effective
health network are strategic moves for a country that wishes to
develop and to increase its competitiveness (Brailer & van Horn,
1993).
Economic analyses of the health system are complex as they relate
indicators that are difficult to measure, such as the quality of care
and health status, to financial data that are often imprecise and of
limited comparability.
Health administrators can act by:
□ reorganizing the health network;
□ changing the system whereby units are financed; and
□ reducing the running costs of the main units.
This document principally addresses the last solution.
The hospital in the health system
Hospital financing represents 50-80% of public spending on the
running of health systems. The proportion is very large in many
developing countries where underdeveloped systems of care result in
a concentration of resources in the hospital sector (Kutzin & Barnum,
1993).
The authorities focus narrowly on reducing hospital costs because
hospitals appear to account for too large a proportion of the health
network. Hospitals are, however, complex organizations which have
usually met with little competition, and hospital management has not
evolved with the management reforms seen since the 1960s.
Costs could be reduced in hospitals. The efficiency of most health
systems could thus be improved, as some of the saved resources could
be reallocated to other care sectors, such as prevention, urban medicine
and home care.
The hospital: a complex organization
Large organizations accumulate functional deficiencies over the years
which hinder their production processes considerably. Hospitals, which
operate in a market where there is little competition, are no exception
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
to this rule. With the development of market mechanisms in
the health sector and strong budgetary pressure from
supervisory organizations, reducing costs has become an
essential move for hospitals (Townsend et al., 1988; Mullaney,
1989).
How far can cost-cutting go without jeopardizing the quality
of care? What is the optimal size of a hospital unit? How can
hidden costs be identified?
Faced with the necessity of lowering running costs, the Public
Hospitals of the Canton de Vaud (in Switzerland) initiated in
1993 an approach based on the fullest possible involvement
of its personnel' (Absi et al., 1994). The system that we
present here is an intra-hospital approach; it takes little account
of, for instance, the global cohesion of the health network or
the role of urban doctors, home care or rehabilitation centres.
The aim of the approach is to improve the operation of public
hospitals and to reduce their running costs.
THE FINANCING OF THE HEALTH SYSTEM IN
SWITZERLAND
This brief description is not intended to provide a complete
picture of the Swiss health system. The main characteristics
are given in order to put the approach used in the Canton of
VaudI2*for lowering hospital costs' into context.
Health costs in Switzerland
In 1991, health spending in Switzerland amounted to about
29.6 billion francs’ (8.9% of the gross domestic product),
which corresponds to an annual expenditure of 4300 CHF
(USS 2950) per inhabitant per year.
More than half of the expenditure (51.4%) is generated by
health establishments, including hospitals, long-stay establis
hments and institutions for the handicapped. Out-patient ser-
I
"Unedenuin lieparticipative de reduction des coftls, bilan de I'openilion orCHidees menceaia Hospices canionanxvuiulois : presentation aux
joum6esscicntifiqucsdc I’Association latino pour I'Analysc des Systemesde Santd. Bruxelles, juin 1994 (Absi et al.)
“ For an evaluation of the costs of the Swiss health system, sec Sommer & Gutzwillcr. 1986. Fora presentation of financing mechanisms, sec Frei
& Hill. 1992, and Gil land, 1990.
Federal Statistics Office, Bcm. 1994.
4
PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
vices (doctors, chemists and others) represent 41 % of the expenditure,
administrative charges (social insurance and the State), 6% and
prevention, only 1.6%.
In 1991, Switzerland had 616.4 beds for general care and 171
psychiatric and psycho-geriatric beds per 100 000 inhabitants.
Financial structure of the Swiss health system
The out-patient sector is regulated at the national level, while the
hospital sector is controlled by cantonal laws. There are therefore
as many systems of hospital financing in Switzerland as there are
cantons (26).
The authorities (the Confederation, cantons and communes) finance
about 31% of the total cost of the health system. The distribution of
financing is as follows:
□ public sector (Confederation, cantons and communes), 31 %;
□ health insurances4, 38%;
□ private insurance and patients who pay for themselves, 29%;
□ social security5, 2%.
More than 60% of health costs in Switzerland are financed directly by
households through health insurance and by direct payment of services by
the patient.
Reimbursement of in-patient and out-patient services
Several regulations that are common to all of the cantons apply to
the reimbursement of services by health insurances. There are two
networks of hospitals: private (profit-making) and public or partially
public (subsidized). The financing of the public hospital network
differs greatly from one canton to another. The commonest tendency
is still to undertake ‘deficit financing’ of hospitals, with varying
mechanisms for supervision and control of spending.
Stays in private hospitals are financed on the basis of fee-for-service.
The hospital or the clinic invoices the stay, treatments, medical
interventions, drugs and medical fees. Some private hospitals have
negotiated with the health insurances to obtain preferential rates
according to the disease, but this practice is still rare.
