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Chapter 9. Productivity

Outline

- Trends in Healthcare Productivity Consequences

of PPS - Productivity Definitions and Measurements
- Productivity Benchmarking
- Multifactor Productivity
- Commonly Used Productivity Ratios
- Hours per Patient Day or Visit
- Adjustment for Inputs
- Skill-Mix Adjustment to Worked Hours
- Cost of Labor
- Adjustments for Output Measures
- Service/Case-Mix Adjustments
- Productivity Measures Using Direct Care Hours
- Productivity Quality Relationship
- Productivity Dilemmas
- Multiple Dimensions of Productivity New Methods
- Data Envelopment Analysis (DEA)
- Productivity Improvement

Trends in Productivity Consequences of PPS

- The recent decades changes in reimbursement

strategies aimed to end waste and promote

innovative and cost-efficient delivery systems. - productivity gains from PPS have not materialized

to the extent predicted. - Hospitals now employ more people to treat fewer

patients, and the increase is not accounted for

by the greater severity of patient illness in the

late 1980s and in1990s. - Although employers, insurers and public are

spending less on inpatient care, the rising use

of outpatient procedures has simply increased

costs in that area which counters the savings

(Altman, Goldberger, and Crane, 1990).

Trends in Productivity Consequences of PPS

- The constraints that force healthcare

institutions into the role of cost centers,

coupled with shifting patterns of inpatient

acuity, tight healthcare labor markets, and

society's expectations of high quality of care

are leading healthcare organizations to a

"productivity wall." When the wall is reached,

it is quality of care that inevitably is

sacrificed for the sake of productivity and

profit (Kirk, 1990). - It must be recognized that there are limits to

ratcheting up productivity. - It is not always possible to do more with less.

Productivity Definitions and Measurements

- Productivity is one measure of the effective use

of resources within an organization, industry, or

nation. - The classical productivity definition measures

outputs relative to the inputs needed to produce

them. That is, productivity is defined as the

number of output units per unit of input

Productivity Definitions and Measurements

- Sometimes, an inverse calculation is used that

measures inputs per unit of output. Care must be

taken to interpret this inverse calculation

appropriately the greater the number of units of

input per unit of output, the lower the

productivity. - For example, traditionally productivity in

hospital nursing units has been measured by hours

per patient day (HPPD). That requires an

inversion of the typical calculations meaning

total hours are divided by total patient days.

Example 9.1

Nurses in Unit A worked collectively a total of

25 hours to treat a patient who stayed 5 days,

and nurses in Unit B worked a total of 16 hours

to treat a patient who stayed 4 days. Calculate

which of the two similar hospital nursing units

is more productive.

Solution

First, define the inputs and the outputs for the

analysis. Is the proper measure of inputs the

number of nurses or of hours worked? In this

case the definition of the input would be total

nursing hours. When the total number of nursing

hours worked per nurse is used as the input

measure, then the productivity measures for the

two units are

Productivity Definitions and Measurements

- Productivity Benchmarking. Productivity must be

considered as a relative measure the calculated

ratio should be either compared to a similar

unit, or compared to the productivity ratio of

the same unit in previous years. Such

comparisons characterize benchmarking. Many

organizations use benchmarking to help set the

direction for change. - Historical Benchmarking is monitoring an

operational units own productivity or

performance over the last few years. Another way

of benchmarking is to identify the best practices

(best productivity ratios of similar units)

across health organizations and incorporate them

in ones own.

Productivity Definitions and Measurements

Multifactor Productivity. Example 9.1

demonstrated a measure of labor productivity.

Because it looks at only one input, nursing

hours, it is example of a partial productivity

measure. Looking only at labor productivity may

not yield an accurate picture.

Newer productivity measures tend to include not

only labor inputs, but the other operating costs

for the product or service as well.

Example 9.2

A specialty laboratory performs lab tests for the

area hospitals. During its first two years of

operation the following measurements were

gathered Measurement Year 1 Year 2 Price

per test () 50 50 Annual

tests 10,000 10,700 Total labor

costs() 150,000 158,000 Material costs ()

8,000 8,400 Overhead () 12,000

12,200 Determine and compare the multifactor

productivity for historical benchmarking.

.

