Analysis and optimization of Healthcare Operation

Every Healthcare Organization is willing to observe, analyze and  optimize its healthcare Process. Organization can monitor its Performance through well-defined performance measure or say Key Performance Indicator ( KPI)  .

A hospital key performance indicator (KPI) is a quantifiable measure that monitors the quality of healthcare provided by the hospital and measures the overall success of the business. If goals are the destination, KPIs are the road signs. These road sigh keep Organization on track and  let you know if you’re headed in the right direction.

Where These KPI helps organization to assess its own performance, it helps to compare their performance with other Healthcare Organization. With the help of these KPI An organization can make Projected future plan and focus on the key areas of improvements. By monitoring its plan, one can bring transparency and accountability in healthcare operation and lead to better overall delivery of care.

While analyzing KPI,organization must ensure up-to-date and high quality data  . If data is incorrect it will make all efforts futile and will not solve the purpose. Broadly we can classify these KPI in two parts. Operation Healthcare KPI and Financial KPI

Operational Healthcare KPIs

Operational healthcare KPIs focus on the performance of the healthcare Organization. By monitoring these KPI,  Organization get insight in its internal workflow and identify its  ineffective practices. These KPI help a organization to   optimize its operational costs and increase operational efficiency.  Following are some major Operational healthcare KPI

Average Length of  Stay ( ALOS)

Length of stay is a term which is used to calculate the number of days a patient stayed in a hospital for treatment. ALOS is calculated by dividing total inpatient days by total discharges.

In the month of April -22, Four patients admitted in XYZ hospital named Ram, Shyam, Kumar, Anguri. Ram is admitted on 4th april 2022 and discharged on 10th april 2022. Shyam is admitted on 2nd april 2022 and discharged on 13th april 2022. Kumar is admitted on 15th april 2022 and discharged on 20th april 2022. Anguri is admiited on 22nd april 2022 and discharged on 30th april 2022.

Bed Occupancy Rate (BOR)

BOR is a measure of utilization of the available bed capacity in the hospital. it indicates the percentage of beds occupied by patients in a given period of time. It reflects efficiency in the use of hospital bed

We can understand with an Example.  In XYZ Hospital   4000 inpatients days were served in a hospital with 150 beds in Year 2021. Here BOR will be 7.3% .

BOR (% ) = [4000 / (150 x 365)] x 100= 7.3%
Take one more Example : During April 22, In 500 beds ABC Hospital  Total number of inpatients were 18692  ,Total discharged were 16913 and Length of stay  was 12785. Here BOR of April 22 = (12785) / (500) x (30) = 85.23%

Bed Turnover Rate ( BTR)

This KPI help to know the average duration of each patient’s stay. If BTR is low one should  check whether Patients are fully taking care of and not been discharged without  curing patient completely , While  high BTR shows if  patient care  is being  neglected leading to a longer stay than necessary. This KPI also help to know how effective the room cleaning process is  to prepare the room for the next patient One should  ensure  that a high cleaning standard is adhered to because consequences of cross-contamination between old and new patients could be terrible . Therefore, hospitals should aim to have a balanced turnover rate .

• In XYZ hospital, there were 2358 discharges in the year 2021
• Number of beds in that hospital was 300
• Hospital Bed turnover rate = 2358/300 = 86

Patient Wait Time

Patient wait time is an average amount of time a patient must wait between checking in and seeing a Doctor. Longer wait times for patients shows that  staffing and scheduling is not Proper. Patient wait time is important indicator of quality of services offered by Hospital.

Average Number Of Patient Rooms In Use At One Time:

this KPI Help to know  how efficiently Hospital spaces is being utilized , One can  know if space is not being utilized/ over utilized  or  lack of space is there in Hospital. On the basis of the one can plan and manage the space.

Staff-to-Patient Ratio:

This KPI  indicates the ratio between healthcare professionals (nurses, doctors, etc.) and other staff members (administrative personnel, maintenance staff, etc.). For efficient running of a hospital there must be a good balance between medical professionals and other staff members. Low ratio indicate if patients is not getting sufficient care , very high ratio indicate issues in Operation Management of  hospital. Some countries even legally enforced staff-to-patient ratio to ensure a minimum quality of care to Patients.

