Management Engineering

& Medical Customers


Management engineering is the application of industrial engineering to the work of gaining performance through an organized effort.  It directly provides professional support to medical administration, rather than to performance of medical procedures.  It opens administration as a whole new area for process improvement.

Management engineering provides new clarity and focus in the area of customer and product.  This emerging specialty applies the principles of efficiency engineering to the work of managing medical organizations.

As this addresses the expertise of management, management-engineering tools are appropriate for direct application by administrators.


The Pairing Principle

One engineered management tool is a new focus on customer relations, with an added ability to communicate essentials to working managers.  This is doubly important for management over medical businesses, where medical practitioners insist that what they are doing is the only thing that really matters.

Management engineering starts with business purpose (Figure 1), and that is inherently financial.  The purpose for having a medical organization is to provide owners and investors with income.  The medical business that earns money for its owners and investors will do well.  If it fails in this purpose, it is likely to fail as a business.

Profitable operation is accomplished, in general terms, through providing medical professionals with a way to market their skills and earn their living.  The operational purpose for the organization is supporting medical professionals as they render medical services to patients.

Simply stated, the Pairing Principle identifies products by customers, and customers by products.  Those who receive the products (Figure 2) are the functional customers.  Whatever those customers receive as valuable output are functional products.  The pairing principle ties product and customer to the purpose that stands behind the success of a medical business.

It is here that the business of medicine parts ways from the functions of the medical practitioner.  Medical services are given to patients, but patients are often not the people who pay the bills.  Functional customers include relatives (as with children receiving parental support) and insurance companies.  Profitable operation cannot be assured through rendering support to the ones who directly receive the medical attention, but to the ones who pay the bills.  This focus is on the essential income that defines success for the medical business.

Under the pairing principle, whatever the medical organization provides to these functional customers to induce them to pay will be the functional product.


I would note that the practice of medicine has also recognized the importance of this Principle.  Bedside manner is an important subject in medical training; and this is not because it heals the customer, but because it is an essential in giving what is needed to earn income from the medical support provided.


It is in maintaining this perspective that the management engineer earns his pay.  Value is rendered by maintaining focus on productive performance in terms of fulfilling the basic purpose of the organization.  The twin questions to be answered are: "Who are these customers?"  and "What are we providing to them as valuable product?"

Another important aspect is seen when looking at the Pairing Principle in reverse.  We will know the customer by the flow of resources and funds into the organization.  The ones who fund or endow a medical business will be the functional customers.  Whatever these people receive will be the functional product that generates that income.


Line and Staff

Another engineered management tool will be required to maximize the results from our use of the Pairing Principle.  It is found in the functional distinction between Line and Staff groups (Figure 3).

The business of medicine is founded on gaining income from customers, and the customers are the ones who provide income.  The medical organization, like all businesses, survives by delivering something valuable to its customers. 

The second clarification reverses the direction in which we use Pairing Principle, and looks at the business from the standpoint of the functional customer.  From that perspective, the medical business converts dollars-paid into functional products-received.  The customer’s viewpoint sees conversion of their dollars into valued functional products.

The potency of this concept is that it identifies the specific activities that fulfill the profitable purpose of the medical business. 

Line functions are those that take a direct and effective part in the conversion process.  Line functions include the gathering of income (billing and collections).  It includes the efforts that convert income into deliverable products.  It includes distribution of the products to functional customers.  These are all necessary to assure the earning of profit from business operations.

Staff functions are those that support the line functions.  Management is a staff function.  Personnel and financial offices perform staff functions.  Information management is a staff function.  Pharmacy and X-ray support are often staff functions.

One of the most practical ways to distinguish line and staff is to examine whether a function can be contracted out without changing business essentials.  If the Pharmacy is handled by an outside business, the hospital continues to function without any major change.  If billing is passed to a collection agency, then there is an effective change in the functional customer; and the purpose of the business is giving the collection agency what it values for the performance of its collections function.

I would also note that there is an artistry in establishing the vision of any business, and it is reflected in line and staff distinctions.  For a medical business challenge, question whether medical advertising a line or staff function?  The way this is answered is not predetermined.  It depends on whether this advertising is seen as a value distributed that earns income, or whether it is seen as support for those who are identifying customers.


General Application

The functional concept of customer developed above should provide impetus for increased business performance.  The performance is in the delivery of functional products to those who pay the bill.  The patient is a customer when that patient pays the bill for services rendered.  The family of the patient is the customer when the family pays the bill.  The insurance carrier is the customer to the extent that the patient is insured. 

Gathering income is a line function, more assuredly so than even the rendering of medical services to patients.  Distributing functional products (such as insurance claims) to functional customers, is a line function, and completed claim forms are functional products.  These are essential parts of the larger profitable operation of the medical business.

Clearly, past practices have not treated these essential functions with adequate intensity of business purpose.  Giving insurance providers what they require to pay the bill earns more dollars than the practice of medicine on patients.  This “need to deal with income providers” is much more valuable than we have traditionally allowed. 

Functional products are what we deliver to these customers to induce their payment.

Clearly, the primary output from the medical facility is medical treatment for the patient, but this is often not what we deliver to the functional customers as inducement for them to pay.

The principle product for families and patients has been the bill.  This is what the hospital produces, with the medical practitioner sometimes acting as the hospital’s agent for delivery.  The principle product for insurance carriers has been paperwork completed to insurance company specification.  Again, the medical community has traditionally taken a very passive role in assuring the delivery of value to those whose reaction spells the success or failure of the medical business venture.

