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AHA: Christensen Cautions Hospital Leaders on Costs

Philip Betbeze, for HealthLeaders Media, July 23, 2012

"If you were suckered into taking a job as a CEO of a hospital, that is a really bad choice, because you have a job that's impossible to do," he said, only half-jokingly.

Based on his research, he says about 85% of hospitals' costs consist of overhead. He compared the dilemma to that of a Michigan truck axle plant that could custom-build any axle for any application. The factory did fantastic work, he said, but because of the time, effort, and processes that must take place in order to offer this level of customization, the factory supervisor was told that if changes couldn't be made, the parent company was prepared to shutter the factory. Another factory in Ohio owned by the same company boasted less than half the overhead.

"The other plant wouldn't do anything for anyone, but they told customers that if you have a design that incorporates one of two processes, we can do it at low cost and high quality," Christensen said.

He said a colleague who studied the company found that every time the pathways to completing the manufacture of the axles doubled, cost per unit increased by 30%.

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