4
Health insurance is provided by private, non-profit-making associations which receive subsidies from thcSlate. They negotiate agreements with
professional associations, which must be approved by the authorities.
Disability insurance and occupational accident insurance.
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
Minimal coverage
Medical insurance is not obligatory in Switzerland; nevertheless,
97% of the population is insured. The health insurances negotiate
agreements with professional associations, which must be approved
by the authorities, that allow for basic coverage:
■ 100% for the costs of hospitalization in a ward in a public
hospital, and
■ 90% for out-patient costs (dental costs are often excluded).
According to the new law health insurance is obligatory. The new
law on health insurance has been voted in December 94, and will be
applied in January 96.
It is possible to change from one insurance to another; thus, health
insurers can no longer choose good risks. An inter-insurance com
pensation system for basic coverage encourages harmonization of the
basic premiums within cantons. Premiums can differ among cantons,
since organization of the health system is the responsibility of the
canton.
The health insurances will therefore be able to compete with each
other only with regard to the supplementary benefits they offer their
clients. Private supplementary benefits generally allow the patient:
■ to choose a doctor at the hospital;
■ to have access to the network of private hospitals; and
■ to make use of supplementary services (e.g. dental and preventive
care and thermal baths).
Because of the reduction in public financing, health insurance
premiums, and especially supplementary payments for private
coverage, have increased markedly over the last few years. The
number of private insurance contracts is diminishing. Despite the
general cut in hospital use since the beginning of the economic crisis,
however, the public hospitals are expecting that the fall in the number
of privately insured people will lead to an increase in the number
of patients hospitalized in wards.
The health network in the Canton de Vaud
Since 1980, the health establishments of the Canton de Vaud have
been financed by global budgeting. This reform of the financing
system relates only to the network of health establishments that are
public or partially public (private hospitals and foundations that
receive a subsidy from the Canton). The State does not control the
out-patient activities of doctors or the activities of clinics and private
hospitals.
■6
A PARTICIPATORY APPROACH TOR REDUCING COSTS IN THE PUULIC IIOPITALS OP THE CANTON DE VAUD
HEALTH ECONOMICS
In 1992, the Canton of Vaud6 had:
□ 2880 beds for public and partially public general care,
□ 970 beds for private general care (estimate),
□ 420 beds for psychiatry and
□ 255 beds for psycho-geriatric patients.
The population of the Canton of Vaud was 593 000 inhabitants as of 31
December 1992.
The Public Hospitals of the Canton de Vaud
The Public Hospitals of the Canton de Vaud, created in 1991, are
a group of public health establishments in the Canton de Vaud,
comprising:
□ a university hospital with about 1000 beds;
□ three psychiatric and psycho-geriatric hospitals;
□ a group of university research institutes;
n six schools for teaching medical and paramedical professions;
□ and a spa.
The annual budget is about 700 million Swiss francs for 6000
employees.
The Public Hospitals of the Canton de Vaud were set up in order to
reduce the running costs of previously independent institutions, by
rationalizing their management and by improving coordination of the
health network. The running costs of the Public Hospitals of the
Canton de Vaud, at constant prices, had increased by 16.1% between
1987 and 1992.
Evolution of costs of the public
hospitals of the Canton de Vaud;
index at constant prices 1987 -1992 (1987=100)
6
YeartxxikorhealthstaiislicsofThcCarilondc Vaud. 1992.
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUIILIC IIOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
The State and the health insurances pressured the Public Hospitals
of the Canton de Vaud to reduce their running costs. The targets for
savings were established on the following basis: The executive board
of the Public Hospitals of the Canton de Vaud analyzed the main
functional deficiencies of its establishments and compared the costs
and mean length of hospital stay with those of other hospitals in
Switzerland and abroad. This diagnosis provided the basis for an
estimate of potential savings of about 11%, which could be made
while maintaining the same level of quality and activities.
An objective of saving 7% over three years was negotiated with the
public authorities. In order to allow room for development, the Public
Hospitals of the Canton de Vaud’s management set itself the objec
tive of an 11% reduction, so that they could keep the additional 4%
and reallocate it to new projects.
METHODOLOGICAL SOURCES
The 1980s saw several upheavals in management practices, which
have repercussions today in all business concerns, be they private or
public. Business enterprises are taking stock of themselves, and
upheavals are occurring both in industry and in services. In order to
maintain the competitiveness of business concerns, the new managers
must undertake profound restructuring of their organizations, usually
within a few months.
Methods of cost reduction have been the subject of a large number
of publications in management journals over the past 10 years. All
of the methods involve increased participation of personnel and
heightened awareness of their responsibilities at every stage of the
production process. The principle of this new view of management
can also be expressed as the transfer to the personnel of an important
responsibility—quality (Schonberger, 1990).
