The European debt crisis has meant severe budget cuts for public hospitals in Spain, with policies concentrating on service cuts rather than efficiency improvements. In this article, Rajaram Govindarajan, Healthcare Management Consultant and Professor of Operations Management and Innovation at ESADE Business School in Barcelona, discusses how lean can help to ease the pain.

Policy initiatives to improve public healthcare funding in Spain have been limited to three options: to continue to maintain costly public services based on budget deficits; to reduce health services with arbitrary budget cuts; and to generate additional revenue through copayments.

The productivity of the public healthcare sector in Spain is low and inefficiencies are draining resources. With no political initiative in place to tackle this, there is no corresponding mandate for the managers, designated by politicians, to improve organisational efficiency.

In Catalonia, several fund cutting initiatives took place, such as closing down some primary healthcare centres, outpatient wards, hospitalisation units, operation theatres and emergency wards.  Among other ideas proposed by the Catalan health ministry is a copayment of 10€/day per hospital stay.

Several have expressed doubts over the effectiveness of copayment measures. For example, in the United States, copayment for patients older than 65 years reduced outpatient care by 20%, but increased hospitalisations (2.2%) and the length of stay (13.4%), especially among those with lower socioeconomic status and those with chronic diseases. There is also a series of humanitarian and ethical debates related to copayment.

For example, Joan Benach and others think that copayment “blames” the sick and “dilutes” the responsibility of health authorities and health professionals, as they would be the ones who generate subsequent medical actions on prescriptions, tests and treatments.

Llamas presented a debate on healthcare financing and concluded that, to maintain the public healthcare system in Spain, there are only three options: more tax revenue, copayment or less public service.

However, there is a fourth option: improving efficiency, which would improve patient safety and quality and at the same time reduce production costs.

The aim of this article is to show that there is room for improving efficiency and thereby freeing up resources that are being wasted internally before seeking more of tax payers´ money.


Diagnosis-Related Groups (DRGs) is a system widely used to classify hospital cases in the United State and Europe. For this research, we chose the 15 most important DRGs in Catalonia, based on number of discharges per year. Hospitals included in the study were the ones that had performed at least 300 annual discharges in one or more of the top 15 DRGs chosen.

There was a total of 25 leading public hospitals that satisfied this criterion. For each DRG, the hospital that had the best average-stay record was identified and labeled as being the “benchmark” for that particular DRG. This way there would be one benchmark data of average hospital stay for each DRG.

The benchmark hospital for one DRG was not necessarily the same for another (complete data are available on the web page of Catalonian health department). In this study, potential economic benefits of optimising hospital stays to benchmark levels in the top 15 DRGs were estimated for the participating 25 hospitals. These resource savings were then compared with possible additional revenues that could be generated if a copayment of €10/day for the entire duration of hospital stay were to be applied in these 25 hospitals for the same 15 DRGs.

Figure 1 shows the top 15 DRGs in Catalonia, based on the number of hospital discharges performed (the medical DRGs are coded with the letter “M” just ahead of the DRG number, and the surgical ones with the letter “Q”). Among the top 15 DRGs, ten were medical and the remaining five were surgical treatments.

First a DRG was taken and its benchmark value was compared with the length of hospital stays in all other remaining hospitals performing 300 discharges or more of the same DRG. The difference in days was considered to be potentially “excessive” and could be reduced in each of those hospitals. Cost savings were then estimated by multiplying the excessive number of days that could be potentially saved and the average daily hospital stay cost estimated at €300.

The same procedure was repeated for each of the remaining 14 DRGs. This method of “cross-benchmark” allowed us to identify the best hospital for each DRG and the potential cost savings for all other remaining hospitals that performed a minimum of 300 annual discharges of the same DRG. Total potential savings for each hospital were the sum of the savings in each of the top 15 DRGs.

Later, potential revenue gains were also estimated if each of those hospitals, instead of improving efficiency, were to collect a copayment of 10 €/day for the entire stay needed to diagnose and cure patients of each of those 15 DRGs, using the non-optimised length of hospital stay duration. Finally, the potential resource gains through efficiency improvements obtained were compared with that of copayment.


In Table 1, one can identify which hospital holds the shortest stay record (benchmark), longest stay record and the overall average among the 25 participating hospitals, for each of the 15 DRGs.

Figure 2 lists the potential resource savings in each of the hospitals. For example, in the management of patients of pneumonia (DRG 541) the Hospital de Mar has a potential of reducing its average hospital stay, which is currently at 10.73 days/discharge, to the levels of the corresponding benchmark value held by General Hospital PS St. Joan de Deu, which treats patients of the same disease in just 5.37 days.

