Benchmarking beneficial for fiscal management
Productivity opportunities can be identified
When considering opportunities to improve financial performance, benchmarking may not immediately come to mind; but health care managers who have used benchmarking techniques to enhance the fiscal well-being of their institutions have found it to be invaluable.
"We use benchmarking to compare ourselves [to other institutions] in terms of productivity, fiscal performance, volume, quality of care, and patient satisfaction," says Kevin Hammeran, chief administrative officer of James Whitcombe Riley Children’s Hospital in Indianapolis.
"Benchmarking is like a signpost to me; it indicates the areas I need to go look at in more detail or depth to determine if opportunities for improvement exist if I’m outside the benchmark," adds Teresa A. Stroud, RN, MN, vice president for patient care services at Kosair Children’s Hospital in Louisville, KY.
"I start by looking at all benchmarks from both a quality and a financial framework," she continues. "Our mission as a pediatric hospital is to provide the best quality of care. That can be defined as clinical quality, but it is also entails a fiscally responsible level of care; we have to remain fiscally sound so we can continue to fulfill our mission."
"Financial benchmarking should be used as part of the performance improvement process, just like we use outcomes measures," asserts Sharon Lau, a consultant with Medical Management Planning (MMP) in Los Angeles.
Lau is quick to add that such benchmarking should not be viewed in a vacuum, noting that she pictures health care as a three-legged stool, comprised of cost, quality, and speed of service.
"Take the laboratory as an example," she says. "Your productivity/financial indicators may include cost per billed test. Those numbers could be very low, leading you to conclude you are very productive. But what if it takes six hours to get a [complete blood count] with differential results, and 50% of them have to be redone? That’s why you have to balance all three of those aspects."
You certainly can use your financial data to set targets for productivity or supply costs, she notes. "That’s what we recommend, but you need to look at all three legs, making sure you are well-balanced, and try to raise the bar in all three areas."
A wide range of applications
Both Stroud and Hammeran have employed benchmarking in a wide variety of applications. "When we first started working with MMP about eight years ago, we were really bad on supply costs per adjusted discharge," recalls Stroud.
"Since that time, we’ve worked really hard on managing supply costs. We’ve been able to use benchmarks to give us direction, and since we’ve benchmarked a group of hospitals, they’ve given us ideas as well," she adds.
"In the process, we’ve been able to make improvements; we’re now below the median [in costs]. We’re not the best, but we were the worst out of 19 to 20 hospitals, and we’ve improved to within the top five."
Stroud has utilized measures such as total expense per adjusted patient day to assess performance at her 255-bed tertiary teaching pediatric acute care facility, which is affiliated with the University of Louisville.
"We’re part of a multihospital system, so there are expectations about our performance," she explains.
"Because we’re a pediatric hospital, there’s not that much benchmarking data out there. The common practice would be to compare us to adult hospitals, so MMP [and its databank of children’s hospitals] helps me justify my staffing," Stroud says.
Competing for resources
Hammeran faces a similar challenge. "We’re an institution within Clarian Health Partners, a collection of facilities that includes the state’s only university teaching hospital, its premier private care hospital, community hospitals, and us," he explains.
"Like any other institution that is part of the system, we have to compete for resources. What we usually find is that kids are more expensive [to treat] than their adult counterparts, and children’s hospitals have higher staffing ratios [eight full-time equivalents (FTEs) per adjusted occupied bed vs. five on average for an adult hospital]," Hammeran points out.
When it comes time for the system to cut costs, the natural tendency is to treat all facilities the same. Benchmarking, however, enables Hammeran to demonstrate the distinct nature of his hospital.
"It allows us to demonstrate that an FTE cut to us has a more profound effect than it would on an adult hospital," he observes. "We have consistently seen situations where if you look at systemwide benchmarks, we’re in good shape, but compared to other children’s hospitals we need to add staff."
Stroud has had a number of other occasions to use benchmarking to address financial issues. "We put together a performance improvement team for our emergency department [ED] and redesigned the patient-flow process and developed an admission express unit. This reduced wait times for beds and offloaded workloads for the ED," she recalls.
"We saw patients in a more efficient manner, but with the redesigned staffing, we actually decreased total costs per visit," she says.
