Study pinpoints savings areas for redesign

Benchmarking by functional groups for big picture

With limited time and resources, reengineering teams know it simply isn’t practical to redesign every hospital process or system. So what areas of health care can benefit the most from operational re-engineering?

Bob Goodyear, acting president of LUMEN in Atlanta, shares his insights from the health care reengineering company’s study, Charting Re-engineering Potential.

The benchmarking study, which includes 23 hospitals, showed the "dramatic savings potential that exists through properly implemented operational re-engineering strategies," he says.

Instead of calculating indicators for economic, quality, and service at just the hospital level, LUMEN also measured indicators within functional groups — collections of related departments and cost centers based on their primary service or function. For example, the functional group for the laboratory services includes all departments associated with blood and body substance testing, such as chemistry, hematology, pathology, specimen collection and so on.

Such functional groupings enhance validity of benchmarking, says Goodyear. "Comparing individual departments or cost centers between organizations can be misleading and lead to false conclusions and recommendations," he says. For example, in some hospitals, surgical services may be consolidated in one department; in others it may be spread among several administrative units.

By benchmarking to functional groupings, re-engineering professionals can take the larger view, he adds. "You can step back from the myopic view of individual departments and consider the big picture," he says. "It enables you to see all aspects of how a particular function is performed and evaluate the resources needed," he explains.

Also, the Oak Brook Terrace, IL-based Joint Commission Accreditation of Healthcare Organi-zation is shifting its focus from departments to major functions.

1. Infrastructure.

This indicator measured the percent of infrastructure wages to total wages.

"It’s an important re-engineering measure because it reveals how much of every payroll dollar is spent on processing people, paperwork, and information," he says.

These functional groups showed the most opportunity for improvement:

o materials services, with an average savings of $308,000;

o food/nutritional services, with an average savings of $304,000;

o patient billing services, with an average savings of $268,000.

Rehabilitative care, nursery care, and GI studies services showed the least potential for improvement, with savings averaging $14,000, $15,000, and $35,000, respectively.

2. Management.

This indicator measured the percent of management wages to total wages in order to show how much of every payroll dollar is spent on managing other employees, including planning, budgeting, and supervising.

The following functional groups showed the greatest potential for improvement:

o laboratory services, with an average savings of $231,000;

o organizational services, with an average savings of $214,000;

o surgical Services, with an average savings of $168,000;

Patient transport services, telecommunication services, and community wellness showed the least potential for improvement with savings averaging only $21,000, $23,000, and $24,000, respectively.

3. Productivity.

This indicator measured the capacity for work as shown by such as tests or procedures performed, or doses filled, or patient visits, per $1000 of wages.

The greatest potential for productivity savings were in these functional groups:

o pharmacy services, with an average savings of $1,468,000;

o laboratory, with an average savings of $979,000;

o physical Rehab, with an average savings of $891,000.

The functional groups with the least potential of savings were process/work improvement services, cardiac rehab services, and telecommunications services at $56,000, $59,000, and $128,000, respectively.

Cutting costs saves millions

The study also calculated potential redesign savings hospital-wide by comparing the percent of management payroll dollars to total payroll dollars. The 12 hospitals with above-average infrastructure expenditures could save an average of $1 million, or 2% of their wages; if they brought their infrastructure expenditures down to the sample average of 9.7% of total wages, the study shows.

The 11 hospitals with above-management expenditures could also realize a million- dollar-savings if they succeed in decreasing their management expenditures to 12% of total wages, the study shows.

In addition, the study examined the redesign impact of decreasing length of stay. (The LOS for the 21 hospitals that submitted data ranged from 3.6 days to 7.8 days.)

"Looking solely at the inpatient areas and analyzing only employees whose workload directly ebbs and flows with patients, we found that reducing LOS to an average of 5.0 days would generate an average savings of $2.1 million for nine of the hospitals," he says.

If those same hospitals reduced their LOS to meet the best-in-class (3.6 days), the average savings would increase to more than $6.4 million.


LUMEN, 1355 Terrell Mill Road, Building 1482, Suite 200, Marietta, GA 30067. Telephone: (800) 877-7322.