Blueberry water?

Is there something they teach in hotel school that suggests that having unusual water in conference rooms is good for business?

In a previous post, I noted the silliness of importing bottled water from 8000 miles away to serve in conference rooms. Today I saw water served in lovely carafes, with blueberries at the bottom.

Blueberries?

Well, perhaps someone thinks that because they are the number one fruit when it comes to antioxidants, putting them in the bottom of a bottle will persuade people to have conferences in their hotel. But I think that's stretching things a bit.

In our group, the first question was, "Do you think they washed them?" The second question was, "Do you think they are real?" Then, "Can you taste them at all?" Answer: No.

Maybe lemons are just passé.

Fishbones

To follow up on yesterday's post about the CC6 Lean team, I had a few minutes today to drop by just as the group was getting engaged in fishbone diagrams. These are used to brainstorm in more detail the nature of major problems, looking at their components and then asking the "five why's" to conduct a root cause analysis.

As I walked into the room during a break, a couple of people mentioned to me that the morning session had been a lot tougher, emotionally, than yesterday's current state analysis. This is a common stage in the Lean process. It is relatively easy to map out the current state. When you start talking about why it exists, it is hard not to blame someone else in the room or someone who is not in the room. "If [name] only did this differently, we could solve the problem," is the common refrain I have seen in other rapid improvement events.

But, the idea of Lean is to focus on the problem and not the person. This is not about blame. It is about a workplace environment that has evolved over the years -- full of work-arounds and inefficiency and waste. By the time I left, the group was again smiling a bit more and collaborating on how to analyze the situation. Later, they will invent countermeasures to help undo the waste, setting goals and targets and timelines for the next steps.

Here is a short video about fishbones to give you a sense of the concept and how it progresses. Jenine Davignon from our business transformation group is leading the class. If you can't view the video, click here.

Wow, they work hard!

The roll-out of Lean at BIDMC continues throughout the hospital. A current project is to redesign the work flow on "CC6," one of our busiest medical/surgical floors. Although the staff has been working on this for several months, it can be difficult to find time during the workday to make improvements when nurses, patient care technicians, and others have full patient assignments. So, this week, we have taken two days aside for an improvement event, during which the staff will have dedicated time to look at their processes and experiment with improvements.

I dropped by for a short time today to watch people outline the "current state" of their work flow. A person in each job category prepared a step-by-step itemization of their daily routine. I offer a videotape of sections of this below. In order, you will see Stacey Adamson, physical therapist; Dawn Castro, resource nurse; Mike Crowley, unit assistant; and Laurie Phillips, case manager. You will also briefly see Jenine Davignon, a management engineer from our Business Transformation office, and Allison Wang, a college co-op student in that office. And finally Oscar Juarez and Sandra Espinosa, being reminded to post lunch breaks as part of a busy day in the work flow of a patient care technician.

I was impressed by the complexity of each person's job. I also began to see, as they presented their daily work, opportunities for reducing waste and improving the work environment and patient care. The team will undoubtedly find many more of those opportunities during this two-day session. If I can drop by tomorrow, I will report back to you.

If you cannot see the video, click here.

NH leads the way in New England

Our hospital neighbors to the north in New Hampshire have just taken a decisive step that presents a healthy challenge to the so-called "medical Mecca" in Massachusetts. Steve Ahnen at the New Hampshire Hospital Association writes to say:

Yesterday, we launched our initiative to eliminate harm in New Hampshire's hospitals by the year 2015. While we are proposing to eliminate all harm, our efforts will be clearly focused on those instances of harm that could be prevented if all of the evidence based practices had been followed that are known to prevent that harm.

This is such a terrific effort. It is putting a stake in the ground for our hospitals and they are excited and ready to move forward. We have lots to learn and hope to share that learning as we go.

You can find a copy of the press release here. Excerpts:

CONCORD – In a new effort to promote better and safer care to patients, the New Hampshire Hospital Association and Foundation for Healthy Communities have announced that hospitals across the state will strive to eliminate harm to patients by 2015. To accomplish this goal, hospitals will work together to consistently follow the processes of care that have been proven to increase patient safety.

“Hospitals in our state have made great strides in making improvements to quality of care,” said Steve Ahnen, president of the New Hampshire Hospital Association. “With this initiative, we’ll continue that work with an even more ambitious purpose and timeline.”

While there are no uniformly accepted definitions, “harm” in the Eliminate Harm Initiative refers to an injury associated with medical care that requires or prolongs hospitalization and/or results in permanent disability or death.

. . . Greg Walker, chairman of the Foundation for Healthy Communities and CEO of Wentworth-Douglass Hospital in Dover, said, “The boards of trustees of both the New Hampshire Hospital Association and Foundation for Healthy Communities unanimously passed a resolution to make this happen, and the CEOs of all 26 acute care hospitals are ready.”