Solution

Commonly Used Productivity Ratios

- Hours Per Patient Day (or Visit)

inpatient

outpatient

Commonly Used Productivity Ratios

Example 9.3

Annual statistical data for two nursing units in

Memorial Hospital are as follows Measurements U

nit A Unit B Annual Patient Days 14,000

10,000 Annual Hours Worked 210,000 180,000 C

alculate and compare hours per patient day for

two units of this hospital.

Solution

hours

hours

Commonly Used Productivity Ratios

Example 9.4

Performsbetter Associates a two-site group

practice, requires productivity monitoring. The

following initial data are provided for both

sites of the practice Measurements

Suburban Downtown Annual Visits 135,000

97,000 Annual Paid Hours 115,000 112,000 Calcu

late and compare the hours per patient visit for

the suburban and the downtown locations of this

practice.

Solution

hours or 51 minutes.

hours or 69 minutes.

Adjustments for Inputs

Skill-Mix Adjustment weigh the hours of personnel

of different skill levels by their economic

valuation. One approach is to calculate weights

based on the average wage or salary of each skill

class. To do that, a given skill class

wage/salary would be divided into the top class

skill salary. If RNs, LPNs and Aides are

earning 35.00, 28.00, and 17.50 an hour,

respectively Then, one hour of a nurse aides

time is economically equivalent to 0.5 hours of a

RN's time and one hour of a LPN's time is equal

to 0.8 hours of a RN's time.

.

Adjustments for Inputs

Adjusted Hours 1.0(RN hours) 0.8(LPN hours)

0.5(Aide hours)

Adjustments for Inputs

Adjusted Hours 1.0(RN hours) 0.8(LPN hours)

0.5(Aide hours)

Adjustments for Inputs

Similarly, in outpatient settings, if one hour of

a nurse practitioner's (NP) time is economically

equivalent to 0.6 hours of a specialist's (SP)

time, and if one hour of a general practitioners

(GP) time is equal to 0.85 hours of a

specialists time, adjusted hours would be

calculated as

.

Adjusted Hours 1.0 (SP hours) 0.85 (GP hours)

0.6 (NP hours)

Adjustments for Inputs

Example 9.5 Using data from Example 9.3, and

economic equivalencies of 0.5 Aide RN, 0.8 LPN

RN, calculate the adjusted hours per patient

day for Unit A and Unit B. Unit A at Memorial

Hospital employs 100 RNs. The current skill

mix distribution of Unit B is 45 RNs, 30 LPNs,

and 25 nursing aides (NAs). Compare

unadjusted and adjusted productivity scores.

Adjustments for Inputs

Solution The first step is to calculate

adjusted hours for each unit. For Unit A, since

it employs 100 RNs, there is no need for

adjustment. For Unit B Adjusted Hours (Unit

B) 1.0 (180,000.45) 0.80 (180,000.30)

0.50 (180,000.25). Adjusted Hours (Unit B) 1.0

(81,000) 0.80 (54,000) 0.50

(45,000). Adjusted Hours (Unit B) 146,700. In

this way, using the economic equivalencies of the

skill-mix, the number of hours is standardized as

146,700 instead of 180,000.

Standardized Cost of Labor.

hours.

hours.

Using adjusted hours, Unit A, which appeared

productive according to the first measure (see

example 9.3), no longer appears as productive.

Adjustments for Inputs

Standardized Cost of Labor. Total labor cost

comprises the payments to various professionals

at varying skills. To account for differences in

salary structure across hospitals or group

practices, cost calculations can be standardized

using a standard salary per hour for each of the

skill levels

.

Labor Cost RN wages (RN hours)

LPN wages (LPN hours)

NA wages (Aide hours).

Adjustments for Inputs

Example 9.6 Performsbetter Associates in

Example 9.4 pays 110, 85, and 45 per hour,

respectively, to its SPs, GPs and NPs in both

locations. Currently, the suburban location

staff comprises of 50 SPs, 30 GPs, and 20 NPs.

The downtown location, on the other hand,

comprises 30 SPs, 50 GPs, and 20 NPs.

Calculate and compare the labor cost of care,

and labor cost per visit for both locations.