The health sector will not escape these changes. The scarcity of
resources, which settled in at the beginning of the 1990s, is inciting
the managers of businesses involved in the health system to find new
solutions. We mention below several of the techniques most frequently
cited in the literature, which indirectly inspired the approach presented
here.
Benchmarking
Benchmarking (Spendolini, 1992; Camp & Tweet, 1994) consists of
comparing the processes of a business concern with those of its
8
PARTICIPATORY APPROACH IOR REDUCING COSTS IN THE PUBLIC HOPITALS Ol- THE CANTON DE VAUD
HEALTH ECONOMICS
closest competitors on the market. Three kinds of bench-marking can
be envisaged:
□ “Competitive bench-marking” involves comparing processes in
two competing enterprises, for example, the organization of the
operating theatre suite in two hospitals.
n “Functional bench-marking” involves comparing two similar
processes in enterprises that are active in different economic
areas. In this case, the comparison is made for one function, for
example, performance of the acquisitions function in a hospital
and in an industrial concern.
n “Internal bench-marking” involves identifying the best practices
within an organization, for example, comparing the organization
of on-the-job training in two medical units.
The zero base budget
The zero base budget (Phelan, 1989), developed at the beginning of
the 1960s by the US administration, was subsequently adopted by
many US companies in drawing up their annual budgets.
The zero base budget is derived by asking everyone whose decisions
affect the use of resources to justify the expenses included in their
budget, starting from zero. The steps are as follows:
□ division of the organization into modules with homogeneous
activities;
□ evaluation of provisional expenses for each module, separating
routine activities from new ones; and
□ negotiation of budgetary proposals.
In hospitals, the problem is to establish a budget not on the basis of type of
expense but of the activities to be carried out.
Re-engineering
Re-engineering (Hammer & Champy, 1993) can be described as
‘reinventing operational processes’, an operational process being a
series of activities which on the basis of one or several inputs produces
an output that is of value to the client (the term ‘client’ being used
in its widest sense, including internal clients). Re-engineering is
therefore not applied to organizations but to processes. Enterprises
are rarely organized around their processes, the responsibility for
which is divided up along the internal lines of the organization. ReA PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
9
HEALTH ECONOMICS
engineering consists in identifying the processes of the enterprise (of
which there are rarely more than six) and constructing a project by
which to analyze them, with the aim of simplifying and improving
them.
H.J. Harrington (1993) describes the steps of re-engineering as follows:
■ preparation and training for the approach;
■ identification and understanding of the processes to be analyzed;
E analysis of the processes;
□ planning for implementation of the decisions;
□ implementation, monitoring and improvement of the processes.
WHICH METHOD FOR COST CONTAINMENT?
In order to reduce its costs, a business can use either a ‘top-down’,
directive approach or a ‘bottom-up’ approach that involves more
participation. The first ensures a certain coherence in the decisions
that are taken and rapid decision-making and implementation. The
second more clearly identifies the hidden costs and functional
deficiencies; it leads to participatory experience, which perpetuates
the savings, but it takes a long time to implement.
The risk in using an approach that does not involve the personnel
adequately is that costs will be reduced in an overly linear manner,
without elimination or simplification of the activities (Vollmann &
Brazas, 1992). T. Vollmann distinguishes between ‘down-sizing’ and
‘right-sizing’: ‘Down-sizing’ is reducing fixed costs; ‘right-sizing’
is identifying the right number of people to conduct the right activities.
10
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
Whether costs are reduced by a directive or participatory approach,
a significant reduction is seen after the first few months of
implementation. The extent of the decrease depends on the objectives
that were set initially and on the freedom the management has to
implement the changes rapidly. In the medium.term, whatever method
is used, costs will begin to increase again; but when a participatory
method is used, this growth is usually slower. The repercussions on
costs of the directive and the participatory methods in the longer term
are shown in the figure.
One of the conditions for successful implementation of solutions for
reducing costs is that they be supported by the personnel. Ideally,
only superfluous activities are eliminated and the processes are
improved. The best way to do this is to involve professionals as much
as possible in finding solutions, since people who do a job daily are
in the best position to identify badly organized activities and
superfluous tasks.
In order to succeed in the long run, a cost reduction operation
involving any analytical technique should be based on the following
two principles:
■ use the skills of in-house personnel, and
■ critically analyze the activities, because activities consume most
resources (Johnson & Kaplan, 1988).
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
OBJECTIVES AND PRINCIPLES OF THE APPROACH
The objectives of the approach used in the Canton de Vaud can be
summarized in the points listed below.
Objectives
■ Reduce costs in the short and medium term.
■ Change the habits of all personnel with regard to
expenditure.
