Pflogging ... in pursuit of accelerated value creation

A major element of Lean is standarded work instructions, which must be implemented as detailed procedures for doing routine and regular work, rather than broad guidance to take on more abstract definitions of statements of work, in order to be effective. The purpose of such standardized operations is to make work rules explicit, and through that means, to minimize and control variation in quality, cost, throughput, and/or work in process. This is intended to achieve additional benefits, such as reductions in defects, rework, and wasted materials. There are three elements that are critical to achieving these goals: Takt time (the heartbeat of the production system), standard flows, and Work In Process (WIP).

In some professions, this concept is taken even further, so that compensation systems are aligned with these standardized work instructions; in effect, the work and pay for a given activity are thus normalized, and the expectation exists that workers will be motivated to innovate and find ways to perform their work faster, and thus increase their own compensation. There are obvious limits to this, including the fact that producing more of something that has unacceptable quality is not a good strategy in the long run. But whether compensation systems are aligned with standardized work or not, such standardized work definitions can imply, by their nature, an allocation of staffing and roles required to perform work - and such allocations may themselves be inefficient, unless based upon historical facts and data, and careful analyses.

The compensation angle to this, often called piecemeal work, implies that you will be paid for each individual occurrence of a product or service produced, so the more output you produce, the more you will get paid. It is unusual to see this applied in open-ended tasks like engineering situations, due to the uncertainties involved, but this approach has been the prevalent means of compensating physicians in health care in the United States for centuries. Other countries, such as British Columbia, have instead made no adjustment to a hospital's funding based upon patients seen, though the effect of this over time to cost and quality should be pretty obvious.

The use of standardized pay for standardized work in health care began in the US when William Hsiao, a medical economist, produced the Resource-Based Relative Value Scale in the late 1980s. The RBRVS assigns a relative value for every medical procedure that is reimbursed by Medicare. The book Better describes how these changes occurred:

... fees for cataract surgery (which could reach six thousand dollars in 1985) had been set when the operation typically took two to three hours. When new technologies allowed ophthalmologists to do it in thirty minutes, the fees didn’t change. Billings for this one operation grew to consume 4 percent of Medicare’s budget. In general, payments for doing procedures had far outstripped payments for diagnoses. In the mid-eighties, doctors who spent an hour making a complex and lifesaving diagnosis were paid forty dollars; for spending an hour doing a colonoscopy and excising a polyp, they received more than six hundred dollars. This was, the federal government decided, unacceptable....

In the 1980s, insurers, both public and private, began to agitate for a more "rational" schedule of physician payments. For decades, they had been paying physicians according to what were called "usual, customary, and reasonable fees." This was more or less whatever doctors decided to charge. Not surprisingly, some of the charges began to rise considerably... Some specialists were outraged by particular estimates. But Congress set a multiplier to convert the relative values into dollars, the new fee schedule was signed into law, and in 1992 Medicare started paying doctors accordingly.

RBRVS values are reviewed and updated every 5 years by a government committee, and determine the Medicare payment schedule for all medical procedures performed by physicians. Factors which are considered in this assessment include the physician's time, their mental effort, the technical skill and judgment required, and the stress which is associated with each diagnosis. An amortization of the physician's education, their practice and malpractice expenses, and a geographic adjustment are also included. Adjustments for outcomes, quality of service, the severity of injuries, or the demand for services are not included, even though all obvious are relevant to actually accomplishing the work.

The unintended secondary effects of variation in this context is that costs escalate to accomodate slower-than-average resources performing the work, and that the quality of care can deteriorate (resulting in higher overall costs) due to suboptimization. Such trends have been apparent in other areas where such 'standardized work' has been enforced - for example, in maintenance labor rates for car dealerships, which have also been escalating for years, and now often approach $90/hr. The root cause is that while standardized work can make sense in a production line in which continuous improvement is consistently and reliably implied, it can also become a needless burden and frustration for above-average performers, especially if there is no corresponding infrastructure in place to reliably level and optimize the overall system's throughput.

As a further attempt to control such variation in health care costs, in 2008, Medicare intends to stop paying for rework for selected procedures. It will be interesting to see if this trend extends into other industries, and what the ramifications of that will be on job satisfaction, further cost escalation, and the supply of these services.