Systems Thinking and the Health Care System

Originally Published as a Converge Newsletter for Operational Excellence (OpX)

In response to the demand for pieces referenced in The Decline of Health Services in Alberta, we have republished this article from 2004.


Health care, like other industries, is seeking ways to improve efficiency and effectiveness. In Canada, this has taken on a new urgency with the government elect having run on a platform of improving waiting times. In mid September, senior government leaders from the federal and provincial governments met to discuss how best to accomplish this goal. The focus of these sessions was predictable. High health care costs were branded the culprits and the need for additional funding the solution. In the United States, health care issues also abound, especially concerning the cost of providing improved access as well as the spiraling cost of health insurance. The bottom line — in both nations we have a cost issue.

Cost is a function of the way we have organized the work, that is the way in which health care is delivered. The work in both countries is organized and delivered in largely the same way. This may sound surprising. Americans may be familiar with Canada’s ‘socialized’ approach to medicine providing universal access to health care at no or little cost (forgetting for the moment the tax dollars that pay for it). Similarly, Canadians have heard of the American private or free enterprise approach to health care where health insurance is provided from a variety of sources including employers, government programs and private insurers. How can two such obviously different systems, one ‘socialized’ and one ‘free enterprise’ be said to be the same?

While the method of funding health care may be different, the way in which health care is actually delivered to a customer (patient) is the same. In other words, the way in which the work is organized is essentially identical. Any citizen travelling from one country to the other would see structures, organizations and work flows that are indistinguishable from their home country. Hospitals clinics and doctors offices all operate pretty much the same way. Show up in a hospital emergency department and you will see the same registration desks, the same line-ups, the same triage procedures. You would see nurses and doctors and interns and specialists all with the same training and all practicing the same procedures. The equipment would be the same, the work processes — even the color of the walls would be familiar. The way in which work is done is the same no matter where you go in Canada or the United States.

Critics of the American system point to Canada as a model of addressing the cost problem. Likewise, critics of the Canadian system point to the American model to solve the same issue. To the extent that cost is the issue, neither model offers clues to improved efficiency to the other because both are organized in the same way. The funding is different, but the work, and the way it is delivered, is the same.

Which means cost improvement strategies in both countries are misdirected. These focus on the way in which health insurance is provided or who owns the hospital while forgetting to think about what happens inside those hospitals (regardless of ownership) and how the work is organized.

The Mass Production Model of Health Care

In both Canada and the United States, the system of health care delivery, the work processes involved, are based on a mass-production model. This does not include the work processes involved once a patient is with the doctor but does refer to all the rather large scale processes that define how the work gets done within the health care system generally.

Most of us are familiar with the mass-production model. Work is organized into different specialized functional tasks or components that contribute to the overall outcome. This grouping of specialists allows for the development of functional expertise and economies of scale. These economies of scale take root, reducing the cost of each task or component.

For example, consider the manufacture of a car. The product is comprised of hundreds of parts which must be assembled into a working vehicle. To achieve economies of scale, parts are made in large volume, far greater volumes than immediately required and usually by different companies or suppliers. These parts are then stored in inventory — waiting for when they will be needed. When they are required, these parts are removed from inventory and combined into sub-assemblies. Again, these are made in much larger volumes than immediately required so as to achieve high economies of scale. These sub-assemblies too, then wait in inventory until the assembly system downstream is ready for them. At some point, these sub-assemblies are shipped to the assembly plant which combines them into your neighbors new SUV.

All this inventory and waiting is called work in process. The mass-production system is designed to produce lots of it. Separate entities each produce high volumes in long production runs in order to achieve the lowest cost per part. Which means in turn, high levels of inventory between each stage of production. This is seen as a good thing because high levels of inventory means there will not be any disruption of production or final assembly for a lack of parts.

The health care system is not much different. We have separate specialists each performing different functions and activities related to the final product. Each of these functional specialties is structured to deliver economies of scale — delivering the best quality care they can while pumping enough patients through to do so at minimum cost. The system is characterized by large inventories of patients waiting to get to the next step in the process.

For example, what did your last experience with the health care system look like? Your entry into it may have started with a visit to your family physician. I’ll bet you made an appointment but had to wait in the doctors waiting room past the appointed time. Congratulations, although doctors would never speak of you as such, you just became inventory or ‘work in process’. At some point, you were led from the general waiting room to an examining room where again you waited to see the physician. Here again you are work in process although further along the value or production chain. Finally the doctor arrives, talks to you, gives you a thorough examination and arrives at a conclusion — perhaps the need for an MRI scan.

