Improving Your Bottom Line!!!

Many hospitals with long history of financial success are going through unprecedented tough times as a result of reimbursement changes, general economic factors, and changes brought about by advances in technology, medicine and pharmaceuticals. If you have responsibility for financial results, here is a quick action step check list of specific things you can do to optimize the hospital's position.

Revenue Management

1. Is the Charge Master up to date?
2. Is coding being done correctly? An amazing number of hospitals leave money on the table because of coding errors and omissions resulting in under billing for medically-necessary services that were appropriately provided.
3. Does your medical staff provide sufficient medical record documentation so that coding and billing can generate all revenue that the hospital is due for care provided?Is the medical staff knowledgeable and supportive about compliance issues?

Expense Management

1. How do staffing levels in your hospital compare to the competition? Have you benchmarked department staffing recently? Practices change and so do department activity volumes.
2. Does each hospital department have and use workload-based department productivity standards, department staffing templates and the monitoring mechanisms in place to support their effective use?
3. Is department activity data being reported accurately? More than 70% of U.S. acute care hospitals are attempting to manage with data that contain significant errors and omissions.
4. Are your departments' staff scheduling methods designed to produce budget results? Do department staff scheduling methods provide real-time feedback to managers on the budget impact of staff scheduling decisions?
5. Is your work force designed to support activity-based staffing? Does each department employ an appropriate mix of full-time core staff and part-time staff based on analysis of workload patterns?
6. Does Materials Management use established economic order quantities and reorder points? Does it track and record inventory turns?
7. Does the hospital employ a system of utilization benchmarking? For example, the pharmacy may be operating efficiently in terms of the number of unit doses dispensed per paid hour but if your physicians are over-prescribing drugs the net effect is negative, not only in terms of unnecessary labor and drug expense but potentially in terms of quality. Similarly, your laundry may be operating very efficiently in terms of laundry pounds per paid hour but how does the number of laundry pounds generated per patient day compare against other hospitals?

When you can respond positively to each check list item, you will have made a tremendous positive impact on the hospital's bottom line.

Where is the fire?

Here's a quick management quiz for department heads and managers.

• Are you one of those managers that really enjoys fighting fires?
  


• Do you get a secret adrenalin rush when a crisis emerges and you have to "drop everything" to solve it (because you're the only one who can)?
  


• Do the same crises keep recurring?
  


• Are there just never enough hours in the day?
  


• Is your "to-do" list so long that it's becoming an embarrassment?
  

If you answered "yes" to these questions, you may not be adequately performing the management cycle's planning and organizing functions. Not to overdo the fire analogy, but if you are a manager who loves crises, failure to plan is the management equivalent of arson. That is, you are CREATING tomorrow's fires.

In the first place, well-managed departments don't have that many fires to put out. They're characterized by well-trained people performing their jobs by way of standard processes. If the same problems crop up again and again, you need to investigate to find the root cause of the problem.

Stand back and take a look at how your spending your time. If you've performed the management cycle's planning function, you developed goals and objectives, for your department and for you personally. These goals and objectives are theoretically among the most important things in your world of work.

Now, how much of your day is routinely spent performing functions that advance you toward your goals and objectives? If the answer is "not much," what does it say if you don't spend most of your time on things that will help achieve your goals? A few hours spent fixing root causes can free up hundreds of "fire fighting" hours for more productive activity.

Keys to Productivity Management!

Human productivity is defined by the ratio of labor hours to units of output. Here are a few keys to effective productivity management.

• Eliminate unnecessary calls on labor that consume time but do not increase output.

• Optimize the effectiveness of people's time through the application of good technology.

• Schedule as much of the department's work as possible. Then match the availability of resources--including human resources--to that scheduled work through employee work schedule design and routine assignments.

• Some department work is time-critical (that is, somethings must be done at a certain time). Other department work is not. Inventory the department's tasks and sort them into "time-critical" and "not time-critical" task groups. In departments with multiple shifts, adjustments can sometimes be made to the timing of work that greatly benefit productivity. If there is a concentration of "not time critical" tasks on the day shift, consider the practicality of shifting at least a portion of those tasks to evenings or nights. This can have a profound positive impact, depending upon circumstances.

• Evaluate the seasonal, day-of-week and hour-of-day patterns in work flow and corresponding labor demand. Develop a work force of full-time and part-time staff to match those patterns to facilitate optimum staffing.

• Measure and manage the relationship between total paid hours and productive (worked) hours. In the typical U.S. acute care hospital department, productive hours generally range from 87% to 91% of total paid hours. What is the relationship in your department?

• Make judicious use of overtime. In departments where workload volumes are very volatile, overtime can be a better answer than "staffing up."

