KaiNexus ROI White Paper June 2012

7/31/2019 KaiNexus ROI White Paper June 2012

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All Contents Copyright KaiNexus LLC, 2012

White Paper:

Return on Investment from Using KaiNexus to

Encourage and Facilitate Kaizen

making improvement easier

June 15, 2012

Gregory Jacobson, MD Chief Executive OfficerMark Graban Chief Improvement Officer

For More Information:[email protected]


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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 web-based and mobile technology platform, offer a very compelling ROI. KaiNexus will

facilitate measureable hard cost savings that flow immediately to your bottom line interms of lower cost and higher revenue. KaiNexus will also enable your entireorganization to quickly implement improvements in quality, patient and staff safety,waiting times, and patient and staff satisfaction. Our data has shown that a typicalinstallation in one department (~300 users) will likely experience an ROI of morethan10:1, whereas a full medical center (~10k users) will likely experience an ROI of29:1. This does not include the indirect financial impact of improvements to quality,patient and staff safety, patient and staff satisfaction, or improved training andcommunication.

Data Collected from Use of the KaiNexus Prototype Software:

Before the official commercial release of KaiNexus beta software in 2011, prototypeversions had been used at Vanderbilt University Medical Center since 2005. Calculationswere done, in 2009, looking at a sample of OIs that came out of the KaiNexusprototype. This data is a part of what was published in the journalAcademic Emergency

Medicine in December 2009.1

Based on extrapolating the sample to a medical center with more than 10,000employees, 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 figuresthat 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 customersestimate 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 followingdata is not from us, it is from users. Users either check a box that says the OI had animpact in a particular area or they enter an estimate of a quantified result (often withprompting for details from the KaiNexus software).

1 Jacobson, Gregory H., N.S. McCoin, R. Lescallette, S. Russ, and C.M. Slovis, Kaizen: A Method ofProcess Improvement in the Emergency Department, Acad. Emerg. Med. Dec;16(12), 2009, 13411349.


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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 56%

Staff Satisfaction 34% Patient Satisfaction 13% Patient Safety 11% Staff Safety 3.4% Cost Savings $55,939 (annualized savings) Time 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 StandardOperating Practice, the organization identified a training and communication gap. Eventhough the SOP does not change, the communication facilitated by KaiNexus can lead tothe more consistent application of SOPs, which can have a positive impact on any of ourimprovement measures.

Extrapolating Data to More Users An Entire Health System

Our early KaiNexus customers are currently using the system in one to threedepartments as they work toward organization-wide adoption. The next step is to figureout 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

2 An individual OI can affect more than one category.


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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 andcommunication.

Based on an organization having 10,000 users, also completing about 1 OI per user, witha 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 andcommunication.

Why Software? Why KaiNexus?

One can argue that this type of improvement work is possible without a computerizedweb-based system. We would point out that there are very few organizations that havebeen able to sustain a paper-based system over the long haul. Additionally, we are not

3 Franciscan St. Francis Health System is currently reporting 1.7 OI's per FTE in their kaizen program.Other healthcare benchmarks cited in the bookHealthcare Kaizen show a range of 1 to 2.5 OIs per FTE inthe first three years of kaizen programs.4 This is calculated at $35/hour (fully loaded average labor cost).


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aware of an organization that has had a robust successful large-scale kaizen systemwithout using some sort of an electronic system. These organizations have typicallydeveloped homegrown rudimentary systems that have far fewer capabilities thanKaiNexus and ultimately cost the organization significantly more with respect to

hardware, development staff, and ongoing maintenance.

Determining the Financial Impact of Kaizen Improvements Related toSatisfaction, Safety, and Time Saving

A number of things need to be considered when looking at these areas when trying tocome up with a hard return on investment, or ROI:

It is also difficult to come up with a financial value for improvements to patientand staff safety, such as the reduction in staff medical costs due to accidents andinjury, 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 careassociated with preventable errors, using KaiNexus to track, implement, andshare opportunities for improvement related to, for example, preventing patientfalls can have a multi-million dollar effect on the bottom line. The simple fact isthat having a safer work place for staff and patients is the right thing to do, it isaligned with the mission and values of healthcare organizations, and will havesubstantial effects on the bottom line.