So you are scheduled for an MRI scan, perhaps in two weeks time. All the time between then and now, you are waiting — part of the work-in-process of the health care system. When you arrive at the appointed time two weeks later, the situation repeats itself. You wait in a waiting room until you are led into a room where you can prepare yourself for the scan. Again, you are part of a build up of work in process. Finally the scan is conducted, the results returned to your family physician and another appointment scheduled (more waiting) and the results reviewed with you (don’t worry everything is fine).

People are bounced from one functional specialty to the next with each specialty designed to minimize cost. No one however, is responsible for minimizing the overall system cost including the cost of all that bouncing around. As you move from one service to the next, you are part of a large inventory of people waiting in line to receive treatment in precisely the same way large inventories of parts are created between each stage of the assembly process for an automobile. All this is the intended outcome of the mass-production approach. It is designed to build up inventories and waiting lines so as to achieve some economies of scale and ensure that capacity is never sitting idle. The health care system wants people waiting for their MRI scans because this maximizes MRI utilization– a perceived measure of efficiency.

Medical personnel do a great job, but any in these professions will tell you about the stress involved — the balancing act between quality patient care on the one hand and the need to obtain economic ‘cost-effective’ volumes on the other. For all the individualized and professional care we receive, the broader health care system is still structured to ensure there are people waiting to ensure utilization of each component of the system is maximized.  This is a core efficiency strategy of the a mass production model. Unfortunately, it is a strategy that simply doesn’t work.

Systems (Lean) Thinking

When people think of the mass-production model it is the automobile industry that most often comes to mind. And yet, it is this industry that is leading the transformation away from the mass production model to something called Lean production. This transformation started with Toyota. The work of Toyota’s Chief Engineer Taichii Ohno, American Quality pioneer Edwards Deming and others found the  critical flaw in the logic of mass production.

The flaw is that while mass-production creates parts of lower cost it doesn’t necessarily create cars of lower cost. This is because mass production unduly focuses on unit production costs associated with each step in the process while ignoring other costs contributing to the final cost of the product, including the costs associated with all that waiting and moving around. Storage costs, transportation costs, record keeping costs, holding costs and so forth all contribute to the final, total cost of building the car. It costs a lot to have parts waiting. So while the cost to make individual parts using the mass-production approach is low, by the time all the costs associated with waiting and inventory are factored in, the mass-production approach is not all that efficient.  In fact, it gaurentees exceptionally high levels of waste, the real source of increasing costs.

The methods pioneered in the Toyota Production System (later labelled Lean in America) emphasize reduction of waste including over-production, inventory, waiting, unnecessary motion and transportation. All these things are seen as value-adding activities within the mass production model but in Lean or Systems Thinking, they are all examples of waste, destroying value and increasing costs. In Lean, it is the big picture, the total cost of the product, that is paramount. Any activity that adds to this big picture cost is to be eliminated including those costs that arise from the supposed scale economies of mass production thinking. This means reducing waiting, inventory and work in process levels.

There is little debate as to whether Lean is a better approach. Lean thinking and production has already proven itself to be a more effective and efficient model of production. Today, the Toyota Production System is generally regarded as the worlds best. It is producing cars of greater quality at lower cost than any of its major competitors. Moreover, Toyota’s competitors agree. There isn’t a car manufacturer around that isn’t pursuing Lean production — adapting the Toyota approach and transforming the way they do and think about their business. The same is true in other industries. We need to think about and do the business of health care differently as well.

Don’t Panic

I can almost hear the protests already. Another management consultant proposing to use the methods of some automobile manufacturer to fix health care. When will these idiot consultants learn that health care and automobiles are different? You can’t compare building cars with open heart surgery!

True. Consider, however, that the health care system is using a system developed by the automobile industry right now — invented by Henry Ford (remember, any color you want as long as it is black?). The choice is not between an automobile or health care production model. It is between a production model invented in the 1920’s versus a state of the art production model that has already proven itself to be more cost effective (and improve quality as well). The health care systems of both Canada and the United States are constructed on foundations built close to a hundred years ago. It is time to modernize.

Consider too, that we are talking about how the health care system is organized, not how a specific heart surgeon performs a procedure. There is nothing in Lean Thinking that would alter the course medical practice between patient and doctor per ce, but there is plenty in Lean concerning how we have organized the various components of the larger system and how this impacts cost.

Thinking Lean

The Toyota Production System was designed as one-unit-at-a-time-method of production reducing costs and improving quality. A system of production that treats each production unit individually in response to the requirements of customers. Tell me that isn’t more compatible with health care than the mass production model that treats everything, and everyone, the same. The truth is, Lean production is far more compatible with health care than the mass production model upon which the health care system is currently based.

We need to adopt Lean or Systems thinking. This means that health care leaders need to change how they think about the problem. If cost is the issue, then we should start to understand what is driving costs and look to a way of doing things that has already demonstrated itself superior to the way things are done now. When that is done, the real work of removing waste and reducing the cost of health care can begin.

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