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Why Capacity Management Is Critical To Hospitals’ ACA-Era Success

Posted By Jennifer Jefferson On December 17, 2012 @ 4:12 pm In All Categories,Hospitals,Payment | 1 Comment

If you ask any hospital executive to talk about his or her top five priorities, he or she will likely reply that reducing expenses and increasing efficiency is one of them.  Interestingly, a large percentage of these executives consider effective capacity management to be a lesser priority, when in fact it is one of the bigger levers that can be pulled to get cost out, while also having positive impact on physician relations, the patient experience, and quality of care.  And with an estimated 32 million new patients entering the system under the Affordable Care Act, the organizations that get their operations in order now will be positioned not only to handle any undesirable consequences, but also to capitalize on strategic growth, versus being a victim of what comes in the door.

Recent survey data [1] shows 54 percent of hospital executives report that existing patient flow feels congested and that they expect their organizations to grow over the next five years.  Yet, nearly the same percentage (48 percent) say they are comfortable with their current number and mix of beds.  One problem is that many organizations aren’t in the habit of understanding the root causes of bottlenecks that occur in daily operations: surgical schedules blocked but not utilized; delays in appointment times that equate to loss in market share; and clinicians swamped one day and standing around the next.  Understanding these questions are a logical first step in building a foundation to both accommodate and ultimately seek out the right kind of future growth.

About 70 percent of U.S. hospitals don’t make the best use of existing resources [2], including physical space, infrastructure, staff, and equipment, according to a GE Healthcare Performance Solutions analysis using the Institute for Healthcare Improvement’s Flow Diagnostic tool [3].  This essentially means that hospitals “feel full” when they aren’t — symptoms of congestion that potentially lead to costly mistakes like building new facilities or opening expanded treatment space that may not be necessary. Most experts estimate individual hospitals are missing out on between $2 million and $20 million in cost opportunity, and a significant percentage of this can be achieved through efficient capacity management.

This lack of efficiency is something most hospitals and health systems can ill afford, considering that, according to Moody’s Investor Services, the federal government will cut their reimbursements by more than $150 billion over the next 10 years [4] as patient volumes swell with expanded health coverage and 78 million baby boomers approach retirement.  Compounding those strains, median hospital revenue growth hit four percent in 2010, the lowest level seen in two decades, suggesting that building new facilities and hiring new physicians is not an option for most hospitals.

Going forward, better management and utilization of fixed costs and existing resources will be necessary for survival for many healthcare systems from a financial and patient care standpoint.  Methodically and systemically improving patient flow and reducing the controllable symptoms of variation enables hospital leaders to relatively quickly make sustainable change that can act as an alternative to building more operating rooms or a new inpatient tower, or for those organizations that are not in a growth situation, to prevent cuts that might cause unintended consequences to patients, physicians, or staff.

Take this example of a basic capacity management strategy in action:

A 2011 Journal of Hospital Medicine study [5] showed hospital occupancy levels tend to peak on Tuesday, Wednesday, and Thursday. Many hospitals operate at 100 percent capacity on those days, because elective surgeries are highest and discharges typically lower.  But institutions can preemptively relieve those surgical schedule bottlenecks by targeting Monday and Friday time slots for elective surgeries and scheduling procedures that require less recovery time mid-week.  This is one of many strategies that — when combined — can significantly reduce perioperative inefficiencies and enable hospitals to treat more patients in less congested environments without undertaking any seismic financial investment.

An example is Ogden Regional Medical Center in Ogden, Utah.  Last year, Ogden Regional reported it was challenged to meet a growing demand in Northern Utah for orthopedic, cardiovascular, robotic, neurological, and urological procedures, with 89 percent of its surgical schedule blocked.   After Ogden analyzed and restructured surgical schedules and governance of the OR, procedural volume increased by 11.6 percent, OR utilization by five percent, and on-time starts for surgeries rose from 30 percent to 75 percent, enabling more patients to receive their medical treatments at Ogden.

In addition, St. Luke’s Episcopal Hospital in Houston, Texas is currently analyzing and reforming capacity management in its inpatient and critical care units, emergency department, operating rooms, cath lab, and ancillary services departments to boost efficiency and reduce cost.

With more provisions of the ACA slated to take effect next year, it’s incumbent upon other hospitals to take similar action now to be better prepared for the road ahead.


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URL to article: http://healthaffairs.org/blog/2012/12/17/why-capacity-management-is-critical-to-hospitals-aca-era-success/

URLs in this post:

[1] Recent survey data: http://www.healthleadersmedia.com/content/SPR-286935/Is-Your-Organization-Incapacitated-Moving-Towards-A-Process-View-Of-Healthcare-Capacity

[2] About 70 percent of U.S. hospitals don’t make the best use of existing resources: http://nextlevel.gehealthcare.com/WP_PCCM_MGMNT%20201_2011_final.pdf

[3] Institute for Healthcare Improvement’s Flow Diagnostic tool: http://nextlevel.gehealthcare.com/self-assessment-tools/ihi-patient-flow-diagnostic-tool.php

[4] according to Moody’s Investor Services, the federal government will cut their reimbursements by more than $150 billion over the next 10 years: http://www.beckershospitalreview.com/racs-/-icd-9-/-icd-10/moodys-lisa-goldstein-5-major-trends-for-non-profit-hospitals.html

[5] A 2011 Journal of Hospital Medicine study: http://onlinelibrary.wiley.com/doi/10.1002/jhm.819/abstract