Adjustments for Inputs

Solution

First, calculate Labor Cost of Care for each

location. Labor Cost SP wages (SP hours) GP

wages (GP hours) NP wages (NP hours), Labor

CostSuburban 110 (115,0000.50) 85

(115,0000.30) 45 (115,0000.20). Labor

CostSuburban 110 (57,500) 85 (34,500) 45

(23,000). Labor CostSuburban 10,292,500. Labor

CostDowntown 110 (112,000.30) 85

(112,0000.50) 45 (112,0000.20). Labor

CostDowntown 110 (33,600) 85 (56,000) 45

(22,400). Labor CostDowntown 9,464,000.

Adjustments for Outputs

Service-Mix Adjustments. Service-mix adjustment

is useful tool for comparison of, for instance,

two community hospitals that provide different

services or have significantly different

distributions of patients among their services.

The service-mix adjusted volume is weighted by a

normalized service-intensity factor.

.

Adjustments for Outputs

Service-Mix Adjustments

.

Example 9.7 Two hospitals, each with

unadjusted volume of 10,000 patient days per

month, provide only two services, S1 and S2,

requiring respectively 3 and 7 hours of nursing

time per patient day. Hospital A has a

service-mix distribution of 2000 patient days for

S1 and 8000 patient days for S2. Hospital B has

8000 days for S1 and 2000 days for S2.

Calculate adjusted patient days for both

hospitals.

Adjustments for Outputs

Service-Mix Adjustments

Solution In this case, total unadjusted volume

is simply the sum of the volume for each service

in each hospital, or Unadjusted Volume X1 X2.

.

Adjusted Volume W1X1 W2X2.

Adjusted volume for Hospital-A

0.62,0001.48,000 12,400. Adjusted volume for

Hospital-B 0.68,0001.42,000 7,600.

Adjustments for Outputs

Case-Mix Adjustments. The methodology for

case-mix adjustment is similar to that for

service-mix adjustment. Although most hospitals

rely on advanced acuity systems, each system is

based on the weight factors for the different

acuity categories. Patients in each category

require similar amounts of nursing care over a

given 24 hour time period however, across

categories the care requirements differ

significantly. For acuity, the focus is on

patients direct care requirements. The ratio

of the hours of direct care provided to the total

hours worked is another measure of productivity.

Adjustments for Outputs

Case-Mix Adjustments

Example 9.8 Unit A and Unit B (from Example

9.3), a medical care unit in Memorial Hospital,

classify patients into four acuity categories

(Type I through Type IV), with direct care

requirements per patient day being respectively,

0.5, 1.5, 4.5, and 6.0 hours. Annual

distributions of patients in these four acuity

categories in Unit A were 0.15, 0.25, 0.35, and

0.25. Annual distributions of patients in Unit

B were 0.15, 0.30, 0.40, and 0.15. Calculate

the case mix for these two units, and determine

which unit has been serving more severe

patients.

Adjustments for Outputs

Case-Mix Adjustments

Solution

.

.

.

.

.

.

Adjustments for Outputs

Case-Mix Adjustments

Once the case-mix is determined, the output side

of the productivity ratios can be adjusted by

simply multiplying volume (patient days,

discharges, visits) by case-mix index

as Adjusted Patient Days Patient Days

Case-mix index. Adjusted Discharges Discharges

Case-mix index. Adjusted Visits Visits

Case-mix index.

Productivity Measures Using Direct Care Hours

Hours of Direct Care. Hours of direct care is

an important component of productivity ratios. It

serves as a building block for other ratios.

To illustrate its development, let us assume

that patients are categorized into acuity

groupings requiring H1, H2, H3, ., Hm hours of

direct nursing care per patient day. Further,

assume that there are N1, N2, N3, ., Nm annual

patient days in units 1 through m. The total

amount of direct nursing care in nursing unit j

would be calculated as

Productivity Measures Using Direct Care Hours

Percentage of Hours in Direct Care. This is an

additional measure can be derived from the Hours

of Direct Care calculation, as the ratio of

direct care hours to total care hours.

Percentage of Adjusted Hours in Direct Care. We

also can determine the percentage of adjusted

nursing hours as adjusted for skill-mix in direct

patient care.

Productivity Measures Using Direct Care Hours

- Example 9.9
- Using information from Examples 9.3 and 9.8
- calculate
- hours of direct care
- percentage of hours in direct care, and
- percentage of adjusted hours in direct care
- for Units A and B of Memorial Hospital.
- Compare these results in terms of percentage of
- adjusted hours in direct care.

