Thinking Outside the Blocks: How Directors of Surgical Services Can Shore Up Balance Sheets

Introduction

When COVID-19 cases began to grow in the United States, hospitals and ambulatory surgery centers (ASC) suspended elective surgeries to prepare for the influx of coronavirus patients and protect surgical patients from potential exposure to the virus. However, this came at a tremendous cost. A May 2020 report from the American Hospital Association estimates that between March and June 2020, canceled surgeries, elective procedures, and outpatient treatments resulted in a $161.4 billion loss in earnings. A pause on these types of procedures—which comprise a majority of hospital revenues—has forced organizations to closely evaluate their balance sheets. This has created opportunities to improve expense management and explore ways to generate additional sources of revenue.

As local economies reopen and healthcare facilities across the country begin to resume elective surgeries, major challenges lie ahead for Directors of Surgical Services.

  • How to develop strategies to efficiently ramp up revenue?
  • How does profitability factor into case selection and priority?
  • Are there surgeries that were draining money from the service line pre-COVID?

Three experts will share their expertise and offer solutions that will help hospitals reenter the market, become solvent, and remain viable in a post-COVID-19 world.

Case Cost Analysis

The first step, according to Stacy J. Roberts, MBA, BS, RN, is to perform a case cost analysis. Over the last 15 years, Roberts has held both permanent and interim director positions in Emergency and Perioperative services in hospitals across the country. The purpose of a case cost analysis is to determine which types of cases have the most significant contribution margins.

“During my perioperative leadership across many organizations, I’ve found that cost case analysis is available, but often not reviewed to determine action,” Roberts says. “A case cost analysis gives you the data that you need for next steps.”

Taking stock of expensive unused inventory in the operating room (OR) and staff overtime are also critical pieces of information to have, says Carla Knight, BSN, RN.

“Unless you perform implants frequently, you should be spending around $250,000 per room for total inventory and surgical services,” Knight says. “For instance, you may find a high dollar item that hasn’t been used in a year. You may be able to return it to the manufacturer for a rebate, credit, or refund.”

At one of her past interim assignments, Knight found that incremental overtime was costing the hospital almost half a million a year. In a small gastrointestinal (GI) department of two staff members, both were clocking out between 10 and 15 minutes past the end of their shifts daily. Once their shifts ended, they were on-call and being paid four hours of double time. Knight’s audit revealed that turnover in-between cases were lasting close to two hours.

“When I find things like that, most of the time they have no idea that they’re costing the organization so much money,” Knight says. “Saving money in these small ways is significant because you can put that money back into the capital budget and perhaps buy a piece of sorely needed equipment next year.”

The priorities of the CEO for a healthcare organization are the same as any other business: to grow revenue. That means the Director of Surgical Services will need to have the ability to have in-depth discussions with the CEO on fiscal matters.

Assemble a plan, but remain flexible

“Identifying what you want to accomplish within the first 90 days of your stint is imperative,” Roberts says. “If you try to swipe at 20 different problems, you’ll spin out of control. Decide on three priorities for that first 90 days so you can solve some problems and maintain those improvements. Stay focused, and build trust with your surgeons, staff, and administration.”

The Director of Surgical Services will need to manage the substantial backlog of surgeries, which is akin to every surgeon returning from a two-month vacation. The pressure to get the OR up and running again as quickly as possible will be immense. Richard Tomlinson, Ph.D., RN, founder and CEO of Nuclei Health Consultancy, says remaining flexible is key, while still working from a plan, will prevent setbacks.

“The idea here is, initially, to be creative around starting back up surgical services,” Tomlinson says. “Orthopedics cases are profitable, but they are high cost. Look at other cases that are profitable, but that have high turnover, like ENT (ear, nose, throat) cases. Another short-term strategy would be to add a second shift.”

Knight adds that a surgical protocol should be developed on what cases to prioritize. Cancer cases might present greater importance over a joint replacement.

