The Michigan Manufacturing Company has nine factories, of which Factory A is laid out as follows. Different machines are in different shops, which helps to improve machine productivity and personnel specialization. The manufacturing process of the product is designed by process engineers. Product A process is represented by a dotted line, which will go through several processes such as cutting, lathing, annealing, etc.; Product B is relatively simple and requires only a few processes to complete. Each product will have a process of its own, that is, on the way to the moving line, this factory total **** there are more than 20 moving lines, the factory for the coordination of more than 20 rugged moving line requires considerable supervision and planning, and workers are also prone to error.
What's interesting is that if you show this picture to a doctor with the text instructions removed, they'll think it's a general hospital. Patients are shuttled through different departments according to their illnesses, creating different moving lines. A critically ill patient transferred to a general ward requires several trips to radiology; a patient needs a neurologist's consult during his stay, a mom may be registered first and discharged after a 2-day stay in the labor and delivery ward, or she may need weeks of intensive care for preterm labor symptoms. General hospitals have a comprehensive to handle a wide variety of conditions. Statistics show that general hospitals in the United States are able to handle hundreds of medical services/medical moves, community hospitals may only have 40 medical services
Ming is the CFO of Factory A. He is burning out, the company's CFO has warned her several times that Factory A's expense ratio is the highest of all the group's factories, and the quality of its products is the worst, with a return rate of more than 10%, and that if he fails to control his costs, especially indirect costs, Factory A will be closed down. But Ming has done his best to control costs. Factory A hasn't been refurbished for more than 20 years, the receptionist has long been replaced by a phone book, and every employee is busy. Ming had to go to Factory B, the star of the group, where he was surprised to find that Factory B was not only elegantly decorated, but also had a beautiful receptionist, and the CFO even had a full-time secretary. He observed that Factory B does not have a winding and rugged production line like Factory A. It has only two straight production lines, and its products involve only 2-3 production paths. Benefiting from its size, Factory B's lower overhead costs are spread over a large number of products. Factory A, on the other hand, does not have the advantage of scale that Factory B has, and more importantly, it has a product line that is 10 times larger than that of Factory B. Complexity of management leads to frighteningly high overhead costs. the overhead of factory A's schedulers, auditors, material handling, and cost accounting is simply non-existent in Factory B. Ming intuits that complex product variety has a greater impact on Plant A's expenses than size. To this end, Ming collected data on all plants within the Michigan Manufacturing Company and discovered this phenomenon: a flip in size results in a 15% decrease in overhead cost per unit of product, and a flip in product line results in an increase of more than 25% in overhead cost per unit of product.
General hospitals are analogous to Plant A, with high indirect costs that are difficult to account for because of the many healthcare services they provide. Hospital 'direct labor' providers are doctors and nurses, but they actually spend a great deal of their time on administrative activities such as scheduling, rushing, repairs, record keeping, deliveries, etc. It has been estimated that general hospitals have more than double the overhead rate of community hospitals. So criticizing general hospitals for high costs is like criticizing Factory A for not controlling overhead costs; it's a function of their business model, and no amount of IT systems and equipment will change their cost structure.
Ultimately, Ming argues that the business model is the main cause of the total cost problem, and that it is not meaningful to compare the efficiency of the two factories, because Factory A and Factory B are actually using two different business models: Factory A is positioned to make whatever anyone designs when they need it - to "solve the problem" - and the majority of its costs are not caused by standardized, higher-volume products, but by customized, low-volume products. Factory B is positioned to make the most cost-effective product it can - a 'value-added service'. They use different types of staffing and resources, and have completely different manufacturing processes; factories A and B are both very efficient, they just have a different niche.
