The effects of lean implementation on hospital financial performance

Abstract

This study examines lean implementation's effects on hospital financial performance using survey and secondary data for a large sample of US hospitals. Using sociotechnical systems theory, a social context is identified that should motivate the use of lean process improvement tools (LPT) in a hospital setting and accentuate its performance benefits. Shah and Ward's employee involvement (EI) construct is adapted to a hospital setting to define a supportive social context for LPT, which is further shaped by organizational psychological safety (PS). The research model depicts PS as amplifying the effect of EI on LPT, which, in turn, influences a hospital's return on assets (ROA) via three potential pathways: (a) through enhanced revenues; and/or (b) through reduced hospital discharge costs; and/or (c) directly. The results show that EI engenders LPT and that this effect is heightened as PS improves. LPT is shown to positively impact ROA indirectly through higher revenues, but not through lower discharge costs. The findings reveal positive, indirect effects of EI on revenue and profitability at moderate/high levels of PS. Robustness is investigated using an alternate performance metric-hospital excess margin-with consistent results. Post hoc analyses explore potential mechanisms through which lean implementation may increase hospital revenues, including hospital throughput (discharges), readmission rate, experiential quality, length of stay, and overall patient recommendation. The analyses reveal that the impact of LPT on hospital revenue is potentially realized through higher hospital discharges. Overall, the study demonstrates that lean implementation as a sociotechnical system contributes to superior performance. K E Y W O R D Semployee involvement, healthcare management and hospital performances, hospital process improvement, lean tools, psychological safety climate 1

Effect of lean implementation on team psychological safety and learning

“…Psychological safety is a concept largely used in the literature to explain the efficacy of teams in terms of learning, creativity and engagement, but scarcely applied to the lean literature. Our study builds upon the few previous exploratory studies in which psychological safety emerges as a key aspect of a lean culture (Mazur et al, 2012;Narayanan et al, 2021;Love et al, 2021;Rojas et al, 2021) and those that state that (lean) leaders have an effect on their subordinates' psychological safety (Van Dun and Wilderom, 2016a;Latif et al, 2021). We thus further the understanding of this team emergent state for the materialisation of lean into learning.…”

“…Earlier studies have investigated psychological safety as an antecedent to lean implementation (e.g. Narayanan et al, 2021) or as a mediator to lean's effect on performance (e.g. Love et al, 2021), but we see psychological safety as a possible outcome of lean implementation (see also Rojas et al, 2021).…”

“…Our study builds upon the few previous exploratory studies in which psychological safety emerges as a key aspect of a lean culture (Mazur et al. , 2012; Narayanan et al. , 2021; Love et al.…”

What is the evidence of how hospitals capture financial benefits of process improvement and does it impact hospital financial performance?: A systematic review

“…For those hospitals who have published on lean and nancial results, another interesting question may be whether they causative or just correlative? Narayanan, Vickery (17) note that lean implementation studies have generally found a positive correlation with revenue increases as the primary positive nancial impact of PI. These studies have all been in the US, where increased e ciency and throughput is likely to be associated with 'doing more work' which in turn generates more income.…”

“…, much of the available research is concerned with "…. process performance and clinical performance…" of PI initiatives (17). This is not unique to hospitals with a literature review conducted in nonhealthcare industries nding that information on how companies determine the economic value or nancial bene ts derived from PI initiatives is scarce (13).…”