Not Just Pocket Change

Michael’s Budget

Michael* is the Chief Financial Officer of a nationwide private practice. For the past week, all he has done is review cost reports and assess throughput, in preparation for the upcoming quarterly board meeting.

As he looks over the reports, one thing that jumps out at him is the amount of time that exam and operating rooms stood empty in the last quarter. Gulping down some coffee, he pours through the records on patient load and staffing, looking to see why those rooms might not have been needed.

The thing is, the data indicate that they had been needed. In fact, on several occasions, patients had been rescheduled at the last minute because the necessary provider was not available.

This was something Michael expected to happen occasionally, but something was off if it was happening this much.

Underutilized Space

Healthcare organizations walk a perpetual tightrope trying to provide high quality care while watching their bottom line. To manage that efficiently, every resource must be used wisely.

When space is left unutilized, it delivers a triple blow to the budget. First and foremost is the cost of staff. When providers show up for a scheduled procedure, only to be left hanging when it gets canceled, the practice still has to pay for their time.

The practice also still pays for all overhead costs. Nowhere is that more apparent than when an operating room is left unutilized. Estimates of the cost of OR time range from $15 to $20 per minute, and, depending on the procedure and other factors, the cost can easily soar past $20.1

Unutilized imaging equipment also falls into this category. As the trend continues away from a fee-for-service model, radiology is transitioning from a revenue center to a cost center. When equipment is left unutilized, the costs add up.

Finally, there is the opportunity cost due to lost revenue from canceled procedures. This cost is magnified when delays throw the schedule off for the rest of the day.

By allowing practices to plan properly, patient demand forecasting prevents the need to leave rooms empty or equipment unutilized. Short-staffing becomes a thing of the past, and staffing mix is no longer a source of concern. Rooms and equipment can be properly utilized, knowing that the right person has been assigned to the right case at the right time.

When practices have access to an integrated view including patient demand, staffing levels, and available rooms, the most common – and most costly – inefficiencies disappear.

Readmissions

In addition to reducing the costs associated with underutilized space, patient demand forecasting also provides healthcare organizations with a considerable financial benefit related to preventable readmissions, which represent one-third of all readmissions.2

The costs associated with readmissions are considerable. According to 2009 data, the mean cost of readmission for congestive heart failure was $13,000, and all-cause readmissions averaged $11,200.3

Since readmission rates are an important indicator of patient care, there is also a financial incentive in place, via the PPACA’s Medicare Hospital Readmissions Reduction Program, to keep readmission levels low.

As staffing levels have been associated with increased readmissions,4 healthcare organizations with the foresight to align staffing levels with patient load are in a strong position to control readmission costs.

Locum Tenens and Overtime Costs

In situations where short-staffing or inappropriate provider mix affect procedures that cannot be delayed, practices do not have a lot of options. Either they hire a locum tenens, or they review their permanent staff to see who can be brought in or asked to stay later, which frequently results in overtime.

Locums and overtime are two of the biggest hits on healthcare staffing budgets, yet both can be greatly reduced when practices are able to accurately forecast patient demand.

Where reliance on locums is high, the savings can be tremendous. One private anesthesiology practice was able to save over $1,000,000 on locums annually, simply by switching to a staffing model emphasizing the use of permanent staff, and using an automated staff scheduling tool to implement it.5 (See: Case Study of East Carolina Anesthesia Associates.)

Healthcare organizations that switch to a forecasting approach linking patient demand and staffing availability, give themselves a buffer against the high costs of underutilized space, readmissions, locum tenens, and overtime.

*Names and situations presented throughout this post are meant to serve as fictional examples only. They have been created as composites representing common situations, but do not reflect specific individuals or organizations.

This post is an excerpt from the OpenTempo report on Patient Demand Forecasting.

Sources

1 Molly Gamble, “6 Cornerstones of Operating Room Efficiency: Best Practices for Each,” Becker’s Hospital Review. January 18, 2013, http://www.beckershospitalreview.com/or-efficiencies/6-cornerstones-of-operating-room-efficiency-best-practices-for-each.html
2 Circle Square, Inc., “HIT Trends,” July 2014, page 20. http://circlesquareinc.com/
3 Ellie Rizzo, “6 Stats o the Cost of Readmission for CMS-Tracked Conditions,” Becker’s Hospital Review. December 12, 2013,http://www.beckershospitalreview.com/quality/6-stats-on-the-cost-of-readmission-for-cms-tracked-conditions.html
4 MD McHugh and C Ma, “Hospital Nursing and 30 Day Readmissions among Medicare Patients with Heart Failure, Acute Myocardial Infarction, and Pneumonia,” Med Care. 2013 Jan;51(1):52-9. http://www.ncbi.nlm.nih.gov/pubmed/23151591
5 “Case Study: East Carolina Anesthesia Associates Improves Staffing,” OpenTempo. April, 2014, http://opentempo.com/case-study-east-carolina-anesthesia-schedules/