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The 4 C’s: Understanding your Potential for Return on Investment

Posted by Kartik Bhatt on Jun 5, 2018 12:00:00 PM
Kartik Bhatt
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Surgical Services both incur most of a hospital’s expenses (~68%) and produce most of its revenue (~60%). Clearly understanding financial opportunities within Surgical Services is paramount for an organization looking to achieving a healthy bottom line. Comprehensive knowledge of your organization’s 4 C’s can lead to significant dollars and cents.

So, what are the 4 C’s? 

  1. Case minutes – how many minutes are your operating rooms “running” (wheels in to wheels out)?
  2. Case volume – how many cases are being done in your operating rooms?
  3. Capacity – How many total surgical minutes are available based on number of operating rooms running and hours of operation.
  4. Contribution margin – how much revenue does each (average) surgical case generate for your hospital?

Combining your knowledge of the 4 C’s with our knowledge of best practice metrics of utilization and room turnover time enables us to estimate the potential revenue to be gained if your organization can achieve best practice targets. 

Constraints of the ROI model 

Understanding the centers of cost and revenue is the precursor for financial solvency. JAMA recently reported that the cost per surgical minute ranges between $36 - $37 per minute in a California acute care hospital.1 Reducing OR down time intuitively suggests that a cost avoidance would ensue. This would be true, provided we turned off the lights and sent everyone home. When in fact, significant cost avoidance may not be achieved during prime-time operating hours. Time related cost avoidance and revenue enhancement may only be achieved as follows: 

  • Increasing first case on time starts to a rate of 90%
  • Decreasing room turn over time to 35 minutes
  • Backfilling the recouped time with additional cases
  • Shrinking the schedule through verticalization with a defined room draw down and achieving a 75% adjusted utilization target

The second constraint to identifying increased return on investment opportunities is the accuracy of data input into the model. Bad data in = bad data out. 

The third constraint to the traditional ROI model is that it does not take into consideration the big dog... supply expense.   

Calculating your Potential Revenue (the return!) 

To calculate your organization’s overall potential revenue opportunity we compare the total amount of time that your operating rooms were “running” to the total capacity of how much time your operating rooms could be running if your organization met best practice targets of utilization and room turnover times.  

This calculation allows us to show you how much time your operating rooms are potentially sitting unused. Filling this idle time with additional surgical cases can lead to significant potential revenue gains depending on your organization’s surgical case contribution margin. The result of this model shows the potential return for your organization, but to achieve this return you need to understand the investment involved! 

Constructing a plan (the investment!) 

Most organizations operate under some degree of inefficiency. Identification of impendence to efficiency,  productivity, and implementing change is a substantial undertaking that does not happen overnight. It requires collaboration, a dedicated governance structure, data, and process change.  

Engagement from front line operations staff is essential to help identify choke points within the perioperative process, as well as to create and uphold consensual modifications.  

  • Identify the key stakeholders within your hospital 
  • Establish staff led performance improvement teams
  • Partner with Decision Support teams
  • Create and share repeatable, meaningful data for decision making

Making the OR more efficient is not only good for the bottom line, but also for helping to keep both physicians and patients happy.  

 1JAMA – 2018 American Medical Association April 18, 2018 – Understanding Costs of Care in the Operating Room – Christopher P. Childers, MD; Melinda Maggard-Gibbons, MD JAMA Surg 2018;153(4):3176233. Doi10.1001/jamasurg.2017.623 

Want to know your potential ROI? Check out our ROI Calculator here: ROI Calculator

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