Controlling Medical Costs by Knowing the Purpose of a Hospital

On Friday we discussed Rudy Giulian’s point that leadership involves applying a well-thought-out set of beliefs to the real world. Then we gave education as one example. Health care is another good example that Giuliani gives, also from his book Leadership:

I practiced the same discipline in examining the purpose of New York City’s hospitals — asking why they existed. In most cities, about 5 percent of hospital beds at most were operated by the municipality. In New York, the number was 20 to 25 percent. That was one of the reasons health-care spending averaged about $4,720 per person annually in New York, compared to about $3,77 in the rest of the country.

The hospitals were supposed to be about caring for the sick and curing the ill. Unfortunately, the politically powerful union that represented hospital workers thought the purpose of the enterprise was to employ as many people as possible. They didn’t want a system in which the best nurse got a bigger raise than the worst. Increased productivity from the best performers might result in someone noticing the worst employees weren’t carrying their weight.

The system had so many people working in it that I was able to reduce the workforce by 12,000 yet still increase performance. We had some hospitals with 20 percent more employees than needed. In the most ironic form of featherbedding, people were literally taking care of empty beds.

I went back to core purpose, and by concentrating on patient care, every measure we took helped performance — from finishing the year in the black over the last three years of my administration (after years of routine deficits), to full accreditation for all facilities, to cutting the waiting time for prenatal care in half.

Assigning too many people to a task significantly reduces the quality of performance. It’s tempting to think, “There’s no harm in having more than we need” — but staff hanging around uselessly encourages others to do likewise.

Oversupplying personnel is of course supported anywhere with a heavy union presence, but this is not a benign thing. Would it be benign to add several more surgeons to an operation? Or pilots to a cockpit? Any system functions best when the right number of staff is used, and any exces money can be employed to rebuild the business and reward high performers. Further, a surplus of labor makes it much more difficult for the hard workers. Their performance either deteriorates, or they leave.

As with the school system, the hospitals had many excellent, hard-working employees. But the purpose of the hospital system as it stood was not to provide jobs and job protection, but to provide health care. Understanding that mindset and establishing my own decidedly different viewpoint were critical to future dealings with teh system and its union leaders.

  • Noel

    What’s brought hospitals to mind? Just wondering.

  • Matt

    I’m interested in health care in general because I think there are some good solutions that should be tried, so it’s always coming to mind now and then. But also my two recent encounters with a hospital have made this especially relevant–when Joseph was born in Nov, and then this last Saturday night when I broke my nose!

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