Use of Medical Equipment:

Monitoring use of medical equipment will ensure that the hospital’s machines are up to standard and to determine if equipment becomes outdated or obsolete. It also help to plan or schedule maintenance for Hospital Equipment .One can plan if   advanced medical equipment needed for  your hospital. This very important KPI as Medical Equipment plays a vital role in a healthcare organization if any organization do not take care of maintenance of Medical Equipment and not plan for new requirement,it will lead to high maintenance costs and wasted manpower

Patient Follow-Up Rate

This healthcare metric measures the percentage of patients who are followed up by the Hospital (nurse, doctor, etc.) after their stay in the hospital.  Where Follow up to Patient increase Patient Satisfaction it decrease hospital’s readmission rate

Readmission Rates

​Readmission of patients may  have a positive impact on hospital revenues, but it is not good for Hospital reputation and it also impact Hospital Future cash flow . Hospitals will receive lower reimbursement from Medicare if the readmission rate is excessive for certain conditions

Overall Patient Satisfaction

 This is one of the most important healthcare KPIs in measuring the quality of your healthcare services. A low patient satisfaction rate means that your healthcare facility isn’t providing proper Medical care to  patients, It impact Hospital reputation and loss of Future patients and Profit.

Financial Key Performance Indicators for Hospitals

A hospital must be financially strong to provide quality services to its patients else wouldn’t be able to  satisfy its patients and it will make  vicious cycle for a Hospital. Financial KPI are most important KPI and organization must be track these KPI Periodically .Financial  KPI gives true picture to organization , reveal areas of improvement, and help to compare performance with  competitors or the industry as a whole.

Following are some major Operational healthcare KPI

Patient Drug Cost Per Stay

There are many drugs having high price tags. Medical staff need to take care of cost of medicine while prescribing to Patient as there are many patients who  can’t afford to pay for those medicine  or their insurance doesn’t cover those medicine , so if medical staff does not take care of cost of medicine while prescribing it to Patient  ,  this could in turn result in a higher-than-expected write-down for the hospital if it is not able to collect payment.

Average Treatment Costs

 This healthcare metric indicates the efficiency and effectiveness of your hospital’s treatments. For example, you could measure the average cost of fertility treatment in your clinic and see how it compares to other clinics. If Treatment Costs is significantly higher, it means your organization  need to optimize its spending to lower the treatment cost. In such way this KPI is useful to  reduce hospital costs. Average treatment cost should be further broken down by age group, condition, patient history and risk factors to identify reason of excess cost.

Average Cost per Discharge

This healthcare KPI help to know the average cost spent for patient’s Treatment . By monitoring this KPI , one can review which areas of care (such as cardiac care, cancer care, emergency care, etc.) are the most and least profitable, If any areas of care is least profitable , organization should find out the reason of non/ low profitability and take necessary steps to make it profitable , if is profitable than Hospital  should  make efforts to increase its market base. In such way this KPI   help an organization to identify the areas of cost control and specialties or department where hospital should focus

​Patient Acquisition Cost (PAC)

The PAC is the amount of money spent to convert a potential lead into an actual patient. This KPI help to understand how economical and effective it is to acquire new patients in to Hospital.

Average Revenue Per Occupied Bed (ARPOB)

ARPOB indicates the percentage of beds occupied by patients in a specific time period. Average Revenue Per Occupied bed (ARPOB) helps to find the revenue we receive for every occupied bed. This is an important KPI as the ARPOB trend help to understand  internal Month to month or Quarter to quarter  profitability trend. One can also compare its ARPOB with its area’s Hospital and know the competitiveness in the Market

If in XYZ Hospital  an inpatient revenue of 5 Lacs and the number of days the hospital beds have been occupied is 12 days, Average Revenue Per Occupied Bed = (Inpatient Revenue / Occupied Bed Days) = 5 / 12 = 0.4167 Lacs

Revenue Per Patient

The revenue generated per patient, per day it admits for treatment in a Hospital. This KPI Help to know the  efficiency with which hospital units conduct their operations.

