Reprinted with the permission from Surgical Management Professionals, as published in the Spring 2012 Issue of the SMP Connection, www.smpsd.com.
Many of you may know the name but not much more about whom Adam Smith was and what impact he had on shaping businesses to this day. Adam Smith was born in a small village in Kirkcaldy, Scotland, and was raised by a widowed mother. He entered the University of Glasgow at the age of 14. He later attended Balliol College at Oxford. He delivered a series of lectures following graduation and returned home as first chair of logic and then chair of moral philosophy at Glasgow University in 1752.
He tutored the Duke of Buccleuch for more than two years and earned a life pension and retired to write Wealth of Nations which was published in 1776. This was the same year as the American Declaration of Independence. Smith’s work has long been accepted as an explanation of how rational self-interest in a free-market leads to economic well being. One of the most important concepts that Smith discussed is the focused factory.
The focused factory refers to a business that limits its focus to one or a few related services. As such, they can become experts at providing that service and outperform others who are not singularly focused. What he went on to explain is that additional advantages to the focused factory include lower cost and shorter times for production. Often times, we hear the adage you can have it fast, good and cheep but you can only pick two. Fast and cheep but not very good. Fast and good but expensive. Good and cheep but not very fast. What Smith was teaching is that with a concerted focus you can have all three.
The first modern company that embraced this concept was Midas Muffler. In 1956, Nate Sherman opened the first Midas Muffler repair shop in Macon, Ga. The motto was "for as long as you own your car." For $7.00 you could get a new muffler installed and a guarantee that it would last as "long as you owned your car" or be replaced for free. This looks like a simple concept today, but back in 1956 service stations were full service. They sold gas and oil, did tune ups, collision repair, replaced mufflers, etc. Some of you remember the Texaco man who would pump your gas, check your oil and clean your windshield or the gas was free. Nate Sherman changed the business world forever with his focused muffler factory.
Healthcare has embraced this focused factory model for many years. When I was born our family doctor, Dr. Sacs, delivered me. He diagnosed that I had a Pyloric Stenosis a few days later and operated on me when I was a week old. He took care of school physicals, stitching up various injuries and eventually performing bi-lateral hernia when I was in first grade. That was before the focused factory concept was introduced to healthcare. Today, a baby is delivered by an obstetrician, a pyloric stenosis surgery would be performed by a pediatric general surgeon, minor suturing would be done in the emergency room by a trained emergency room physician, and on and on. We now have specialists for every area of the body and sub specialists for every segment of medicine. In ophthalmology for example, we have specialists in cataract surgery, cornea specialists, retinal specialists, plastic eye specialists, etc. The physicians saw the benefit of being experts in one area and that is why they can do cataracts in under 10 minutes with very low complication rates. Unfortunately, the government has taken care of the lower reimbursement end of the equation so what you have is better, faster and cheaper.
The next most natural progression was the development of focused facilities that treated patients surgical needs and in the beginning even more selectively, ambulatory surgical needs. Dr. Reed and Dr. Ford were anesthesiologists in Phoenix, Ariz. They thought there was a better way to provide this service to patients and improve the service to the surgeon and anesthesiologist as well. They opened the first surgery center before there was recognition or reimbursement from Medicare. This was a financial struggle as well as political and emotional. Their colleagues said it was not safe and their battles for reimbursements went on for years. In the end, the model worked as is witnessed by the over 8,000 surgery centers that are providing service to millions of patients today. Once again, you have a focused factory that provided service in a limited scope. They did a better job and they were able to reduce costs, all of which has been proven time and time again in independent and government studies. Lower infection rate, lower mortality rate, lower medication error rate and much higher patient satisfaction.
I am proud to have been involved in the early years of the surgery center development. I was very happy to serve on the Board of Directors of what is now the ASC Association with Dr. Reed, one of the founders of our industry. I am proud to continue to work with surgery centers and to have been a part of the growth into physician owned hospitals. I am also proud to continue to serve on the Physician Hospitals of America Board of Directors. Like all new ideas, we have had our detractors and battles for legislation, reimbursement and equal treatment, but it is well worth the battle to see the quality service we are providing. At SMP, we are very proud of what we do and what we have done to help our centers grow and prosper while at the same time providing exceptional care and service to our patients and surgeons.