■ Develop participatory experience.
■ Develop the habit of a continuous search for quality,
showing the personnel that cost control and quality are not
always contradictory.
E Reveal as many hidden costs and functional deficiencies as
possible.
■ Rally personnel around common values and collective ob
jectives.
■ Reallocate resources to new projects.
Main steps
Each establishment, each department and each service is divided up
into analytical project teams consisting of 10-30 people in different
jobs (physicians, nurses, etc...) with homogeneous functions in the
production processes. The division into units should follow the
organizational structure of the enterprise as closely as possible.
On the basis of a well-defined methodology, the groups so constituted
and their managers analyze their activities and calculate the costs of
those activities. They then suggest ideas for cost cuttings that will
allow them to achieve the working target established at the beginning
of the approach.
The working target must be set above 20% in order to:
■ stimulate enough ideas to avoid linear reductions, and
■ incite the analytical project teams to examine their activities
critically.
In the Public Hospitals of the Canton de Vaud, the target set in the
idea-finding step was 22%, which was twice the objective of 1 1%
set by the hospital management.
The operation lasted slightly more than a year and can be separated
into six stages:
12
A PARTICIPATORY APPROACH TOR REDUCING COSTS IN THE PUULIC HOPITAI.S OF THE CANTON DE VAUD
HEALTH ECONOMICS
pre-diagnosis and adaptation of the method to the Public
Hospitals of the Canton de Vaud, during which time the target
was set and the main sources of savings were identified (two
months);
2. information and communication (one month);
3. an analytical step, during which the personnel described their
activities and calculated their costs (four months);
4. an idea generating step, in which the personnel analyzed their
activities critically and suggested ways of reducing expenses
(three months);
5. decision-making by the steering committee that directed the
project (the hospital management), which chose those ideas that
could be implemented without altering the quality of service
(one month); and
6. drawing up a plan for implementing the ideas that were chosen
(two months).
1.
Pre-diagnoala
pbaaa
Stop 0
(2 months)
THE APPROACH STEP BY STEP
Step 0: Pre-diagnosis
This step, lasting about two months, allowed the executive board to
adapt the method to the context of the Public Hospitals of the Canton
de Vaud:
■ by finalizing the division into analytical project teams;
E by designating people responsible for the structure of the project;
■ by preparing a social plan laying down the rules that would be
used with respect to human resources after the operation had
been accomplished; and
■ deciding on the means of communication that would be used
throughout the operation.
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
The potential savings were estimated on the basis of:
■ a comparative analysis of the costs and lengths of stay in several
hospitals in Switzerland and abroad, and
■ an analysis of the main functional deficiencies in the organization
of the Public Hospitals of the Canton de Vaud.
After the pre-diagnosis, the target for reduction was negotiated with
the Government.
Step 1: Training in the method and communication
The training phase had two objectives:
■ to inform each establishment about the initiation of the operation,
and
■ to model the structure of the project to fit the method.
Informing each area about the initiation of the operation
The approach included many information sessions. So that the com
munication aids would be identifiable, the operation was given a
name, orCHidee7. As part of the approach, a newsletter bearing the
name of the operation was written by a professional journalist and
published at the end of each step.
The first information sessions took place at the end of the pre
diagnosis step. During these sessions, the management presented the
principle of the method to the personnel and outlined the social plan,
in which the management undertook to make no one redundant for
economic reasons on the condition that the personnel participated in
finding ways to make savings.
This undertaking was presented to the personnel in the form of two
contracts: a social contract and an economic contract.
The social contract included undertakings:
■ to make no one redundant for economic reasons: positions
would be eliminated by natural wastage;
■ on the part of all concerned to participate actively in the project
and to adapt to the proposed changes;
■ on the part of the hierarchy to take into consideration all sug
gestions for savings; and
■ to maintain or improve the quality of services.
The economic contract included undertakings:
T The fl rsl syllabic is worth its weight in savings: the second syllable represents a hospital centre (centre hospitaller) in Switzerland; the thiid
syllable is fill I of imagination: and the whole is a noble flower of quality, which reflects the objective of the project.
I4
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
■ on the part of the Public Hospitals of the Canton de Vaud to
economize 11% over three years;
□ on the part of the Government of the Canton to redistribute 4%
for development; and
□ on the part of the Government of the Canton to release the
Public Hospitals of the Canton de Vaud from all budgetary
pressure for three years and to apply the decisions taken about
the indexing of salaries to Government employees and Hospital
employees as well.
Modelling the structure of the project to fit the method
In order to carry through successfully an operation that involves more
than 6000 people, training has to be extremely rigorous. The project
had therefore to be given a structure that fits both the method and
the organization.