Modern medical billing, which is often what we give to the functional customer,  is a distressingly poor product. 


Cultural Change

The first change requirement is obvious.  It is a good and effective recognition of the value of dealing directly with functional customers.  The second change is a focus on product, both redefining it by value to be delivered, and streamlining delivery.  The third change is in assignment based on the first two.  The idea of assigning a primary line function to bookkeepers and accountants is not intelligent.


Every functional Customer

Is entitled to special treatment.


The medical treatment may be equal for all patients, but the business product needs to recognize the ones who will provide income.  The patient who is paying his or her own bill should be given special non-medical privileges.  The family who is paying the bill of a patient should be given special family privileges.  The insurance company that is paying the bill of a patient is entitled to special support in its function.

That special privilege for an admitted patient-customer should, at the very least, include a personal visit by someone from the administrator’s office to establish that they are special.  If a self-paying patient is without visitors, then someone should be provided by the administration on an occasional basis to assure that they feel they are recognized by the medical business as a valued customer.

The family that pays the bill of a patient probably should receive a personal call from an administrative office, again establishing that they are valued as customers.  This is the rendering of value, equivalent to the practiced bedside manner assumed by the working doctor.

The business to business relationship with an insurance provider can be more involved, with joint development of communications that will enhance relationships.  There probably should be both a personal and alternate assigned point of contact for dealing with insurance carriers as major customers, assuring that their concerns are handled expeditiously.  A personal contact should be established between the hospital administrator and a senior manager at each major insurance carrier.  This channel should be maintained to handle the exceptions that are bound to arise.  Maintaining that communication channel is a product that is delivered to the insurance business to maximize the value the medical business provides to them.


Cultural Impacts on Billing

To this point, I have addressed enhancing customer relations, and initiating new cultural mandates that are pointed to the economic success of the medical business.  There are also cultural impacts on traditional products, such as customer-bills. 

The bare delivery of an accounting and bookkeeping product should be considered wholly unacceptable.  The same should be considered as a necessity to be appended to the valuable product; and that product should be designed to deliver value to those receiving the bill.

This raises the question of what will have value to the customer.  The value of bookkeeping and accounting is obviously limited to accuracy and reasonableness.  It is most valuable to the insurance carrier, and is merely a detail accounting for other customers.  It delivers no new value.

The value for the admitted patient-customer is found in “delivered care.”  It is at this point where the special nature of the administrative effort suggested above will be most obvious.  The one who visited the patient should at least sign a note thanking the customer for working with the hospital.  If someone has visited the “alone” patient on several occasions, a short personal note will have great value.  The value will be delivered in the personal care shown by the administrative office, with the accounting appended.


Personal care is the value delivered.


The value for the admitted patient’s family is much the same, but should be oriented to deliver value to those who will pay the bill.  The same sort of personal note should be provided, but specifically recognizing the importance of the family to medical procedures that are undertaken within the hospital.  This note goes to the family, not to the patient.

If both the individual and the family are customers, it is reasonable to send two notes.  This is delivery of value, and should be handled as a cost of doing business.

The value delivered to the insurance carrier will be in simplified communication and supportive administration, as well as maintaining personal relationships at both the administrative and billing levels.  The purpose of the internal billing operation is to assure support for carrier payments.  The purpose for administrator involvement is assuring payments through interaction on an exception basis.  There should be attention to joint process improvements to better communicate billing information to the carriers in support of their payments.


Cultural Impacts on Other Activities

There is another opportunity entirely where medical practitioners are using a hospital for furtherance of their practices.  Having these separate businesses making separate communications to hospital customers impacts the quality of delivered functional products.  There is value in consolidating all billing through the hospital’s billing process.  This can add value to those whose payments spell success for the medical business.

Achieving this is not a matter of enforcement, so much as mutual benefit.  The larger medical business is able to establish a more encompassing and regular communication with customers, and will be in a position to “sell” this communication and billing service to medical practitioners.  Not only is this likely to be appreciated by the carriers and the customers, but by the doctors as well.  The central process can become the collection point, or can even assure the payment through acting as a local insurance point (a commercial insurance carrier agent that will, for a fee, assure medical payments).

Another opportunity exists for the practitioner, especially for those on staff, to effectively sign his or her work by adding commentary to the administrative message delivered to business customers.



Another aspect of this approach is that it assures personal contact with patients.  Problems collecting pay, whether or not the fault of the patient, become immediate exception management issues.  With the engineered administrative process, there is an established personal link to patients that can be used to identify the exception, determine any activity required, and put corrective measures into place.  A call from the administrative office, especially from the one who established contact in the hospital, is a great incentive for working together for a solution.

This is also a natural place to make use of available industrial engineering resources.  Automating communications and working for process improvements with insurance carriers, is a high potential area for long-term benefits.



Management Engineering is an emerging specialty; one that is just coming into its own as a separate area of industrial engineering.  Its principles and rules of application are new.  As such, they are likely to be crude, but highly effective in identifying and implementing efficiency improvements.

Management of medical organizations has been restricted by assuming that its product is medical services delivered to patients, who are often not the functional customers.  An engineered viewpoint, focused on assuring profitable operation, which opens several new areas for substantial business improvements.