Understanding the true financial impact of the Clinical Workforce on Surgical Performance
As one Health System CEO reminded me recently, “Healthcare is ultimately about people.” This seems obvious, but the context of his comment was not centered on the patients his Health System serves but rather on that organization’s clinical workforce. Labor remains a Health System’s largest operating expense with on average over 55% of costs spent on its human resources. Yet as Health Systems accept more risk, support population health management, and embrace consumer-driven operations, the mix and utilization of that labor is shifting. Understanding how those critical resources spend their time, what that costs, and what they produce is now more important than ever.
This is particularly true in the surgical services area, and yet real activity-based costing (and thus contribution margin) of clinical resources in this domain has eluded many leaders. A physician’s true productivity, quality and financial contribution remains a complex question even with a greater proportion now employed by Health Systems. Productivity is often defined as throughput and effort as with the RVU model, and yet that widely-used approach is frequently deemed unsatisfactory both by clinicians and administrators. RVUs measure relative volume and effort but not quality or financial contribution (profit) to the health system. While they are a good general barometer, they are not nearly precise enough in local circumstances to judge productivity and true financial impact and thus inform staffing decisions.
Most physicians with whom I have worked would rather understand their case volume, acuity, clinical outcomes, and the revenue and particularly the profit they generate. They also want to be measured on and manage to those metrics not a more simplistic volume-based approach. Crucially, current volume-based statistics don’t understand the staffing model and associated costs surrounding the case including attributes like Anesthesia concurrency or premium pay for skilled nursing. For example, Surgeon A may have good volume but if her cases run late and she habitually drives overtime or incentive pay expenses her contribution to the financial health of the organization is diminished. Should she warrant higher compensation than a surgeon with lower volume but higher margin contribution? These volume-based approaches also suppress research and teaching time in the Academic setting and assign no value to these contributions that remain critical to the mission of those institutions. And today’s productivity reporting often is excessively retrospective sometimes 4-6 months behind the actual activity it is measuring.
In the end, the true indicators of clinician performance in Surgical Services are firstly quality and then profitability. Now that one drives the other (for example with the value-based payment program in joint replacement), Health Systems must gain a more granular and much crisper understanding of total cost and especially labor cost in the context of activity. They must also get much closer to real-time measurements. That is why most agree it is time for a new definition of productivity and success in surgical services.
As I have studied this issue working with many Health Systems nationwide, leaders and clinician alike have a hard time prioritizing and taking action even though they recognize a need to create a better approach. The reality is many organization perceive more pressing issues but those that have focused on analyzing their surgical labor spend have a significant competitive advantage.
So where should an organization start in this effort? Shifting to a more activity-based approach is not simply a matter of measuring a different set of variables. While access to and validity of data is of course important, the other factors like cultural change, governance, and transparency are equally critical to success. That said, there are four types of information that, while simple to understand, are tough to root out without the right tools, the right policies, and the right discipline. And remember, this applies to the full continuum of surgical care not just the performance of the surgeon. Any approach here must include Perioperative Services and Anesthesia Services to complete the picture. I recommend a systematic, data-driven approach that examines:
- The scope and type of work required: This ultimately relates to the schedule for your clinical staff. We need to know what work was planned by whom and where (since any analysis must take into account multiple sites of care). The biggest roadblock I see here is that many Perioperative teams still manage their schedules using paper or spreadsheet-based approaches. This obviously renders any form of analysis moot from the outset since the data is frequently inaccessible.
- How long that activity took: This revolves around timing of actual work performed. For non-exempt employees this frequently comes from your time-clock system. However, the notion of physicians “clocking in” is often anathema. This requires cultural and policy change or an agreement on how to measure clinician time that is wholly and effectively adopted.
- What that activity costs: This requires the ability to incorporate compensation data into any analysis. This can be challenging given that service lines or departments typically report out compensation to payroll based on their own analysis of work performed not only for surgical time but also for other duties that would involve incentive pay or premium pay situations. For effective analysis we have to consolidate this information into a single source of truth and connect it to activity if at all possible before performing retrospective review.
- What did the activity produce: Here we can measure financial output and also clinical quality to determine the result of specific activity. This requires the amalgamation of outcomes and billing data to complete the picture.
Seen in this light, the task appears substantial. However, with the right tools and an up-front acknowledgement of the benefit for all involved we can re-frame how surgical performance is measured.
Written by Rich Miller, Chief Strategy Officer, OpenTempo