Are Focused Factories the Wave of the Future

REGINA HERZLINGER HAS contributed ideas from her important book on focused factories to this issue of Frontiers. Her piece has stimulated me to think about whether the healthcare system of the future will have focused factories at its core. This question has two elements. The first concerns the extent of the applicability of the concept to the delivery of healthcare. What is its potential to improve care? is there a potential to do harm? The second element concerns the likelihood of the concept to reach its potential in the future. To what extent will healthcare market dynamics and public policy impede the development and success of this concept? As Herzlinger points out, the notions behind the potential of increased focus in healthcare delivery come out of developments in the broader economy. intensive use of management systems has both revitalized old industries and spawned new ones. Organizations producing disparate goods and services are being disassembled. Vertical integration is being used more selectively than in the past as companies are focusing on their "core competencies. " Business leaders have much more awareness of the potential for loss of management efficiency when activities that require different competencies are combined in an organization. In addition, vertical integration is often seen as a liability in a highly competitive environment because competitors of one unit are not interested in becoming customers of another unit in the organization. Healthcare was historically insulated from broader economic forces; hence its strategies have been quite distinct from those in other sectors. Initial responses to price competition, a new phenomenom in healthcare, have differed from strategies in sectors long accustomed to it. Healthcare competitors initially emphasized upstream control of the patient. Thus, hospitals developed their own health plans and purchased primary care practices to channel patients via these networks to their inpatient facilities. Many of these strategies have not succeeded and are being abandoned. In recent years, the Center for Studying Health System Change (Hsc) has seen hospitals selling their health plans to regional or national insurers (Lesser and Ginsburg 1999). Hospital acquisition of primary care practices has slowed dramatically, although sale of previously acquired practices is not common either. WHAT IS A FOCUSED FACTORY? Before considering the likely future of focused factories in healthcare delivery, I want to indicate the types of entities that I identify with the term. My goal is to separate out activities that are broadly seen as desirable from those that are more controversial. As an example of the former, consider a hypothetical situation in which the leading general surgeon at a community hospital decides to apply operations analysis and outcomes research results to hernia operations to improve quality and reduce costs. Assume that this succeeds, word gets around about the higher quality, and primary care physicians begin to refer more hernia patients to this hospital. Better quality would be communicated so that either the hospital in question would perform a much larger share of hernia procedures or that other hospitals would take similar steps to improve their procedures. The market would then determine whether most procedures would be done at the hospital most capable or whether the new practices could be replicated well enough that the procedure would improve at all hospitals and that scale economies would not be sufficient to concentrate the procedure. At the other end of the spectrum is Herzlinger's example of the hypothetical Diabetes Management Center (DMC). This free-standing organization only treats patients with diabetes. Assume that this organization succeeds so that diabetics are treated more effectively, and thus outcomes are improved and costs reduced. Given all of the different specialties and technical skills involved, we would not expect to see these centers in many communities; therefore the center's major competition would be with endocrinologists and primary care physicians practicing in traditional settings, as well as academic health centers. …