Reducing costs while increasing value

Except for maybe start-up technology companies, there isn’t an IT department anywhere that has an open checkbook. In health care, we know all too well the need to manage costs while answering what seems to be an insatiable demand for technology solutions. CIOs need to understand the technical debt of a large application portfolio and the total cost of ownership (TCO) for systems. They need to find ways to reduce the cost of commodity services, and to create capacity for new work.

At UMHS, we have an initiative called Value and Margin Improvement, or VMI.  The VMI program is a multi-year effort across the health system.  UMHS leadership launched VMI to help achieve our financial stewardship goals by empowering collaborative teams to design and implement sustainable improvements that enhance value and financial results.

VMI aims at reducing duplication, inefficiencies and non-value added work in order to more effectively manage our costs, improve the value we provide and increase our margin.  A positive operating margin allows us to invest in the future and better serve our patients, referring physicians, students, the research community, and other key stakeholders.

VMI projects take a balanced approach to improve and sustain overall value while still maintaining the desired safety, quality, service delivery, and employee engagement metrics. The program promotes the use of lean methodologies and collaborates with our central lean team, the Michigan Quality System (MQS).

We are systematically moving through different areas of the health system with VMI.  Support services were the first area of focus and currently both Finance and IT are going through it.

The VMI IT initiative kicked off in May. The scope of the effort is enterprise-wide. It includes not only my IT department which supports clinical care operations, but also the medical school IT group and the departmental IT groups such as those in Pathology and Radiology.

We have a document summarizing our current state and opportunities for improvement are being identified. It’s tempting to look at the summary and to start making excuses or questioning the data and the benchmarks. But that would be counter-productive. Instead, we need to embrace this analysis and start focusing on the greatest opportunities for improvement.

As part of this process, we will have a “blue sky” visioning session this week with senior leaders throughout the health system. We will look broadly at health care trends and account for them in our improvement efforts. Next week we will spend 2 days in pragmatic visioning sessions with health system IT leaders looking at the specific opportunities and deciding where to focus.

We started our VMI IT initiative with three broad groupings – infrastructure, application rationalization and service delivery. The current state document shows multiple opportunities in each of these areas.  Some are “quick wins” such as a short list of applications that can be retired, or the unused pagers we’re paying for.

Without proper standards and processes, large complex organizations can evolve in uncontrolled ways that increase costs.  Variation becomes the norm instead of the exception. As leaders, it is our responsibility to establish those standards and processes to manage that growth.

I am confident that what comes from this VMI effort will be in the best interests of the organization. We are faced with a seemingly endless demand for IT solutions and services. To meet this demand and support the strategic goals of UMHS, we need to make sure we are working on the highest priorities, working as efficiently as possible and creating capacity for new work. We need new ways to leverage technology to support our tri-partite mission of clinical care, research and education.

When I re-organized the IT department two years ago, my goals were to reduce duplication, consolidate similar functions, and create capacity. Our ongoing lean efforts have been aimed at identifying and reducing waste and non-value added work. The VMI IT initiative is yet another way to further these efforts.

7 thoughts on “Reducing costs while increasing value

    • Sue Schade on said:

      Ron, thanks for sharing this link — saw the article earlier this week and know the CIO there very well – Jim Turnbull. They are doing some very good work that we can all learn from.

  1. Sherry Mason on said:

    This is an exciting and timely effort. I anticipate seeing greater efficiency and cost-savings as we evolve and change our mental models, and I’m happy to participate!

    • Sue Schade on said:

      Sherry, thanks for your support and interest in helping. Don’t know yet what teams we’ll be forming or who we’ll need to involve. More specific communications to all IT staff once we have that info.

  2. Joseph Condurso on said:

    Hi Sue, Great post. Enlightened by the use of the term “technical debt” from an economic value creation perspective. And, the portfolio allocation from commodity optimization in order to create new value. Particularly under innovative change in: healthcare services w/ risk economics; and, in applications development and technology. My question is, could you provide insight on how you, or other CIOs, look at ROI in addition to TCO. And, if TCO, in your view, should include the ROI calculus? As we focus on patient safety (eliminate harm), reduce waste and improve productivity we are challenged with uncovering organization data with transparency, in order to show underlying value created by service enabled technologies. I believe there is room, if we can get there, for performance based contracting. Thank you for your reply. Joe

    • Sue Schade on said:

      Joe, thanks for the comment. Don’t think you need to include the full ROI in the core TCO. Key is that you know the out year costs — too much focus on just the one-time costs with system investments and not accounting for operating budget impact. I agree, performance based contracting or risk sharing is something we should explore with more vendor agreements.

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