This might mean a potential reduction in average stay length per discharge from 10.73 to 5.37days, leading to savings of 5.36 days/discharge. The potential cost savings for this particular DRG in Hospital de Mar could be: 5.36 days/discharge x 994 discharges/year x €300/day = €1.59 million per year.

This calculation, of course, is based on the assumption that both these hospitals have similar treatment effectiveness and that both are correctly applying their DRG codes. There is no reason to believe this is not the case, because these public hospitals are in the same Catalonia region, funded and supervised by its public health ministry, and all health professionals are qualified by the same system and have the same obligation to follow the same clinical protocols based on scientific evidence.

Having said that, there is a need for the Hospital de Mar to study how the General Hospital PS St. Joan de Deu (the Benchmark for DRG 541) manages to cure pneumonia patients in shorter duration and implement those improvements in order to eliminate unnecessary hospital stays and thus achieve not only a potential saving of €1.59M/year, but also safety and quality that quick diagnosis and treatment might mean to their patients.  

I was able to identify a number of inefficiencies in Spanish public hospital management that, if improved, can significantly reduce unnecessary hospital stays, leading to higher patient safety and cost savings.

There are systematic administrative and bureaucratic delays in internal communication procedures of hospitalisation wards, including delays in doctors´ visits, prescriptions, diagnostic tests, availability of test reports, inter-consultations, delivering rehabilitation service, among others.

For example, Barranco reported that the average waiting time of hospitalised patients before their endoscopy could be performed was 3.3 days, because outpatients also competed for the same resource. He suggested the introduction of a quota system for inpatients that could lead to savings of three days/patient in 550 annual endoscopies (this meant: 3 days x 550 endoscopies x €300/day = €453,000 annual savings for his hospital).

Specific inefficiencies I identified were in the following administrative aspects:

  • admission of patients in hospitalisation wards when in fact they could be managed as outpatients (e.g., colonoscopy);
  • performing certain surgeries in inpatients when in fact these are catalogued by the Catalonian Government as being safe to be performed in outpatients (thus saving hospital stays);
  • admission of surgical patients a day before the programmed surgery date only to “ensure” the patient is ready for the surgery by verifying the completeness of all medical records and doing any unperformed tests (while in fact such verifications and tests should be done well in advance without having to admit patients a day in advance, thus avoiding a systematic increase in hospital stays for all surgical inpatients);
  • making inpatients wait for diagnosis because there is a big demand for the corresponding test machine (e.g., magnetic resonance), or because certain specialised tests with limited demand are performed in the hospital only certain days of the week;
  • once diagnosed, if the treatment is surgical, making patients wait for days to assign a slot in the operation theatre, and even if the treatment plan is medical, making patients wait for days to place a catheter or undertake vascular surgery;
  • systematic delays in interconsultations of inpatients (sometimes it takes a day just for the specialist medical department to receive the petition and in any case the specialist may not have time to visit patients of other departments on the same day (because he or she may be too busy visiting his or her own patients);
  • some of the cured patients are not discharged until after many days have passed because they might need to find a vacancy in a geriatric ward, a rehabilitation centre, etc, (knowing that the acute hospital bed may be three or four times more expensive than any of these other long-stay facilities).

All these aspects of management may give a possible explanation of why some hospitals take more days than others to treat the same disease.

In this study, the highest number of benchmarks held by a single hospital is limited to five (Hospital de Sabadell). This might indicate that even in such a hospital with five out of 15 DRG benchmark records, probably, the best practices are rather confined to “local” areas (medical departments and hospitalisation wards related to those five DRGs), and there may be room for “systemic” (hospital-wide) efficiency improvements.


The principal aim of lean management is excellence in healthcare: patient safety, quality and timeliness in service delivery, without undue delays in patient management.

Reduction in production cost is a consequence of such high level of excellence. In the example of DRG 541 (pneumonia), if a hospital takes 10.73 days to cure a patient while in another the same results are achieved only in 5.37 days, a patient in the former has had to wait longer to be diagnosed and treated (with the added risk of death, or complications caused by such delay) in addition to the general risks of any hospital stay (nosocomial infections, falling from bed or medication errors, pressure sores, among others).

Figure 3 compares the cost saving estimates, if hospital stays for each DRG are limited to corresponding benchmark values, with the hypothetical revenue increase, if each patient of each of those top 15 DRGs is charged €10/day.

Resource gains through efficiency improvement resulted in €30M/year while the additional income due to copayment would only generate €3.2M/year for the same 15 DRGs. In addition, the patients, who are already paying their public health insurance, will not have to pay an additional €10 /day.

In fact, if a patient comes to know he or she was made to stay longer than necessary, and moreover had to run into additional risks of the extended stay, he or she may refuse to make such copayment for the entire stay period. Efficiency improvement in hospital stays is only an example of how public hospitals can ease their financial problems at the peak of economic and financial crisis in Spain.