The Incredible Power of Benchmarks!

Benchmarks are among the most powerful tools available to hospital management teams. Their power as a cost management tool is only the beginning. Here’s how to make maximum use of benchmarks.

• It goes without saying that hospitals benchmark labor productivity to maintain financial viability and competitiveness.

The best benchmarking programs answer the question, “What is the range of staffing in departments like ours with the same basic workload?” Today’s ratio of labor cost to net revenue typically lies between 40% and 60%. The hospital’s margin literally depends upon this ratio. For hospitals with labor costs above the observed median (50.2% of net revenue), obtaining department-level productivity benchmarks is the critical first step in identifying cost reduction opportunities.

• Perhaps less obviously, an identified labor productivity variance opens the door to improvement opportunities that go far beyond potential labor cost savings in a single department. Labor productivity variances are markers for performance limiting factors that impact everything from quality to physician satisfaction and employee relations. Productivity variances that appear in a single department are often caused by factors outside the department and they can have a significant unrecognized organization-wide impact. Here are some real world examples.

Benchmarking identified a significant labor productivity variance in the Environmental Services (Housekeeping) department. Upon investigation, it was determined that the medical staff’s failure to observe a standard discharge time (and the hospital’s failure to enforce it) was making it impossible for Housekeeping to complete terminal cleaning of patient rooms upon discharge, resulting in excessive scheduling of housekeeping staff. In addition, this practice caused the Emergency Department to hold patients in the ER for unacceptably long periods because of bed availability.

Benchmarking identified a significant labor productivity variance in the Laboratory. It was found that both Laboratory and the Nursing staff spent an excessive amount of time on the telephone talking with each other. The cause? New nurses were not receiving training on the order entry and results reporting systems. Consequently, orders were being entered by unit secretaries who lacked the necessary clinical understanding to order tests correctly. This practice also generated many unnecessary telephone calls for results that were readily available in the system, one key stroke away.

Systematically identifying and resolving those factors resulted in significant cost reductions and simultaneously produced dramatic performance improvements.
Hospitals use the benchmarking process to validate their management data set. A significant percentage of hospitals are managing with data that contains errors, some of which are material. A quality benchmarking program expects to see certain relationships among data and flags data that don’t pass those screens.

Hospitals use benchmarking to plan new services and new facilities; to help evaluate acquisitions and consolidations; to make mid-course corrections when budget projections don’t pan out; and for various modeling processes (“what if” games).

How often should the hospital obtain new benchmarks? The healthcare environment is defined by change. Technology, medical innovation, regulatory requirements and management practices can combine to produce dramatic changes in staffing patterns that affect hospitals generally. It is important to stay abreast of current practices. Overall, benchmarks should be checked annually.

The relationship between workload and the number of staff required to perform the work is not linear. Increases and decreases in department workload can render last year’s benchmarks irrelevant. As a general proposition, hospitals should also benchmark department-level productivity whenever a significant change in workload is observed.