A statewide steering committee will spearhead the N.H. Eliminate Harm Initiative and identify which aspects of harm hospitals will be targeted for elimination. Several hospitals are represented on that committee. Hospitals in New Hampshire already have been working for several years on improving patient care, including efforts to decrease infection rates through a campaign to promote hand washing among health care providers. Hospitals also are decreasing harm in the operating room by using a patient safety checklist before and during all procedures. Hospitals receive guidelines and tools that are used statewide to help them measure their progress.

“Our hospitals are poised to deliver the best health care in the country,” said Bruce King, immediate past chair of the NHHA board of trustees and CEO of New London Hospital. “The residents of New Hampshire are counting on us.”

Careful how you say this

As I was waiting to teach the second half of a Boston University MBA class (HM710, here) last night, I heard a student near the end of the first half saying that doctors would never focus on quality and efficiency improvements until the fee-for-service payment system ended and was replaced with a global, or capitated, payment system.

This, of course, is not so. You can look at our record and that of many hospitals to see dramatic improvements in quality and enhancements in efficiency under a fee-for-service payment system.

Our experience is that finances and methods of payments are not highly motivational to health care providers in the hospital setting. Instead, people are motivated by a genuine desire to improve the quality and safety of health care delivery. The problem is often a lack of knowledge of process improvement, requiring some training and encouragement from clinical leaders. Fortunately, once learned, there is a virtuous cycle between those activities and efficiency and cost-effectiveness.

So, while capitation may have important attributes, let's be careful not to underestimate the good intentions and ability of doctors and nurses to achieve worthwhile things under other payment regimes.

Accelerated Depreciation

The acquisition of the Caritas Christi hospital system by the Cerberus private equity company continues to generate press here in Boston, and well it should given the size and importance of the transaction. Indeed the Boston Globe has a special section on this, which is updated as it publishes stories and editorials.

As I have noted before, the purchase has a lot to recommend it (including stability of pension funds, investment in under-capitalized hospitals, and tax revenues to municipalities and the state), but it also raises challenging public policy issues that the Attorney General, DPH, and the Court have to address. I have been trying here to outline some of those based on what I have learned about this issue.

Many of my colleagues in the non-profit hospital world have expressed confusion about how such a transaction is possible in a world of decreasing reimbursements, where even non-profits have trouble achieving a positive bottom line. I provided a general perspective here, and in a post below, I talk about how the use of a non-cash expense, depreciation, can provide a financial return to investors.

After I wrote that post, a colleague in the finance world wrote to say that there is another aspect of depreciation that I had neglected to mention that produces additional cash flow to the private equity firm. This is a financial tool that provides no benefit to tax-exempt hospitals, and so I again present it for the benefit of my non-profit colleagues and other interested readers. (Not being an accountant, I cannot claim expertise on all these matters: I trust CPAs reading this will correct any errors I make.)

Under the US tax code, firms can use accelerated depreciation for tax purposes. What does this mean and why is it helpful? Why does it give the private equity firm an additional incentive to dispose of property more quickly?

Let's say that you have acquired $10,000 dollars of furniture, which you plan to depreciate over its useful life. If that useful life is 10 years, you would take an accounting expense for 1/10 of the furniture's cost each year, or $1,000. (This assumes no salvage value at the end of the useful life.)

Under accelerated depreciation, for tax purposes, you get to write off more of the asset's value in the early years. In year one, for example, you could claim an expense of $1429.

Now, you obviously can't do this on your taxes for the entire useful life, as you would end up expensing more than the value of the asset. Indeed, in the later years, the tax depreciation expense has to slow down (see chart).


So what does this mean? This goes back to the request of some competing hospitals to the AG that would require Cerberus to hold on to the Caritas Christi assets for seven years, as opposed to the three years to which Cerberus has committed. If the firm has to hold on to its assets for a longer period, it starts to lose the advantages of accelerated depreciation. It is to its financial advantage to dispose of assets more quickly. That seems to be a simple (and perfectly legal) result of the US tax system.

By the way, the next firm to purchase the assets gets to do the same, all over again -- using the new purchase price as the basis for the original cost of the assets.

On that point, maybe someone out there can advise on one last item: What cost basis can Cerberus use for the assets it seeks to depreciate? I do not believe that the firm is actually making a cash payment to someone to acquire the hospitals. After all, the Archdiocese is not an "owner" in the financial sense, like a shareholder would be, since this is a non-profit corporation. It cannot receive funds from a purchase that could then be used for other functions of the Church. As best I understand, Cerberus is making cash commitments -- e.g., for pensions and capital investment -- to the hospital system in return for ownership, but I think that is different from making an asset purchase.

So once Cerberus owns the Caritas hospitals and their associated medical equipment, computer systems, furniture and other capital assets, are the assets valued at their original cost, or can the private equity firm re-value them at replacement cost? Clearly, that will make a difference in the potential to generate cash flow through depreciation. If you know the answer, please provide a comment.

2010 Hub on Wheels

I'm just back from the Hub on Wheels, where BIDMC staff volunteered their time to provide emergency medical services to the thousands of riders traversing Boston on a beautiful fall day.