• Establish attainable productivity goals and integrate them into the labor budget. Routinely measure performance against those goals. Periodically check department productivity goals against external benchmarks to assure "reasonableness" and continued competitiveness.

• Connect department labor scheduling methods and practices to labor budget goals. Develop tools to prospectively measure the impact of staffing at expected unit of service volumes on the attainment of budgetary targets.

• Develop a culture that values human productivity. Reinforce the idea of stewardship by emphasizing that unnecessary labor costs place a financial burden on patients, third parties, and the community at large.

Assuring optimum productivity should be an integral part of the management process, not a task that should be pursued periodically on a project basis. How does your hospital treat productivity management?

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.

Avoid Benchmarking's Bear Traps!

On our website you'll find a discussion of online "real time" benchmarking. IMPACT!demonstrates just how far benchmarking has come from the "good old days" of Monitrend. (Editor's note: If you don't remember Monitrend, the author believes you are far too young to hold a responsible healthcare management position). Although that ancient and noble first effort at benchmarking sometimes gets a bad rap today, it really deserves a tip of the hat. Monitrend was the first serious effort to provide the field with benchmarking data using computer technology.

In any case, the occasion of IMPACT's introduction provides a perfect excuse to revisit benchmarking's basic foundations and review its successes (and occasional miscues) as a management tool.

What is a benchmark?

The beginning is always a good place to start any endeavor, so let us first address the most fundamental of all benchmarking questions which is, "What is a benchmark?"

According to The American Heritage Dictionary of the English Language (© 2000 Houghton Mifflin Company), a benchmark is "a standard by which something can be measured or judged." In the case of most hospital benchmarking efforts, that standard is derived by observing the performance of other hospitals in whichever area is under study.

The distinction between a "benchmark" and a "management goal" is an important one. A benchmark comes from outside the organization. In the case of labor productivity benchmarking, for example, the benchmark is based upon the reported staffing performance of other hospitals. A management goal, on the other hand, is established by the hospital.

What can benchmarking tell us?

Some management teams have misunderstood the question that benchmarking can answer. That question is not, "How should Department "X" at my hospital be staffed?" It is obvious upon reflection that a staffing benchmark generated by an aggregation of departments in other hospitals can't say much about how a department in your hospital should be staffed. In fact, assuming peer groups are selected appropriately, the only question that benchmarking can answer is, "What is the range of observed staffing in reasonably similar departments in reasonably similar hospitals?" The implications for management action that arise from the differences between these two questions are profound.

Department "X" in any hospital is a system. It is axiomatic that any system performs exactly in the way it is built to perform. It cannot be otherwise. How the system you call Department "X" in your hospital should be staffed is a function of hundreds of interconnected elements. Now it may well be the case that there are "broken" elements within Department "X" that prevent optimum performance. However, if Department "X" is operating with a broken element, that broken element is as much a part of how Department "X" is built at the moment as is any other element.

Benchmarking is a powerful management tool that has helped many hospitals achieve significant cost reductions (millions of dollars annually in some cases) while facilitating improvements in quality, physician and patient satisfaction, employee relations and community image. As with any powerful resource, its misuse can bring devastating consequences.

One of the most common serious mistakes that hospitals make is to impose benchmark-based department productivity standards without knowing whether the established standards will really allow work to be done at acceptable quality levels. When a department's performance varies significantly from valid benchmarking comparisons, it is imperative that the reasons for that variance be identified and resolved before a potentially crippling standard is imposed. Benchmarking is an indispensable, even vital, management resource but it is the beginning of an improvement process, not the end of one.

How often should benchmarks be updated?

That depends upon who is going to use the benchmarks and for what purposes.

At the department manager level, this question helps drive home the reason for the distinction made earlier between external benchmarks and department productivity standards which are internal management goals. Assuming reasonably stable department workloads, a systematic comparison of management's productivity standards against external benchmarks should be accomplished at regularly scheduled intervals, say twice a year or so. Conversely, if department workloads are volatile or trending sharply in one direction or another, the comparison should be done more frequently to assess whether management's productivity standards need to be changed. While it is true that observed staffing practices change over time because of new technology, increased medical knowledge, regulatory changes, and a host of other factors, bombarding department heads with constantly changing benchmarks may unintentionally discourage them from making good use of data and actually work against effective cost management.

Power users, on the other hand, require more frequent access to current information. For example, Decision Support staff need the most current data available when putting together "what if" scenarios for budgeting, acquisition and consolidation planning, and new service development. In a similar vein, because the relationship between workload and staffing requirements is not linear, Human Resource planners need to apply the most current activity-based benchmarks against historic utilization swings to develop core staffing plans that project the best possible mix of full-time and part-time staff given the range of anticipated workload.

FJB