White Paper: Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

making improvement easier

June 15, 2012 Gregory Jacobson, MD Chief Executive Officer Mark Graban Chief Improvement Officer

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Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

Summary: Kaizen-style improvement programs, such as those facilitated by the KaiNexus webbased and mobile technology platform, offer a very compelling ROI. KaiNexus will facilitate measureable hard cost savings that flow immediately to your bottom line in terms of lower cost and higher revenue. KaiNexus will also enable your entire organization to quickly implement improvements in quality, patient and staff safety, waiting times, and patient and staff satisfaction. Our data has shown that a typical installation in one department (~300 users) will likely experience an ROI of more than10:1, whereas a full medical center (~10k users) will likely experience an ROI of 29:1. This does not include the indirect financial impact of improvements to quality, patient and staff safety, patient and staff satisfaction, or improved training and communication. Data Collected from Use of the KaiNexus Prototype Software: Before the official commercial release of KaiNexus beta software in 2011, prototype versions had been used at Vanderbilt University Medical Center since 2005. Calculations were done, in 2009, looking at a sample of OIs that came out of the KaiNexus prototype. This data is a part of what was published in the journal Academic Emergency Medicine in December 2009.1 Based on extrapolating the sample to a medical center with more than 10,000 employees, we estimated: $2.5 million in savings per year Eliminate 500 errors per year Implement over 2,600 quality improvements Implement over 550 patient and staff satisfaction improvements

These numbers are consistent with the Franciscan St. Francis Health System's figures that were published by Mark Graban and Joe Swartz in Healthcare Kaizen. KaiNexus Data Since 2011 Since the official launch of the commercial KaiNexus technology, our customers estimate the impact of each OI as they formally resolve it (close it out) in the system after the OI has been implemented and evaluated for its effectiveness. So, the following data is not from us, it is from users. Users either check a box that says the OI had an impact in a particular area or they enter an estimate of a quantified result (often with prompting for details from the KaiNexus software).

Jacobson, Gregory H., N.S. McCoin, R. Lescallette, S. Russ, and C.M. Slovis, Kaizen: A Method of Process Improvement in the Emergency Department, Acad. Emerg. Med. Dec;16(12), 2009, 13411349.
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Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

Improvement for a Typical Department In order to make our calculations, we first we came up with the effects of over 600 OIs that have been completed in the system to date. They are as follows: 612 completed OIs: 379 (62%) resulted in a Change 233 (38%) resulted in No Change

Of those that resulted in a change, there was an effect on:2 Quality Improvement Staff Satisfaction Patient Satisfaction Patient Safety Staff Safety Cost Savings Time Savings 56% 34% 13% 11% 3.4% $55,939 (annualized savings) 1,461 hours (annualized savings)

Of those that resulted in No Change: Already part of SOP 16% Duplicate 18% Idea not practical/out of our control 15% Not needed 50%

In cases where the proposed change was supposed to be part of the current Standard Operating Practice, the organization identified a training and communication gap. Even though the SOP does not change, the communication facilitated by KaiNexus can lead to the more consistent application of SOPs, which can have a positive impact on any of our improvement measures. Extrapolating Data to More Users An Entire Health System Our early KaiNexus customers are currently using the system in one to three departments as they work toward organization-wide adoption. The next step is to figure out how many completed OIs one should anticipate across an entire organization. Departments using KaiNexus are completing, on average, one OI per user per year.3
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An individual OI can affect more than one category.

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Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

Based on a single department having 300 users and completing about 1 OI per user, with 62% resulting in a change, we project the following numbers: 104 Quality Improvements 21 Patient Safety Improvements 6 Staff Safety Improvements 25 Patient Satisfaction Improvements 63 Staff Satisfaction Improvement 19 Training / Communication Deficiencies identified $27,421 Cost Savings 716 hours of saved staff time ($25,060 in soft savings)4

Based on the first years KaiNexus license cost of $5000, we estimate a ROI of 1050% or 10.5:1. This does not include the indirect financial impact of improvements to quality, patient and staff safety, patient and staff satisfaction, or improved training and communication. Based on an organization having 10,000 users, also completing about 1 OI per user, with a 62% change rate, we estimate the following results: 3,480 Quality Improvements 300 Patient Safety Improvements 212 Staff Safety Improvements 817 Patient Satisfaction Improvements 2,092 Staff Satisfaction Improvements 621 Training / Communication Deficiencies identified $914,050 Cost Savings 23,867 hours of saved staff time ($835,345 in soft savings)

Based on a site license cost of $60,000/year, we estimate an ROI of 2,916% or 29:1. This, again, does not include the indirect financial impact of improvements to quality, patient and staff safety, patient and staff satisfaction, or improved training and communication. Why Software? Why KaiNexus? One can argue that this type of improvement work is possible without a computerized web-based system. We would point out that there are very few organizations that have been able to sustain a paper-based system over the long haul. Additionally, we are not
Franciscan St. Francis Health System is currently reporting 1.7 OI's per FTE in their kaizen program. Other healthcare benchmarks cited in the book Healthcare Kaizen show a range of 1 to 2.5 OIs per FTE in the first three years of kaizen programs. 4 This is calculated at $35/hour (fully loaded average labor cost).
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Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