Bases for management and leading team techniques had to be taught
to every person having a team responsibility in the project. Mana
gement techniques are often not very developed within health pro
fessions. In order to ensure the continuity of the operation, as many
as possible of the responsible team project leaders were personnel
with management responsibilities.
The Public Hospitals of the Canton de Vaud were divided up into
260 analytical project teams, each of which was led by a person who
worked one-half day per week during the activity analysis and idea
finding steps. The teams were coordinated at the level of each sector
(such as medicine, laboratories and surgery) by 19 organizers working
30% of the lime.
Four project heads were nominated: a doctor working full-time for
the general university hospital, a doctor working half-time and one
nursing manager working half-time for the three psychiatric sectors
and one administration manager working half-time for the other
institutions (schools, establishments, the spa and the Public Hospitals
of the Canton de Vaud management).
Nearly 300 people were trained in the approach during step 1.
Step 2: Analysis of activities and costs
In the step for analysis of activities and costs, the activity, organization
and expenditure of each analytical unit was identified. This provided
the working basis for the idea-finding step. In four months, the units:
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITAI.S OF THE CANTON DE VAUD
15
HEALTH ECONOMICS
■ redrew their organizational charts;
■ defined their main missions;
■ drew up a list of the activities associated with each mission;
□ estimated the time spent for each activity;
□ drew up a list of their equipment;
□ listed other expenditures associated with each activity; and
□ totaled the costs per activity.
Each of the hospital sectors diagnosed their expenditures by an
exhaustive economic analysis of each activity. Few hospitals in the
world today have such a complete database on their running costs;
the Public Hospitals of the Canton de Vaud have information on, for
example:
□ the costs of out-patient activities;
EJ the proportion of the budget allocated for research;
□ the time spent on direct and on indirect care;
■ the number of hours spent at symposia; and
■ the cost of drawing up the annual budget.
Step 3: Analysis of the activity and search for improvements
The analytical step (step 2) provided support to identify cost
containment projects. It also indicated which activities were the most
expensive and facilitated the job of analytical project teams.
Step 3 was very closely structured. Each analytical unit had to:
■ classify its activities in terms of resources used;
■ identify all of the tasks and/or activities that could be
reduced or eliminated without affecting quality;
■ make a list of possible ideas for improvements;
■ extend the ideas beyond the target (22% v.s. 11% fixed by
the hospital management); and
■ valorize the savings, by referring to the documents
emanating from step 2.
Each analytical unit had to examine its activities and its organization
closely, asking two kinds of questions:
■ Can we change the needs? Is there a task or an activity that
could be eliminated, varied or simplified?
■ Can we change the processes? Can this activity be carried
out differently, for instance by automating, changing or
subcontracting it?
Each idea had to be described clearly, commented upon and evaluated.
For each idea, the analytical project team calculated the amount of
savings that could be made in:
16
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITA1.S OF THE CANTON DE VAUD
HEALTH ECONOMICS
H personnel hours by professional category;
■ consumption of medical and non-medical goods; and
□ the necessary investments, counted as depreciation.
This systematic evaluation of ideas for savings provided ‘on line’
information about the results of the cost containements. It also provided
some management training for the personnel.
Step 4: Analysis of risks and choice of ideas
The steering committees in each institution then set about choosing
the ideas. The committees comprised the management of the insti
tution and the physicians, heads of each department.
The procedure for choosing ideas was organized so as to facilitate
the work of the steering committees, which had to meet for many
hours in order to consider each of the ideas. At the university hospital,
about 50 hours of meetings were needed to judge all of the ideas
proposed. Some of them posed no problem, but others had to be
discussed at great length with regard to the maintenance of quality
or to their feasibility.
Each idea formulated by the analytical project teams was documented
so that it could be commented upon by those responsible for it, the
group leaders, the heads of the project and the unit chiefs. All of these
people had to give a favorable or unfavorable opinion, followed by
a brief commentary.
We consider that maintenance of quality was ensured by this ‘filtering’
of ideas in a systematic process of opinion gathering by professionals
involved in the establishments and the management.
In order to prepare themselves for the decision-making sessions, mem
bers of the steering committees received several days before the meet
ing a list of the ideas to be considered. If a conflict arose during a dis
cussion about an idea, the director of the institution made the final deci
sion.
Step 5: Implementation and conduct of projects
Once the decisions had been taken by the steering committees, a
calendar for implementation was drawn up by the project manage
ment, in collaboration with the management. In particular, the ma
nagement of human resources had to estimate how many natural
wastages there would be, in order to adjust the implementation plan
to savings in personnel.
Each service had to approve the plan for implementation of the
A PARTICIPATORY APPROACH EOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
17
HEALTH ECONOMICS
proposed savings. A management accounting unit was created at the
Public Hospitals of the Canton de Vaud to evaluate the budgetary
situation and the overall realization of savings. Each director had a
plan on which he could follow changes made in his sector. The plan
contained:
E the usual budgetary information.