Operating Margin and Net Margin

​Hospitals must ensure that it can pay for wages, operating costs, supplies, and other expenses. It is important not to confuse hospital total margin and operating margin KPIs. Total margin is the difference between total revenue and cost as a proportion of total revenue. While Operating margin is the difference between total operating revenue and cost as a proportion of total operating revenue. Operational healthcare KPIs focus on the performance of the healthcare facility. Improving on these metrics will help your hospital or clinic increase operational efficiency, in turn optimizing operational costs and increasing patient satisfaction. Where Operating margin help to know the Operational performance of the healthcare facility, Net Margin KPI helps in making long- and short-term financial decisions.

Employee compensation & Professional Fees

Health care industry is manpower oriented Industry. Employees’ wages and Benefits make a major cost for a Healthcare Organization. So managing this cost a big challenge to one healthcare organization. While employee wages are an expense to healthcare providers, the expense also comes with an anticipated benefit. Blindly working to decrease this figure may also end up decreasing the benefit it provides. If this healthcare KPI is very low, you may be saving financially at a cost of lower quality services due to low staff motivation, low staff retention rate, or low staff-to-patient ratio so  Before creating your KPI for employee wages, consideration should be given to how this will impact the organization. One should ensure that it is not  underpaying or overpaying your employees.

Insurance Claim Processing Time

Different insurers can take varying amounts of time to issue payment to your facility  but Hospital should ensure that it submit all documents properly and on time and reply in case of any query on priority  so that insures make the payment on time . If insurance claims are processed faster and with a higher success rate, patients incur less cost and are therefore more likely to return to the hospital. A low processing time and cost signals an efficient internal structure and a streamlined workflow.

Claims Denial Rate

Below are the common reasons claim denial issue arise at Healthcare facility.

1. Use of incomplete or wrong  billing codes

2. Missing information like  missing date of an accident etc

3. Claim not filed within the allotted time

4. Inaccurate patient information

5. Not following the preauthorization guidelines for insurers.

6. Duplicate claim submissions for the same treatment for the same patient

7. Inaccurate insurance ID number on the claim

8. Non-covered services

9. Services are reported separately

To reduce your percentage of denials, you should review them on a quarterly basis, determine where the problems are, how they can be avoided and train staff or make changes to your workflow to improve your reimbursements. A low claim denial rate shows that the hospital is not buried in fruitless paperwork and is able to prioritize its patients. Typically, institutions should be looking for a claims denial rate below five percent.

AR Turnover

In Healthcare organization almost 80% billing is credit billing. Healthcare organization receive their payments from TPA , ESI, CGHS, ECHS Penal , respective state government  penal or Pvt Companies . This performance metric is used by management to determine how efficiently the care facility is collecting its receivables (money). A high AR turnover indicates that payments are being collected in a timely manner, while a low turnover indicates collection issues.

Days in Accounts Receivable

The AR turnover ratio is an efficiency ratio that measures how many times a year (or set accounting period) that a company collects its average accounts receivable. To calculate the AR turnover down to the day, divide your ratio by 365. This is the average number of days it takes customers to pay their debt

Days in Accounts Receivable is the average number of days a practice takes to get paid for services provided to its customers. Faster the returns the better an organization is doing at generating revenue.

Days in AR can range from 30 days to 120 days or even more but having a number less than 36 is the ultimate goal for all specialties. Days in A/R are reflective of an organization’s revenue cycle efficiency. Accounts Receivable in the healthcare industry is one of the key factors affecting an organization’s cash flow. It is not uncommon for practices to get help from third-party or offshore medical billing service providers to recover their lost revenue.

Bad Debt

One can see the effectiveness of collection efforts through the Bad Debt value.  This KPI also help to determine the effectiveness of pre-service financial counseling .Higher Bad Debt shows inefficiency in previous areas of the revenue cycle, including POS collections and financial counseling. A lower bad debt average indicates efficiency in the revenue cycle process, especially with regard to patient collections.

Conclusion

KPI’s makes the culture of Performance in Organization which supports and motivates all of those destined to do better than one that does not.

Employee morale, culture and capacity all contribute to performance of a organization. With the help of KPI’s Organization simplify its performance management by allowing everyone to not only see what they’re doing, but what others are doing as well. Tracking KPIs acknowledge employees’ hard work and secure their feeling of accountability and responsibility. KPIs are also important because they keep Business objectives at the forefront of every decision making.