“We prioritize each joint replacement case. Is someone in excruciating pain or having mild discomfort twisting while golfing? We also have to decide what risk factors we’re willing to accept and then reassess in 30 or 60 days. Maybe we do preoperative testing the morning of surgery, instead of 72 hours before. You have to trust the science and then regroup when you need to.”

Improve Operating Room Efficiencies

In many ways, an OR functions like an apartment complex. Penthouse suites are generating more money, while smaller units generate less. But you need every unit filled to generate a profitable enterprise. According to a study published in JAMA Surgery in 2018, the expense of a fully functional OR room is estimated to be $37/minute. If you prioritize large cases in the OR but still have smaller rooms left empty, you are not maximizing revenue potential.

“An open OR room generates expense, so we need to get cases in there,” Roberts says. “But it is not enough to have volume, the rooms need to be profitable. If spine case implants are costing $30,000, which is above the $9,000 to be reimbursed, we’re not able to pay the rent. We need providers that are proficient in their craft and use implants from vendors we have negotiatable contracts with.”

Improving first-case-on-time (FCOT) starts is also crucial.

National benchmarks tend towards 75% as the low target for FCOT,” says Roberts. “Identify specific expectations for surgeons, anesthesiologists, and staff related to specific arrival times. Ask your Chief Medical Officer to champion this metric and partner with you to make improvements.”

Tomlinson believes this unprecedented time can be seen as a reset of sorts for surgical services.

“We should be looking at long desired and needed improvements and care team organization to determine what staffing levels are needed or what roles need to be added or changed. This is a good opportunity to leverage this pause to the benefit of efficiency and possibly set the stage for a new culture. The worse thing a hospital can do is open the doors and it’s ‘business as usual.’”

Covid-19 testing has been added to preoperative testing, which presents a crossroads for Surgical Services leadership when considering profit versus safety: move forward with the procedure or reschedule and add to an already bloated logjam?

“These are decisions that will be at the discretion of hospital administration and physicians,” says Knight. “You need to carefully consider all risk factors for both patient and staff.”

Looking to the Future

In hindsight, Tomlinson believes that there were alternatives to suspending most elective surgeries. One option could have been to designate a primary facility to perform surgeries within the healthcare system market.

“Hospitals had to follow recommendations. But the best approach is to already have an action plan in place, should this unfortunate situation ever happen again. I predict that developing strategic, long-term plans now will be mandatory in the forthcoming new normal.”

Expanding on what such a plan may look like, Tomlinson says that hospitals should develop and prepare comprehensive plans specifically centered on effective pandemic responses. Part of that plan would include vetted operational procedures geared toward controls that allow their OR to function using a “business prioritization” approach. This will allow coverage of urgent/emergent surgeries and elective cases based on a defined matrix of factors, such as controlled volume and profitability.

Tomlinson also foresees many health organizations could consider incorporating a new addition to the C-Suite: Chief Infection Control Officer. Traditionally an area covered by an infection control nurse, he believes this role will be expanded and elevated.

“I see the day where hospitals and ASC’s will have to modify their facilities for this new normal, such as eliminating patient and family waiting areas. This will require a holistic approach that will involve clinicians, engineers, and architects. Effective planning strategies would address workflows, patient throughput, and how to prioritize surgeries, such as non-urgent procedures”.

Conclusion

Enormous opportunities often spring from enormous challenges. The task before a Director of Surgical Services is to maintain viability during an international health crisis. Paths forward are demanding, but not impossible:

  • Audit current costs, inventory, OR efficiencies, and staff
  • Develop a solid plan, with room for flexibility and creativity
  • Directors of Surgical Services need substantial business acumen
  • Brainstorm systemic changes to address future health crises

 

Subject Matter Experts:

Stacy J. Roberts, MBA, BS, RN; Richard Tomlinson, Ph.D., RN; Carla Knight, BSN, RN.  

Find the Right Talent

To learn more about how an Interim Director of Surgical Services can help you re-energize hospital revenues post-COVID-19, contact Whitman Partners CEO, Josiah Whitman at 503.866.9497.