It is very difficult to come up with a financial value for improvements to staffsatisfaction and engagement, even quantified through surveys. One study showedthat reducing the staff turnover rate in a hospital by 1% can save $750,000 indirect and indirect costs. With average turnover rates at 14%, cutting turnoverin half could save $5 million a year. Lower staff turnover arguably leads to betterpatient outcomes, fewer errors, and shorter length of stay all of which can leadto financial benefits for a healthcare organization.

It is likewise difficult to put a direct financial value on patient satisfaction. Therelationship between higher patient satisfaction and, say, patient volumes can behard to directly derive. The simple fact is that having happier staff and patientscan 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 onehour of time saved for staff. Caregiver time that is freed up can be redeployedto give more time at the patient bedside, which can improve quality, shortenlength of stay, and improve patient satisfaction. Redeployed time does not leadto a reduction in actual worked hours. Many organizations will only count timesaved 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 savingsthat is far less harmful than layoffs would be for staff morale.


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When time is saved for patients, the financial impact can be direct or indirect. Ifkaizen improvements lead to a patients length of stay being one day shorter, thisincreases hospital margins when being paid a fixed reimbursement for thatpatient stay. Additionally, if enough beds are freed up, health systems can often

avoid or scale back expensive construction projects, saving tens of millions ofdollars. Shorter waiting times in the emergency department can improveoutcomes 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 aboutthe topic of ROI. Kaizen gurus, starting with Masaaki Imai5 have emphasized that theprimary goal in the early stages of a kaizen program is staff engagement. Participationlevels can be a primary measure how many employees are identifying Opportunitiesfor Improvement (OIs) and implementing their ideas?

Over time, as Imai taught, leaders can start evaluating kaizen improvements for theirfinancial impact with less risk of turning off the very employees we depend upon forprocess improvement and innovation. Participation is great, but our patients, payers, andboards are demanding measureable improvement in all core measures now.

In the kaizen philosophy, ROI comes as the end result of improvements that staffmembers implement. Staff are highly motivated by calls from leaders to work on softerbenefits including quality, safety, patient satisfaction, staff morale, and waiting times. If ahealthcare organization does all of the right things making improvements that areoften difficult to quantify in dollar terms then financial benefits will follow. That is theexperience of organizations, across multiple industries, that have used the kaizen modelof improvement. Research has shown, perhaps surprisingly, that organizations placingless of a focus on cost reduction as a primary goal tend to achieve greater costreduction 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 long-term, including long-term financial performance. This is a different mindset than one ofmaking short-term cost-cutting decisions that hurt staff and (potentially) patients in theshort 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 organizationsare facing today, the reality is that healthcare executives are forced to look at the short-term impact of any new program or initiative to their bottom line. While healthcareprofessionals and leaders at all levels are concerned about quality and service, the oft-spoken mantra of no margin, no mission rings even more true in this challengingenvironment. We need to simultaneously improve quality and reduce costs.

5 See the bookHealthcare Kaizen: Engaging Front-Line Staff in Sustainable Continuous Improvements by MarkGraban and Joseph E. Swart (foreword by Masaaki Imai).


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Some of the kaizens at KaiNexus sites are very small, with a financial return that isdifficult to quantify. For example, staff members started using binder clips (aninexpensive office supply) to help keep curtains fully closed in the NICU, providing

better privacy for mothers nursing newborns. An ROI for that kaizen cannot becalculated. If an organization mandated that every improvement have an ROI, we mightmiss opportunities like that to improve the patient experience.

Kaizen is the right thing to do for patients and for staff members. But, additionally, thiswhitepaper quantifies the measurable impact of kaizen programs at organizations thatuse 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. Leadersmust take time to ask for OIs. They must help create time for staff to collaborate andwork together to implement and test OIs. Leaders must create an environment where itis OK for people to speak up about problems. Staff cannot be fearful about failing ifideas 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 totransform their organization and provide ideal patient care, KaiNexus can be a greathelp. KaiNexus provides better transparency and faster improvement than a suggestionbox and it is more cost effective and feature rich compared to homegrown solutions.

We are convinced, based on our customers experience, that KaiNexus offers acompelling ROI short-term results that allow you to facilitate long-term culturechange and continuous improvement.

For More Information:

[email protected]

www.KaiNexus.com

Twitter: @KaiNexus

YouTube: http://www.youtube.com/kainexusllc

Facebook: https://www.facebook.com/KaiNexus

LinkedIn: http://www.linkedin.com/company/kainexus

KaiNexus ROI White Paper June 2012

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