□ changes in personnel, and
□ indicators of the level of activity.
RESULTS OBTAINED
Results obtained in the Public Hospitals of the Canton de Vaud
The decision-making step ended in January 1994. The implementation
plans were approved by the management between May and June
1994. A consensus was reached with regard to the objective (11%
savings over three years), which may be exceeded.
Apart from the ideas that were proposed, which will allow the Public
Hospitals of the Canton de Vaud to decrease their running costs by
11 % over three years, the project had certain other effects, which
reflect a new awareness of costs. For the same activity, the main
direct costs linked to the patient stay decreased significantly within
six months. These were mainly requests for laboratory tests and use
of linen, medical goods and drugs.
The total savings proposed represent 19.7% of the annual running
costs of the Public Hospitals of the Canton de Vaud. Of the proposals,
11.5% were accepted by the steering committees, 2.2% were accepted
in principle but considered to require supplementary studies (mostly
widespread restructuring of services), and 6% were refused. The
potential savings are thus 13.7%.
The total amount of savings accepted differs widely from one service
to another, for two reasons:
■ the ideas proposed by the analytical project teams were not of
the same degree of feasibility, and
■ the steering committees made a non-linear choice in order to
respect the criterion that the quality of services be maintained.
The table below gives an overview of the results obtained in each
sector, in percent savings with respect to the cost of the sector. The
distribution of savings that were accepted by type of cost is similar
to the structure of the budget. At the university hospital in particular,
18
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
the personnel represent 73.2% of costs and the proposed cost
containments linked to personnel reduction represent 73.7% of total
savings.
Recapitulation of results by sector
SECTEUR
Budgetary
No of ideas
Proposed
Potential
Refused
proposed
(2)
savings
(3)
Accepted
savings
(4)
Savings
weight
(h
understudy
(5)
savings
(6)=(4)+(5)
savings
(7)=(3)-(6)
Medicine
1720%
195
14.80%
9.90%
1.10%
11.00%
3.80%
Mother-child'
950%
161
20.10%
11.60%
0.10%
11.70%
640%
Surgery
1150%
107
19.70%
1270%
3.90%
1660%
110%
Ancillary”
17.40%
242
17.60%
670%
5.90%
14.60%
290%
Other-
1670%
330
2150%
17.10%
050%
1750%
190%
University Hospital
7260%
1035
1850%
1190%
250%
14.40%
4.10%
Schools
310%
£
18.10%
4.70%
1150%
1620%
190%
Research insttilules
3.80%
142
25.60%
10.70%
0.10%
10.80%
14.90%
Spa
270%
ffi
2250%
1250%
0.00%
1250%
9.90%
Psychiatric sectors
1650%
354
2340%
1020%
0.30%
1050%
1290%
Administratin of the board
1.30%
70
2350%
19.00%
0.00%
19.00%
4.40%
HOSPICES
100%
1752
19.70%
1150%
220%
1370%
600%
* Gynecology, obstetrics and pediatrics
•• Radiology, laboratories, medical support, polyclinics and operating theatre unit
••• Hotels, administration, logistics, technical sectors
An
example
from
Sweden
About two years before the operation was undertaken at the Public
Hospitals of the Canton de Vaud, a similar approach was used in
Sweden, in the health institutions of Nacka District, near Stockholm.
The management of the Public Hospitals of the Canton de Vaud
analyzed the results obtained there before deciding to use this method
for their own aims.
The health network in Nacka comprises a general hospital, a psychiatric
hospital, three geriatric hospitals and 14 primary health centres, with
a total of 1045 beds and 4000 employees and a budget of 600 million
Swedish crowns.
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC IIOPITALS OF THE CANTON DE VAUD
19
HEALTH ECONOMICS
During the examination step, 4000 ideas were proposed and 1200 were
accepted. The savings were about 9%, some of which was reallocated
to new projects.
SEVERAL EXAMPLES OF IDEAS USED
A list of ideas is not really useful, as they are often linked to the
organization of work in an establishment. The 1752 ideas proposed
by the analytical project teams had widely different dimensions and
aims, ranging from small savings on goods to widespread restructuring
of processes.
The three types of production efficiency described by Newbrander,
Barnum and Kutzin in (Newbrander et al. (1992)) are present in the
ideas for savings that were proposed:
■ technical efficiency,
□ economic efficiency, and
■ efficiency of scale.
The ideas related principally to the following areas:
■ organization of daily work;
■ transfer of responsibility to other occupational categories;
■ automation of tasks;
■ widespread restructuring of services or activities;
■ reductions in medical prescriptions (e.g. radiology, laboratories,
drugs and physiotherapy);
■ reduction in length of stay and transfer to out-patient status;
■ improved handling of patients and reductions in waiting time;
■ improved cooperation with other care structures; and
■ small savings on goods
■ others.
