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Management assumes that hospitals want to continue improving the ratios of outputs to inputs; to become more efficient and cost-effective. Achieving this requires a plan for Improving productivity.
Productivity is to continuously find ways to improve the ratio of outputs to inputs while enhancing service levels, outcomes, and other performance metrics. Productivity management assumes that hospitals are always looking for improvements in process and performance and that maintenance of the status quo is insufficient.
Given the current environment where healthcare provider payments are at best static and trending downward (Keckley, 2014), hospitals that maintain the status quo are in fact falling behind and likely hurting their long-term financial viability.
Productivity measurement should be simple but comprehensive. If multiple factors more accurately describe the cost behavior and resource consumption of a process or function, then all such data should be included in the ratios.
Knowingly simplifying the calculation, at the expense of meaningful and reliable data, violates this comprehensive principle of productivity. In addition, the use of scorecards that reflect quality and subjective views of performance (such as customer satisfaction, errors, or rework) must be taken into consideration to ensure a comprehensive view of performance.
Four ways to improve productivity
1. Output expands with no change in inputs.
2. Output increases with a decrease in inputs.
3. Inputs are reduced, downsized, or streamlined with no change in outputs.
4. A technology or process breakthrough eliminates some inputs with no change in outputs.
The best effective way for improving productivity is by introducing technology. New software and systems help automate processes and remove entire tasks and activities. In electronic commerce, systems can automate the entire purchasing and receiving process. The result is a change in the total productivity ratio through automation, which changes the input cost structure relative to the outputs (James R. & Helton J,2016).
Three major variables of productivity
Labor is the basic element, defined as the productive work being performed by employees. Labor has many dependencies, such as the education and skill level of the employees performing the work, as well as motivation, work, and leadership.
Capital is the second factor of production; it represents investments in assets to offset labor or assets used to produce even more assets.
Capital investment in health care is typically focused on investments in hardware, software, computer services, automation, and new equipment and devices, among others.
In most well-run hospitals, investment in capital is done by performing ROI analyses to ensure that the capital to be deployed will ultimately change the productivity ratio, either by increasing output or decreasing the level of inputs required.
Management is both a science and an art, but it requires someone to make decisions that will help drive productivity increases.
Management makes the basic decisions about staffing levels and mix, compensation, and motivation of employees, locations to serve, technology to put in place, and where to focus efforts.
Management decides on the trade-off between capital and labor and which to invest more heavily. Utilization of capital and labor, rather than just investing in additional units of both, is one of management’s key tasks.
Principles of productivity management
There are FIVE basic principles for measuring and managing productivity that must be applied.
Measurement systems must be:
Consistency is a requirement in productivity management. Consistent means to do the same things the same way repeatedly over time. Hospitals need to measure activity (output) and resources (inputs) consistently to make trend comparisons.
If a hospital measured both outputs and inputs in September but forgot for 3 months and then picked it back up in December, the results are inconsistent and therefore problematic. Similarly, if a hospital changes the formula or basis for calculating costs, then the results are not reliable. What if December, a holiday month, skewed the output so that it could not safely be compared against September?
Managing productivity means measuring consistently over time, building the tracking process into the overall management workflow, and then sticking with it over time. Consistency also means adhering to the same units of measure. Consistent use of the same definitions month after month allows comparability between numbers.
If one month a department uses all factors as inputs and then the next month uses only labor costs, the numbers are not consistent and comparable and therefore cannot be relied on for meaningful results.
Reliable means that the productivity figures yield stable and uniform results over time. For this principle to be upheld, hospitals must ensure that systems used to generate volumes and costs do not change, are measured over the same time period (i.e., end of each week or at the month-end close), and consider all resources.
For example, one hospital department measuring labor productivity chose not to count a specific supervisor’s time in its calculation for inputs because it decided, she played a large role in marketing and not as much in operations. Making the data subjective and open for interpretation creates data consistency and reliability problems, and therefore the results can easily be questioned. (James R. & Helton J, 2016)
Measurable refers to how inputs and outputs are readily observed and calculated. A manager who oversees multiple functions, such as advertising or market research, may have less measurable work attributes. The use of tracking systems to manage all inputs and outputs is necessary.
A payroll clerk who processes paychecks clearly has measurable outputs (number of paychecks processed). Often, payroll systems are used to track hours, general ledgers are used to track expenses, and other departmental systems are used to track outputs.
Ensuring that these systems are in place, routinely printing reports with data that occurred during specific time periods, and confirming that the data are complete and accurate are vital to having measurable, reliable, and consistent results.
Productivity management must ensure that the business workflow is readily measurable and can consistently be calculated.
It means that data and numbers are used for measurement purposes. Subjective or qualitative assessment does not translate well into productivity metrics, which require a numerical expression of value to calculate ratios.
There must be secondary ways to measure the quality of service, and this is equally as important as productivity. To remain focused on cost and efficiency, though, productivity management must adhere to quantitative calculations.
Productivity metrics are most useful and most actionable if they are applied to a specific business process, unit, or service line, the most common high-level metrics for analyzing hospital productivity examine one of the following:
- Number of nurses or physicians per bed. Hospital man hours per discharge or visit.
- Capital cost per discharge.
- Total general service cost per discharge.
Most of these metrics, however, are purely activity indicators, which are different than productivity indicators.
Activity Indicators merely describe the volume of work; they do not accurately capture all inputs. It is important that all figures such as these are adjusted for both the severity of the cases served and the prevailing wage rate in the area to avoid any data biases.
Case mix adjustments are necessary because patient acuity and severity of the illness dictate the intensity of the service and the number of resources necessary to treat the patient.
Similarly, wage rate fluctuations arbitrarily make certain geographic areas appear more costly, and thus less efficient, when in fact these figures are partially dependent on the prevailing local salary rates, which are outside of the hospital’s control. In such cases, it may be useful to use units of input, such as labor hours, so that biases from variations in cost can be avoided.
Process-model for improving productivity factors
Regardless of whether these metrics are high-level and not immediately actionable, it is an initial attempt to evaluate one hospital’s productivity relative to others.
If a hospital evaluates its facility-wide productivity and finds that it is less productive than its peers, then the hospital will be more inclined to drill down further into each department and business process to find which area is contributing more to the productivity shortfalls and develop action plans for targeting improvements in the right departments.