Stanford Hospital

STANFORD

GRADUATE SCHOOL OF BUSINESS

CASE: 011-41 DATE: I 1/23/2004

PROCESS IMPROVEMENT IN STANFORD

HOSPITAL'S OPERATING Room

I'll tell ,),ou mohnIg. When ,you've got a patient ,you halkn1't got time to gel 017 Me telephone or anything. And I think that's Ithat happening. NOIV they Want its 10 1V1101117is thing, like this paper QM] all that. Youjust have to take rare oil2our patient.

--Operating room nurse, Stanford Hospital and Clinics

The office was silent as each of the four operating room (OR) Material Flow Committee (MEV) members considered the question before them. What was the next step for process improvement in the OR? Finding an answer to this question was urgent. 'Though notable progress had been made in the recent past, complaints from surgeons, nurses and technicians regarding the availability of surgical instrumentation had reached an all-time high. Executives at the highest levels of the organization were demanding a solution. The MFC had been formed to create and implement a plan of action. It was June 2004 and Martha Marsh, CEO of Stanford Hospital and Clinics (SHC) was expecting an answer in just under a week; it was crucial they all be in agreement on how to move forward.

The committee consisted of Sridhar Seshadr , vice president for Process Excellence, Nick Gaich, vice president for Materials Management, Candace Reed, director of the Sterile Processing Department (SPD), and Joann Rickley, director of the OR. Seshadri was a recent addition to SFIC's senior management team. An alumnus of the Wharton School of the University of Pennsylvania. Seshadri joined SHC in June of 2003. Prior to SHC, Seshadri was the vice president and general manager of Healthcare Solutions with GE Medical Systems. Healthcare Solutions was responsible for adapting GE's Six Sigma methodology and offering it to healthcare providers to increase quality and efficiency of care delivery. His new role in SHC Process Excellence required that he integrate the ideas and concerns of all stakeholders in order to ensure a project's success. Gaich was a sixteen-year veteran of SHC. Caleb had seen change efforts come and go at SHC; he felt that it was time to embrace instrumentation sterilization and processing as a core competency and invest in the compensation and training of employees in that area. Reed was a former OR nurse who had since received an MBA and returned to health care as a consultant and medical sales representative. Reed had SHC as a client prior to her acceptance of the director position; thus Reed was acutely aware of which areas were most in

Kate Surman and lit en a Petnas-Giz prepared th S en Sc tinder the Sti perv is on or Professor Stefanos Zoning as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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Process Improvement in Skinflint Hospital's Operating Room 01141

need of capital investment. She believed SEC should focus on investment in additional instruments and information technology to improve efficiencies. Rickley had been with CLIC for 7 years. In her leadership position, she managed a significant portion of the OR budget and she had a unique understanding of both the surgeons' and OR nurses' perspectives. She felt strongly that instrumentation issues resulted in large part from low morale and a lack of cross-functional camaraderie and teamwork. Seshadri had created the committee knowing that each individual would bring a unique outlook to the project. While he believed that each of these areas was important, the fact remained that given SEC's limited time and resources, the team had to select which would be most crucial to attack next.

HISTORV OF SRC

Stanford University's medical school began in San Francisco in 1858 as the Medical Department of the University of the Pacific. After a series of location changes and expansions, SHC was established on Stanford University's campus with satellite locations throughout the Bay Area. SEC was a nonprofit organization that provided general acute medical care and tertiary medical care and served as the primary teaching hospital for the Stanford University School of Medicine.

In an effort to take advantage of economies of scale and to enhance purchasing power, in 1997 SHC merged with the University of California San Francisco Medical Center, UCST/Mount Zion Medical Center, and Lucile Packard Children's Hospital at Stanford to form UCSF Stanford Health Care. This merger was short-lived due to many cultural and logistical obstacles that prevented the forecasted increased efficiencies from being realized. Losses in the two years following the de-merger in 1999 totaled $74 million. As a result, SEC's Board of Directors sought new leadership. In 2002, the board hired Martha Marsh as president and CEO. Marsh was the former director of Hospital and Clinics at University of California-Davis Medical Center and COO of University of California-Davis Health System. Marsh focused the attention of SEC's management and staff on gaining financial stability through renegotiating managed care and vendor contracts, as well as enhancing patient admissions and discharge systems to improve patient flow. The new leadership team was credited for a dramatic financial turnaround; in 2002 SEC reported a net income of $12.5 million despite a predicted loss of $10 million.

OVERVIEW OF SHC STATISTICS

In fiscal year 2003, SHC generated $900 million of net patient service revenue with 430 active beds, 1,875 medical staff members and 675 house staff members including interns and residents. The hospital had internationally recognized Centers of Excellence in the areas of oncology, cardiovascular disease, neuroscience, transplantation, and surgical services. In 2003, SEC admitted 19,446 patients for a total of 109,954 days of care. It also handled 38,147 emergency patient visits and 262,267 hospital outpatient visits. Stanford's 53 clinics managed 347,606 patient visits in specialties ranging from internal medicine to dermatology to physical medicine and rehabilitation. (See Exhibit

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