PROBLEMS ENCOUNTERED
Poor participation of the medical profession
It is difficult to obtain cooperation from the medical profession. The
poor participation of doctors in certain services appeared to be
associated with a fear of speaking in front of the medical hierarchy.
Making personnel understand the approach
We found it difficult to persuade the personnel that the operation was
not an audit and that the results had not been decided in advance.
We had constantly to remind them of the stipulations of the social
20
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC IIOPITALS OP THE CANTON DE VAUD
HEALTH ECONOMICS
plan, in order to overcome their fear of being made redundant. Some
services, such as the logistics and technical services, were worried
that they would be eliminated and their activities taken over by
subcontractors.
The personnel found it difficult to understand that activities and costs
had to be analyzed to provide a solid basis for undertaking the idea
finding step. The analytical project teams found this step very tedious
and had difficulty in understanding its objective. Nevertheless, they
filled in the forms given them for calculating costs by activity very
conscientiously, sometimes even in too much detail.
Applying benchmarking methods in the hospital
Comparing hospitals by bench-marking techniques is very difficult.
Even within one country, data on activities and finances are often
based on different definitions. The various methods that we
encountered of counting items as elementary as the number of pa
tients or the number of days led to differences of two days in the
mean length of stay for similar case-mixes. Often, some of the costs
of public hospitals are accounted for by another State service; these
include, for example, depreciation of buildings and equipment,
financial costs and insurance.
Benchmarking should be applied with caution in the hospital setting;
however, it helps in identifying areas for improvement and facilitates
critical examination11.
Health information systems are still inadequate for making precise
comparisons. In a sector of the economy in which ‘yardstick
competition’ appears to be an efficient means for improving perfor
mance, however, it is important that this kind of technique be
developed, particularly in hospitals (Schleifer, 1985).
Having a good information system
The lack of a good information system is a handicap in implementing
a cost reduction operation. In order to calculate costs by analytical
project team, one must be able to calculate costs by cost centre. Like
many hospitals, the Public Hospitals of the Canton de Vaud have
incomplete management accounting, and it is difficult to attribute
certain expenses to a particular service. An information system that
** Benchmarking in the area of health is the subject of a special issucof ^Jnunuih/fQiuilirylmpmvenu’ni. May 1994 “Benchmarking in health
care: models for improvement"
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
l°“_0513E
21
HEALTH ECONOMICS
provides a case-mix index would be a useful tool for tracking changes
in certain clinical expenditures, for categorizing ideas that challenge
treatments and for measuring activities precisely during the three years
in which the economic measures are to be implemented.
The gaps in the information system were often used by the personnel
of the Public Hospitals of the Canton de Vaud to contest the validity
of the results obtained, even though the highly structured work carried
out by the analytical project teams made it possible to calculate costs
by activity fairly precisely. Once the work had been done, some heads
of services admitted that the effort had helped them to understand the
structure of their costs better. This shows that in the absence of a
completely computerized information system an occasional study of
the structure of expenditures can be very useful for hospital
administrators.
The development of an information system centred around the patient
is a useful strategy for hospitals which are under pressure from
supervisory institutions to manage their expenditures more and more
closely. Patient-targeted hospital information systems are being
developed everywhere, although they are still deficient in many hospitals.
The work done by the analytical project teams was found to be an
excellent working basis for streamlining the system of resource
allocation and management reporting.
Looking for cost containment was slower than expected
The step in which questions were asked and ideas sought went much
more slowly than had been predicted, since the analytical project teams
systematically sought a consensus on the ideas that were brought up.
This step delayed the planning of the project by about one month; at
the end of November, the Public Hospitals of the Canton de Vaud had
achieved only 19.7% savings, whereas the working target had been
fixed at 22%. It is interesting to note that consensus was not sought
at the hospital in Nacka, Sweden, where this step resulted in a large
number of ideas. A cultural phenomenon may be involved. The choice
of ideas was, however, facilitated in Switzerland, as most of them were
highly feasible.
CONDITIONS FOR SUCCESS
On the basis of the experiments carried out in the two countries, we
consider that the principal conditions for the success of a cost reduction
operation in the hospital are the following:
22
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC IIOPITALS OP THE CANTON DE VAUD
HEALTH ECONOMICS
The support of the hospital management
The support of the hospital management throughout the operation is
essential. A study carried out by McKinsey (All et al., 1993) on 100
US companies that had undertaken to reduce costs shows that achieving
the stated objectives is strongly linked to the commitment of the
management during and after the operation.