General hospitals, on the other hand, are a mix of two business models, one of which is "problem solving": even specialists can't diagnose certain illnesses, and need to conduct multiple tests for experimental treatments, which are difficult to standardize and rely on the hospital's resources - intuitive judgement, number of medical records, and testing equipment. The other is 'value-added services': i.e., there is a clear pathway to treatment that can be standardized and promises efficacy, e.g., cardiac bypass, angioplasty, hip surgery, and so on. These value-added services are no different from the production activities in the kitchens of universities, factories, and restaurants, where semi-finished products are processed and turned into products to be offered to customers.
Plant A is one of Michigan Manufacturing's oldest plants, and once a new product is large enough, the company usually moves it to one of its more specialized plants. A few years ago Ming strongly objected to the transfer of lightweight bearings, which accounted for 25 percent of Plant A's business, to Plant B because the line absorbed 25 percent of Plant A's overhead costs. Ming was sensible; Factory A's expense ratio increased significantly after the transfer, and he had to spend two years convincing customers to accept higher product pricing. This was painful for Plant A but beneficial to Michigan Manufacturing as a whole. The company offers its customers two reasonably priced services through two models. Its competitor, Indiana Standard, on the other hand, had only one integrated plant similar to Plant A and was once the market leader in lightweight bearings. When the light bearing business was moved to Plant B, he quickly lost market share because Michigan Manufacturing was able to price it lower. And as market share declined, the company found that the profits it had been unintentionally using to compensate for its other specialty businesses disappeared as well, and the company was in crisis until it went out of business.
Focusing on the business and reducing complexity not only rationalizes pricing, but also dramatically improves efficiency. 1980 Ford Thunderbird offered 250 000 car models in different combinations, whereas Toyota and Honda had only 7 series of models, and through continuous improvements such as lean manufacturing, the Japanese automakers have long been ahead of the other automakers in terms of efficiency.
Integrated hospitals mix two business models and positioning, the two business models require very different resources, processes, and systems, which can cause confusion and difficult complexity. It's like a person practicing two very different internal martial arts at the same time and can't become a master. Therefore, The Innovator's Prescription suggests that general hospitals should change the cause model: to serve two different business models through independent organizational forms, costing and pricing systems.
There is precedent for problem-solving model hospitals, such as the National Jewish Medical Center, a specialty hospital focused on lung disease, asthma. When an asthma patient goes to the clinic, there will be an allergist, a chest doctor and an ear, nose and throat specialist to consult and give a clear treatment plan. The same patient, who had previously seen the same specialists in turn at the general hospital, was diagnosed and treated individually by each doctor, and had to reuse nearly $1,000 a month in medicine. It is also much more cost-effective for the patient to spend $2,000 on a visit to the Jewish Medical Center than to spend thousands of dollars on the wrong prescriptions from each of the solo doctors.
A friend recently complained to me that when he had a minor illness, a nearby tertiary hospital gave him a bunch of ineffective proprietary Chinese medicines that he probably wouldn't have needed if he had gone to Huaxi. Why is it that the better hospitals in China seem to be able to balance quality and price? The essence of the business model of domestic general hospitals is to generate revenue by generating a large volume of water, and to subsidize other difficult cases with large, profitable inpatient hospitalizations and surgeries. In this way, hospitals tend to acquire more patients by all means, and lower-cost outpatient services and cost-effective treatment of difficult illnesses can create a reputation for them. General hospitals have no cost advantage in medical services, medical staff experience is much worse, resulting in recent years more and more resources to the concentration of tertiary hospitals,
Advances in technology and management within the existing system can only bring a single-digit change in efficiency, qualitative changes need to change the existing system. But the benefits are the hardest to touch. For example, let the hospital to a part of the standardized business independent of other major diseases, the cost of serious illnesses is bound to rise, the patient and the hospital how to compensate; if you can really hierarchical diagnosis and treatment by more general practitioners to replace the general hospital outpatient clinics, general hospitals, the huge number of personnel how to place?
The only foreseeable thing is that our public hospitals are already in the past of the dividend era of high-speed growth, the health insurance cost control trend, the previous rough growth model has been unsustainable. Improvement is too difficult, rather than reconstruction. The star will be in the weakest part of the system.
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