by Wilson Weber, CHC Executive VP and COO 

Hospital leaders may recognize the need for improvement but may not know where to turn. Even before a hospital shows signs of financial distress, the responsible action is to take a close look at areas of operations. Since operations span the entire hospital, a head-to-toe operational assessment may be warranted to fully address financial and performance issues.

Taking a thorough look at operations may seem daunting. Consider starting with an evaluation of outsourced contracts; some may have been in place for years and can be renegotiated or even eliminated. Below are high-level best practice tips that serve as cost-reduction and revenue enhancement strategies, and can help redirect an ailing situation toward a partial or full turnaround.

Evaluate labor and its costs.

Labor costs typically account for 50 to 60 percent of a hospital’s operating revenue, so a thorough review of productivity is critical. While a productivity tool can help to set productivity targets, it also integrates a level of accountability toward helping to control labor expenses. Productivity evaluation can also indicate the right level of staffing by shift and day. Productivity standards, manager involvement, and executive oversight will move you toward your goals of greater efficiency while reducing labor costs.  

Analyze supply costs. 

Second only to labor costs, supply spend represents significant expense for hospitals. Often, small hospitals don’t have the negotiating power, so look to the expertise of a group purchasing organization (GPO), or evaluate whether you have the right GPO with your interests in mind. From our experience, the right GPO relationship can mean supply savings from 10 to 14 percent.

One key area to look at is your supply inventory. Have quantities been adjusted based on volumes, or types of procedures such as those performed in orthopedics or the cath lab? It may be possible to work with vendors to be charged for supplies when they’re needed (just-in-time delivery) versus overstocking for procedures that may be scheduled; this practice helps to free up dollars for other purposes. Also examine inventory “turns,” the number of times per year that supplies are being replaced. Based on our experience, a reasonable level of inventory turn is 9 to 12 times per year. This examination could indicate unnecessary items in your inventory.

Examine revenue cycle management.

Because the revenue cycle is a complex function, points in the process may be overlooked or broken. Your hospital may also face common challenges such as keeping your chargemaster current and competitively priced, and keeping up with each payer’s unique rates and payment methodology.

Additional areas to evaluate and address:

• Have managed care contracts been updated or renegotiated?
• Compare charges to reimbursement. Although you may be charging for an item at a fixed cost, it doesn’t necessarily mean that you will be reimbursed at that level. Depending on the managed care plan, or Medicare or Medicaid, reimbursement could equate to 25 cents on the dollar. 

Move ahead with greater confidence.

Your overall action plans should identify who is responsible and accountable for each area of evaluation and opportunity. The discipline of frequent review helps to ensure that you are not drifting off the plan and that progress is occurring across all areas. A new level of accountability across team members is one indication that you have arrived. Be mindful that it does take time and diligence to impact turnaround efforts.

Rural and community hospital leaders – at the forefront in meeting community healthcare needs – frequently encounter challenges that may significantly impact operations and an organization’s long-term financial viability. From variations in patient mix to marketplace mergers and legislative reform, the environment continues to change.

To better position your facility for success, here are some best practice tips to strengthen access to care and delivery of services. Market customization, operational performance, and collaboration opportunities should be at the top of the list.

Customize your hospital’s action plan to your market

Use market demographics and payer mix data to think “outside the box” – every community is different. What works for one hospital may not be right for another. Adopt a strategic approach to evaluating new services and programs. Here are a few specific ideas that have worked for several CHC Consulting clients:

• For markets with a high percentage of Medicare beneficiaries, heart disease, diabetes, and pulmonary conditions are highly prevalent, and a majority of those beneficiaries have multiple chronic conditions. If your market includes a high percentage of older adults with diabetes, a wound care program could be an appropriate service offering. To help keep more elderly patients with heart and lung conditions healthy and active, cardiac and pulmonary rehabilitation services may be the answer.
  
• For an aging demographic, depression and age-related illnesses often amplify the need for older adults and their families to seek specialized geropsychology care. Consider providing these services in both inpatient and outpatient settings
  
• For rural hospitals seeking to increase the frequency and speed of specialty services, telemedicine technology provides clinical healthcare to many remote communities. Telemedicine extends specialized physician care to areas without the need for an onsite physical presence. Telemedicine can be particularly helpful for stroke patients who need prompt neurology services in order to achieve the best possible outcome.

Plan for the future

Annual strategic planning is vital to long-term success. The process should include an environmental assessment reviewing marketplace health needs along with medical staff planning. Proactive retention, succession planning and recruitment efforts are especially important in smaller markets where it can take longer to fill vacant positions.

Improve operational performance

Labor is the largest portion of a hospital’s budget. This means it’s critical to closely monitor and manage labor. Analyze staffing and match your workforce to the services needed; research scheduling options and cross-training opportunities to capitalize on efficiency. Could nurse practitioners, physician extenders or others benefit the hospital or community? In addition to labor, supply costs are one of the fastest-growing hospital cost centers. Carefully review your facility’s potential for savings on supplies and pharmaceuticals through a group purchasing organization (GPO) that specializes in community hospitals. Also, look closely at your revenue cycle for opportunities to improve revenue capture and collections.