The organizers of such a project will find it difficult to maintain
pressure on the analytical project teams without the support of the
management. The general management should help the project heads
to accomplish their mission by making the hierarchy, and particularly
unit chiefs, aware of their responsibilities with regard to reducing
costs.
The organization of the project
The approach must be organized meticulously: the more participatory
the project is, that is, the more people are involved, the more rigorous
must be the methodological tools and the organization (Harrington,
1993).
The choice of project heads
The management of the project must be well chosen. Those responsible
for running the project often have to deal with difficult situations and
spend a great deal of time in persuasion (Carr, 1993). They must
therefore be capable of leading a team, ensuring that such a large
project advances and be prepared to involve themselves in the cost
reduction project.
Training
The management of the project must know how to use the
methodological tools perfectly and must be trained to lead meetings
and have an overall view of the approach. Training sessions should
provide all of the tools necessary for the mission to succeed.
Communication
A communication plan should cover the entire operation. The per
sonnel should be informed progressively of the progress of the project.
Many information sessions should be organized and written informa
tion distributed regularly. Unions, especially in countries where they
are powerful, should be kept informed from the very beginning of
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
23
HEALTH ECONOMICS
the operation. Information is essential in a project of this size; misleading
information can favor the propagation of rumours, which can rapidly
become destabilizing.
A newsletter entitled OrCHidee, written by a professional journalist,
was published in Lausanne and distributed to all of the personnel at
the end of each step. Weekly meetings at all levels of the management
of the project facilitated the dissemination of information and decision
making.
Involvement of the hierarchy
The hierarchy must be involved from the beginning. In the hospital,
participation of unit chiefs is essential. Especially during the step in
which ideas are sought for savings, they should facilitate teamwork
and overcome the fear of speaking in front of the medical hierarchy.
Clear directives from the management
The personnel must be made to understand why cost reduction is
necessary. A social plan that clearly lays down the rules that will be
adopted with regard to the downsizing must be presented to the
personnel at the beginning.
In the orCHidee approach, the State gave the Public Hospitals of the
Canton de Vaud three years to make the necessary reductions. This
time allowed the management of the Public Hospitals of the Canton
de Vaud to commit themselves vis-a-vis the personnel to make no
one redundant for economic reasons and to eliminate only those posts
that became vacant owing to natural wastages. This solution facilitated
the step of finding ideas for savings, by partially eliminating the fear
of proposing ideas that might result in loss of their own job.
PROSPECTS FOR USE
To what extent could similar methods be developed elsewhere? The
experience in Lausanne shows that cost reduction can be achieved
in a large hospital. In developed countries, many public hospitals are
probably the source of large potential savings.
Newbrander et al. (1992), who cite various studies carried out by
WHO, report that many developing countries have realized that one
of their most pressing needs is better management of hospital resources.
We consider that, in the hospital, an approach based on an analysis
of activities, calculation of costs by activity and critical examination
24
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
HEALTH ECONOMICS
of processes by professionals will identify the principal functional
deficiencies. The success of an approach like that used in the Canton
de Vaud depends on the ability of the authorities to put ideas into
practice. Measures to achieve savings in hospitals are unpopular, and
administrative regulations do not always give management the necessary
leeway to take decisions.
CONCLUSION
Bad hospital management leads to waste of resources that could be
better used in improving the primary care network, either by improving
the quality of care given at hospital or by allocating the resources to
other sectors of the economy.
“By reducing or eliminating numerous functional deficiencies, by
making savings wherever possible and by then investing part of the
sums saved in new projects, the institutions of the Public Hospitals of
the Canton de Vaud will have demonstrated their vitality.”9
Operation orCHidee is a continuous process. It is a timely search for
quality and efficiency and has already changed certain behavioral
patterns.
Use of this participatory method meant that the personnel did not
suddenly find themselves in a situation in which they had to apply
measures for savings that were imposed from outside. This solution
is particularly well adapted to the world of health, where a gap can
rapidly be created between qualified professionals, who know their
area and how it is changing, and an administration that focuses on
management and must face the problems involved in allocating
resources.
Not all of the ideas will be implemented immediately. As agreed with
the Government, they will be instituted over three years. The most
complex ideas have until the end of 1996 to become fact.
Most of the ideas that were accepted are still to be put into practice.
In view of the fact that many jobs will be superseded and profound
changes are to be made in working methods, their introduction will
not be easy. We consider, however, that the approach has been successful
and that the principal objectives set at the beginning have been attained
or even exceeded.
9 Charles Kleiber. Director-General of the Public Hospitals, in his introduction to the final report of operation orCHidee submitted to the personncl of the Public Hospitals of the Canton de Vaud.
A PARTICIPATORY APPROACH FOR REDUCING COSTS IN THE PUBLIC HOPITALS OF THE CANTON DE VAUD
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HEALTH ECONOMICS
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