aware of an organization that has had a robust successful large-scale kaizen system without using some sort of an electronic system. These organizations have typically developed homegrown rudimentary systems that have far fewer capabilities than KaiNexus and ultimately cost the organization significantly more with respect to hardware, development staff, and ongoing maintenance. Determining the Financial Impact of Kaizen Improvements Related to Satisfaction, Safety, and Time Saving A number of things need to be considered when looking at these areas when trying to come up with a hard return on investment, or ROI: It is also difficult to come up with a financial value for improvements to patient and staff safety, such as the reduction in staff medical costs due to accidents and injury, days of missed work, and the legal and medical costs from patient-related safety issues. In an era where hospitals are not getting reimbursed for the care associated with preventable errors, using KaiNexus to track, implement, and share opportunities for improvement related to, for example, preventing patient falls can have a multi-million dollar effect on the bottom line. The simple fact is that having a safer work place for staff and patients is the right thing to do, it is aligned with the mission and values of healthcare organizations, and will have substantial effects on the bottom line. It is very difficult to come up with a financial value for improvements to staff satisfaction and engagement, even quantified through surveys. One study showed that reducing the staff turnover rate in a hospital by 1% can save $750,000 in direct and indirect costs. With average turnover rates at 14%, cutting turnover in half could save $5 million a year. Lower staff turnover arguably leads to better patient outcomes, fewer errors, and shorter length of stay all of which can lead to financial benefits for a healthcare organization. It is likewise difficult to put a direct financial value on patient satisfaction. The relationship between higher patient satisfaction and, say, patient volumes can be hard to directly derive. The simple fact is that having happier staff and patients can only provide a positive impact for the organization in the long-term. With regards to time saved, it will depend on the monetary value given to one hour of time saved for staff. Caregiver time that is freed up can be redeployed to give more time at the patient bedside, which can improve quality, shorten length of stay, and improve patient satisfaction. Redeployed time does not lead to a reduction in actual worked hours. Many organizations will only count time saved as a soft savings if there is not a corresponding reduction in labor costs. If overtime or the use of temporary staff can be reduced, that is a cost savings that is far less harmful than layoffs would be for staff morale.

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Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

When time is saved for patients, the financial impact can be direct or indirect. If kaizen improvements lead to a patients length of stay being one day shorter, this increases hospital margins when being paid a fixed reimbursement for that patient stay. Additionally, if enough beds are freed up, health systems can often avoid or scale back expensive construction projects, saving tens of millions of dollars. Shorter waiting times in the emergency department can improve outcomes and patient satisfaction again, difficult to quantify in a direct way.

Additional Thoughts on Kaizen and ROI: In the practice of kaizen and continuous improvement, there is often a tension about the topic of ROI. Kaizen gurus, starting with Masaaki Imai5 have emphasized that the primary goal in the early stages of a kaizen program is staff engagement. Participation levels can be a primary measure how many employees are identifying Opportunities for Improvement (OIs) and implementing their ideas? Over time, as Imai taught, leaders can start evaluating kaizen improvements for their financial impact with less risk of turning off the very employees we depend upon for process improvement and innovation. Participation is great, but our patients, payers, and boards are demanding measureable improvement in all core measures now. In the kaizen philosophy, ROI comes as the end result of improvements that staff members implement. Staff are highly motivated by calls from leaders to work on softer benefits including quality, safety, patient satisfaction, staff morale, and waiting times. If a healthcare organization does all of the right things making improvements that are often difficult to quantify in dollar terms then financial benefits will follow. That is the experience of organizations, across multiple industries, that have used the kaizen model of improvement. Research has shown, perhaps surprisingly, that organizations placing less of a focus on cost reduction as a primary goal tend to achieve greater cost reduction then organizations that aggressively chase financial returns as a primary goal. Kaizen, as part of the broader Lean management system, preaches a focus on the longterm, including long-term financial performance. This is a different mindset than one of making short-term cost-cutting decisions that hurt staff and (potentially) patients in the short term, as well as hurting (or at least not helping) the organization in the long term. That said, in times of current (or anticipated) financial crisis, as healthcare organizations are facing today, the reality is that healthcare executives are forced to look at the shortterm impact of any new program or initiative to their bottom line. While healthcare professionals and leaders at all levels are concerned about quality and service, the oftspoken mantra of no margin, no mission rings even more true in this challenging environment. We need to simultaneously improve quality and reduce costs.
See the book Healthcare Kaizen: Engaging Front-Line Staff in Sustainable Continuous Improvements by Mark Graban and Joseph E. Swart (foreword by Masaaki Imai).
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Return on Investment from Using KaiNexus to Encourage and Facilitate Kaizen

Some of the kaizens at KaiNexus sites are very small, with a financial return that is difficult to quantify. For example, staff members started using binder clips (an inexpensive office supply) to help keep curtains fully closed in the NICU, providing better privacy for mothers nursing newborns. An ROI for that kaizen cannot be calculated. If an organization mandated that every improvement have an ROI, we might miss opportunities like that to improve the patient experience. Kaizen is the right thing to do for patients and for staff members. But, additionally, this whitepaper quantifies the measurable impact of kaizen programs at organizations that use KaiNexus software to manage and facilitate their improvement efforts. Conclusion: It is often said that the management behaviors and mindsets that facilitate Kaizen and Lean-based improvements arent very complicated they are just very different. Leaders must take time to ask for OIs. They must help create time for staff to collaborate and work together to implement and test OIs. Leaders must create an environment where it is OK for people to speak up about problems. Staff cannot be fearful about failing if ideas do not work out as expected. No computerized system (or suggestion box or bulletin board, for that matter) magically creates culture change. However, with motivated leaders who want to transform their organization and provide ideal patient care, KaiNexus can be a great help. KaiNexus provides better transparency and faster improvement than a suggestion box and it is more cost effective and feature rich compared to homegrown solutions. We are convinced, based on our customers experience, that KaiNexus offers a compelling ROI short-term results that allow you to facilitate long-term culture change and continuous improvement. For More Information: info@KaiNexus.com www.KaiNexus.com Twitter: @KaiNexus YouTube: http://www.youtube.com/kainexusllc Facebook: https://www.facebook.com/KaiNexus LinkedIn: http://www.linkedin.com/company/kainexus

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