Productivity Measures Using Direct Care Hours

Solution Memorial Hospital uses an acuity

classification system with 4 categories of direct

hours of care per patient day 0.5, 1.5, 4.0, and

6.0 hours. The annual distributions of patients

in these four acuity categories in Unit A were

0.15, 0.25, 0.35, and 0.25. The annual

distributions of patients in Unit B were 0.15,

0.30, 0.40, and 0.15. Annual patient days for

Unit A were 14,000, and for unit B 10,000.

Annual hours worked were 115,000 and 112,000,

respectively.

Productivity Measures Using Direct Care Hours

Solution

.

.

Productivity Measures Using Direct Care Hours

Solution

.

Figure 9.1 Productivity and Quality Tradeoff

A

Q

QA

A

A

B

I

IA

Source Shukla, R.K. Theories and Strategies of

Healthcare Technology-Strategy-Performance,

Chapter 4, Unpublished Manuscript, 1991.

Printed with permission.

Productivity Wall?

- Quality is difficult to measure, and its

definition is ambiguous - The relationships between quantity of care

provided and quality are often uncertain

Many people confuse. . .

- The concepts of productivity, efficiency, and

effectiveness.

Its quite simple really!

- Efficiency-- using the minimum number of inputs

for a given number of outputs - Effectiveness-- refers to outputs are the

proper inputs being used to produce the

appropriate outcomes? - Productivity-- a broader concept than

efficiency refers to effective use of a given

set of resources

But efficiency has varying dimensions..

- Technical Efficiency-- relationship between

various inputs and related outputs use minimum

combination of resources for a given level of

quantity or level of care. - Allocative (Economic) efficiency-- adds cost to

the measure of technical efficiency.

Graphically,

Iso-cost

Assume NPs and MDs can be substituted. The

hospital can either use 3 MDs and 2 NPs (pt. A),

or 1 MD and 5 NPs (pt. B). Both result in the

same level of quality and can produce the

same quantity of output.

Isoquant

Are points A and B both technically efficient? Is

point C technically efficient, why or why

not? Remember what an isoquant is? Are all

points on an isoquant technically efficient?

economically efficient?

Lets expand our discussion. . .

- Data envelopment analysis is a recently developed

technique that can be used to measure the

multiple dimensions of productivity. - It allows multiple inputs and outputs to be used

in a linear programming model that develops a

score of technical efficiency.

Data Envelopment Analysis (DEA)

- DEA can be used to measure productivity of

hospitals, physicians, group practices, or any

other unit of analysis, referred to as the

decision making unit (DMU) - The technical efficiency score of optimally

producing DMUs equals 1 (and lies on the

isoquant). All other DMUs are measured against

these technically efficient DMUs, and have a

score of between 0 and 1.

DEA-- A Simple Example

Inefficiency

Supplies

Physicians P1, P2, and P3 are technically

efficient, ceteris paribus, and would receive

an efficiency score of 1. Physician 4, however

is inefficient and must reduce either visits

and or use of medications to become as efficient

as his/her peers. The amount of the reduction

necessary is called inefficiency.

4 3 2 1

P2

P4

P1

P3

LOS

0 1 2 3

DEA-- An ApplicationOzcan and Luke (1993), A

National Study of the Efficiency of Hospitals in

Urban Markets

- The study examines the contribution of various

hospital characteristics to hospital technical

efficiency - Outputs included
- Treated cases
- Outpatient visits
- Teaching FTEs
- Inputs included
- Capital
- Plant complexity
- Labor
- Supplies

DEA Applications, cont.

- Slack values allow the manager to determine just

how much the input/output mix must be changed for

inefficient DMUs to reach efficiency - DEA is also useful for benchmarking or

development of report cards, making it

particularly useful in a managed care environment

Improving Healthcare Productivity

- Develop productivity measures for all operations

in their organization, - Look at the system as a whole (do not

sub-optimize) in deciding on which

operations/procedures to focus productivity

improvements. - 3. Develop methods for achieving productivity

improvements, and especially benchmarking by

studying peer healthcare providers that have

increased productivity and reengineer care

delivery and business processes. - 4. Establish reasonable and attainable standards

and improvement goals. - 5. Consider incentives to reward workers for

contributions and to demonstrate managements

support of productivity improvements. - 6. Measure and publicize improvements.

The End

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