Many of you may know the name but not much more about whom Adam Smith was and what impact he had on shaping businesses to this day. Adam Smith was born in a small village in Kirkcaldy, Scotland, and was raised by a widowed mother. He entered the University of Glasgow at the age of 14. He later attended Balliol College at Oxford. He delivered a series of lectures following graduation and returned home as first chair of logic and then chair of moral philosophy at Glasgow University in 1752.
He tutored the Duke of Buccleuch for more than two years and earned a life pension and retired to write Wealth of Nations which was published in 1776. This was the same year as the American Declaration of Independence. Smith’s work has long been accepted as an explanation of how rational self-interest in a free-market leads to economic well being. One of the most important concepts that Smith discussed is the focused factory.
The focused factory refers to a business that limits its focus to one or a few related services. As such, they can become experts at providing that service and outperform others who are not singularly focused. What he went on to explain is that additional advantages to the focused factory include lower cost and shorter times for production. Often times, we hear the adage you can have it fast, good and cheep but you can only pick two. Fast and cheep but not very good. Fast and good but expensive. Good and cheep but not very fast. What Smith was teaching is that with a concerted focus you can have all three.
The first modern company that embraced this concept was Midas Muffler. In 1956, Nate Sherman opened the first Midas Muffler repair shop in Macon, Ga. The motto was "for as long as you own your car." For $7.00 you could get a new muffler installed and a guarantee that it would last as "long as you owned your car" or be replaced for free. This looks like a simple concept today, but back in 1956 service stations were full service. They sold gas and oil, did tune ups, collision repair, replaced mufflers, etc. Some of you remember the Texaco man who would pump your gas, check your oil and clean your windshield or the gas was free. Nate Sherman changed the business world forever with his focused muffler factory.
Healthcare has embraced this focused factory model for many years. When I was born our family doctor, Dr. Sacs, delivered me. He diagnosed that I had a Pyloric Stenosis a few days later and operated on me when I was a week old. He took care of school physicals, stitching up various injuries and eventually performing bi-lateral hernia when I was in first grade. That was before the focused factory concept was introduced to healthcare. Today, a baby is delivered by an obstetrician, a pyloric stenosis surgery would be performed by a pediatric general surgeon, minor suturing would be done in the emergency room by a trained emergency room physician, and on and on. We now have specialists for every area of the body and sub specialists for every segment of medicine. In ophthalmology for example, we have specialists in cataract surgery, cornea specialists, retinal specialists, plastic eye specialists, etc. The physicians saw the benefit of being experts in one area and that is why they can do cataracts in under 10 minutes with very low complication rates. Unfortunately, the government has taken care of the lower reimbursement end of the equation so what you have is better, faster and cheaper.
The next most natural progression was the development of focused facilities that treated patients surgical needs and in the beginning even more selectively, ambulatory surgical needs. Dr. Reed and Dr. Ford were anesthesiologists in Phoenix, Ariz. They thought there was a better way to provide this service to patients and improve the service to the surgeon and anesthesiologist as well. They opened the first surgery center before there was recognition or reimbursement from Medicare. This was a financial struggle as well as political and emotional. Their colleagues said it was not safe and their battles for reimbursements went on for years. In the end, the model worked as is witnessed by the over 8,000 surgery centers that are providing service to millions of patients today. Once again, you have a focused factory that provided service in a limited scope. They did a better job and they were able to reduce costs, all of which has been proven time and time again in independent and government studies. Lower infection rate, lower mortality rate, lower medication error rate and much higher patient satisfaction.
I am proud to have been involved in the early years of the surgery center development. I was very happy to serve on the Board of Directors of what is now the ASC Association with Dr. Reed, one of the founders of our industry. I am proud to continue to work with surgery centers and to have been a part of the growth into physician owned hospitals. I am also proud to continue to serve on the Physician Hospitals of America Board of Directors. Like all new ideas, we have had our detractors and battles for legislation, reimbursement and equal treatment, but it is well worth the battle to see the quality service we are providing. At SMP, we are very proud of what we do and what we have done to help our centers grow and prosper while at the same time providing exceptional care and service to our patients and surgeons.
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