Stroud says she also has benchmarked lengths of stay data for specific DRGs. She has some advice for those looking to do the same: "Revenue benchmarks, costs, and numbers in general can be pretty straightforward, but issues can be buried as well; you can’t just look at the surface."
"During one benchmark project, I had a blip on labor costs, and I had to go down behind the numbers and study the problem. What I found was that my psychiatric unit was markedly different from those in other kids’ hospitals, so in that case, it told me the higher labor cost was appropriate," she says.
Productivity, fiscal performance
The two major areas in which Hammeran employs benchmarking are productivity and fiscal performance. His facility, a 262-bed hospital, is the only acute care children’s hospital in Indiana.
"We’re highly specialized, which is reflected in the case mix index [CMI], the second highest among the members of the National Association of Childrens’ Hospitals and Related Institutions [NACRI]," he says.
CMI, Hammeran notes, is a measure of case complexity, but it also can be used as a proxy measure of acuity.
When it comes to productivity benchmarking, "We measure most major departments in terms of worked hours per patient day, and ancillary services by worked hours per test or procedure, and larger support areas like maintenance in worked hours per square foot," he says.
"These are the most relevant indicators of actual production or workload. While they are not adjusted for acuity, to the extent you can cluster similar patients in each unit, it is helpful," Hammeran explains.
In fiscal areas, his staff look at measures such as cost per adjusted patient day and other indicators of fiscal health like profit before and after disproportionate share revenues.
"We consider operating margin, what our salary and benefit costs are per FTE, benefits as a percentage of salary, number and vacancy rates per RNs, supply expenses, and energy costs per patient days," Hammeran notes. "This way we get some sense of how we’re faring within the local market."
His competition basically is not other children’s hospitals, but community hospitals in the surrounding area, he explains.
"If we get too big a distance between us and them in our charges or in our costs per patient day, insurers will simply have patients sent someplace else," he says.
"In theory, ultimately children’s hospitals would become places where only transplants are done, and they will be the most expensive hospitals around," Hammeran points out. "To avoid that, we depend on a certain amount of bread-and-butter cases,’ and in turn, we have to be reasonable on what these cases cost."
Accordingly, his hospital used benchmarking to help determine where its rate structure should be. "We wanted to be the most economic facility we could, despite our high case mix," he says.
"Some insurers will refer patients out to us across state lines, because we are one of the best places to send patients for transplants," adds Hammeran. "But our charges are probably some of the best in the country among children’s hospitals, and our outcome survival rates are superior, so we are a very good buy."
Part of the culture
Benchmarking can be used very effectively as a way to identify opportunities for improvement in financial management, Lau says, but it’s more effective if it becomes part of the culture.
"Benchmarking is like any other tool; if you use it at the 11th hour, it will just be seen as a slash-and-burn tool," she notes. "This makes frontline managers afraid of it."
You should keep your expectations reasonable, Lau adds. "We don’t expect clients to get to the top right away. We set a reasonable target, say 80% of your ultimate goal, for the first year. Then, you can go for 90% the second year, and so on. But make it part of the whole culture of your organization; don’t wait until you have a dire situation to use it."
Despite the undisputed value of benchmarking in financial endeavors, you shouldn’t operate with blinders on, Hammeran warns.
"One of the problems all administrators have is that they spend a disproportionately large amount of time on the fiscal end of the house and not enough on clinical care indicators," he says.
"In a very real sense, if you do the right things clinically, economics will take care of itself. I prefer to look at what our measures are in the clinical realm compared to other children’s hospitals: cardiac mortality rate, catheterization complication rates, five-year survival rates, and so on. If you don’t have the best rates or you’re not in close proximity to the best, you should be doing a gap analysis to find out why other institutions have better rates than you," Hammeran adds.
Need More Information?For more information, contact:
- Teresa A. Stroud, Vice President, Patient Care Services, Kosair Children’s Hospital. Telephone: (502) 629-2923. Fax: (502) 629-7345. E-mail: Teresa.stroud@nortonhealth care.org.
- Kevin Hammeran, CAO, James Whitcombe Riley Children’s Hospital. Telephone: (317) 274-4093. E-mail: [email protected]
- Sharon Lau, Consultant, Medical Management Planning. 2049 Balmer Drive, Los Angeles. Telephone: (323) 644-0056. E-mail: [email protected].
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