Team up with area providers and agencies to meet community needs

Collaborative efforts including clinical affiliations with other hospitals or systems can improve population health management and care delivery. For instance, an affiliation agreement could bring a needed physician specialist to your community, a reasonable alternative to recruiting and supporting a medical practitioner on a full-time basis.

Government support can also improve access to community-based health care to broaden the services you provide. State and federal grant dollars support clinical and preventive services such as mammograms; funding is available for telemedicine services and health information technology as well.

Learn more about CHC Consulting solutions including CHC Hospital Operations Services, CHC Strategy Services, and CHC Supply Trust, a GPO just for community hospitals.

By Jill Bayless, CHC SVP Clinical Services

Improving a hospital’s financial performance seems relatively simple – it’s driven by decreasing costs and increasing revenue. In reality it’s quite complicated to optimize these factors while keeping quality care top of mind. One of the biggest challenges for hospitals is managing staff productivity, which means maintaining the right number and mix of clinical staff based on patient diagnoses and volume. Optimizing productivity is critically important because the cost of labor is the greatest expense for a hospital.

In our experience, almost every hospital has some room to improve staffing productivity. Here are some top-line recommendations to help a hospital department run more like a successful business.

1. First of all, take a look at the numbers. Compare staffing levels to patient census information for the hospital as a whole and for each specific department. Reviewing staffing data over time will help identify trends and opportunities for improvement.
2. Next, investigate the reasons for any discrepancies. Bring key players to the table – department managers, administrators and others - to discuss possible alternatives. Would shifting and flexing based on time of year or physician activity be advisable? Invite questions from everyone engaged in the process.
3. Set an acceptable productivity target standard. Use the data review, input from personnel and national benchmarks to establish a standard staffing ratio for the hospital overall and for each department.
4. Establish ongoing tracking system. A plan to maintain this productivity standard is critical for success. Successful hospitals make department managers responsible for meeting staffing benchmarks and for implementing flexible staffing based on patient census figures.
5. Review the standard. On an ongoing basis, set up a regular time for managers and leaders to review departmental staffing guidelines and make necessary changes.

Some additional tips on staffing and productivity:

1. Look at total hours paid vs. hours worked, which excludes PTO and holiday time. Hours worked is the best benchmark to use for the purpose of improving staff productivity. Each department will have a unique work standard; for example, the number of procedures in the OR, or patient census on an inpatient unit.
2. Consider work process redesign. The best department managers and CNOs manage staffing levels from shift to shift and cross-train personnel across departments, especially in smaller facilities.
3. Rethink span of control. It may be possible for one director to manage several departments.
4. Analyze compensation practices across the organization for standardization and consistency.
5. Always monitor quality of care – HCAHPS, patient perception, and employee and physician satisfaction. Examine readmissions and other quality of care metrics regularly to ensure quality of care.
6. From an operational perspective, consider the potential impact of external factors. For example, if one surgeon is leaving the hospital staff, how might that affect OR staffing requirements until a new surgeon comes on board?
7. Help to educate hospital board members on the potential impact that managing productivity will have on the hospital’s financial performance. In many cases, where there is marginal financial performance, a focus on productivity will allow the facility to maintain viability.

CHC offers a comprehensive assessment to help clients take an in-depth look at productivity and staffing concerns. Learn more about CHC Operational Assessment Services.

Hospitals across the nation are seeking ways to assess and improve staff productivity. CHC Consulting, the management and consulting arm of Community Hospital Corporation, now offers a proprietary CHC Productivity Tool™ to help hospitals monitor labor expenses and maximize staff productivity.

Over two years ago, St. Mark’s Medical Center (SMMC) in La Grange, Texas, began to implement this process in order to help medical center leadership better oversee labor costs, benchmark performance and maximize productivity potential. SMMC leadership has embraced the productivity tool and has seen dramatic improvements.

“With hospitals looking to do more with less, productivity monitoring has given us the tool to accomplish this,” says Carol Drozd, St. Mark’s Medical Center, Chief Operating Officer. “Department managers now are able to review staffing on a daily or weekly basis and flex staff when volumes are low, thus avoiding layoffs.”

Since St. Mark’s began using the CHC Productivity Tool™ in FY 2009, they have seen a decrease of five percentage points in salaries and wages as a percent of net operating revenue.

CHC Consulting’s productivity assessment includes both onsite and desk top reviews as listed below:

• Review clinical and nonclinical cost centers.
• Analyze current time management capture processes.
• Develop productivity standards for each cost center.
• Use CHC Productivity Tool™ to calculate target Employee Equivalent per Occupied Bed (EEOB or FTE/AOB).
• Train hospital management on the new CHC Productivity Tool™.
• Establish reporting process to utilize the tool on a bi-weekly payroll schedule.
• Conduct a follow up measurement at 90 days to review utilization of the tool.
• Provide ongoing support and annual update of standards toward best performance metrics.

The CHC Productivity Tool™ is web-based and customized for each client.

To learn more about the productivity assessment and CHC Productivity Tool™, contact David Domingue at ddomingue@communityhospitalcorp.com or visit the Productivity Assessment page on our website.