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Every hospital has two "factories":

  1. A "good" factory that delivers patient care. In a hospital, this would be the emergency department (ED), operating room (OR), nursing units, lab, radiology, pharmacy, admissions, billing, and so on.

  2. A hidden but expensive "fix-it" factory. This is the factory that cleans up all the medical mistakes, operational mistakes, and delays that occur in the main factory.

Hospital EDs experience repeat visits from the same patient on the same day. Doctors misdiagnose illnesses 15 percent of the time, according to one BusinessWeek article. If your hospital is typical, the fix-it factory is costing you $25 to $40 of every $100 you spend. If it costs $100 million to run your hospital, you spend $25 million to $40 million on the fix-it factory.


Most hospitals run on razor-thin margins of less than 5 percent ($5 million in a $100 million hospital). Reducing delays, defects, deviation, and costs by 20 percent ($20 million) would more than double your profits. Just think what saving a fraction of that waste could do for your productivity and profitability! Virginia Mason Medical Center went from losing money to earning over 5 percent.

The urgencies of any business can consume all your time. Fortunately, given the right gauges on your dashboard, it's easy to diagnose where to focus your improvement efforts, even while you are still working in your business.

I have found that clinicians are hesitant to talk about money or profit, but if you think of it as an indicator of overall success, you might see it differently. Better patient outcomes means lower costs and higher profits. Better patient satisfaction means more referrals, which mean more patients and more revenue. Increasing nurse and doctor satisfaction means less turnover and lower costs. Fewer mistakes mean less rework, lower costs, and higher profits.

The End of Common Sense

When I worked in a phone company, managers used to say that process improvement is "just common sense," but what I've learned is that common sense will only get you to a 1 to 3 percent error rate. Hospitals get to a 1 percent error rate on such things as infection rates and medication errors, but that's where they reach the edges of human perception—the end of common sense.

When you reach the end of what you can do with one problem-solving technology (e.g., common sense), you need to look to the next level: systematic problem solving and the tools of Lean Six Sigma. The primitive methods and tools that took you to sustainable profitability will take you no further. To turn your cash cow into a golden goose, you will need the common science in Lean Six Sigma to make breakthrough improvements. Here's what you can accomplish with ...

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